Indian Business Environment

VIKASH GUPTA 8981303685
INDIAN BUSINESS ENVIRONMENT
Q.1)What do you mean by Business Environment?
Ans:Business environment refers to those natural, economic, social and political conditions within which business
environment has to work and which influence the pattern of growth of trade and commerce in economy. In other
words, business environment is the environment whose element together control and influence the overall
progress of trade and commerce in economy. When these element are favourablethey are called Congenial
Environment i.e., under this environment trade and commerce expands. If these elements retard the growth and
expansion of trade and commerce, they are called Non-Congenial Business Environment. These elements include
natural factors,political factors, social factors, economic factors, technological factors.
Q.2) Distinguish between Growth and Development?
Ans: Economic growth means more output, while economic development implies both more output and changes
in technical and institutional arguments by which it is produced and distributed. Thus the
termeconomy/development is more comprehensive. It implies progressive changes in the socio-economic
structure of the country. Thus, economic development is a multidimensional process which eliminatepoverty,
unemployment and inequality in income distribution by rapid economic growth.
Q.3)What are the features of the Under Developed Economy(India case)?
Ans.(i)Low per Capita Income:- Compare to advance countries of the world per capital income of India is very low,
it is even lower than China and Sri-Lanka. At present per capital income is not only low but its rate of growth is also
low.
(ii)Predominance of Agriculture:-Agriculture is the main occupation. Near 60% of the people are dependent on
agriculture. Also there is low productivity in agriculture. In 1950-51 share of agriculture in GDP was 55.4%. In 2008-
09 share of agriculture is 16.9%, but 52.1% working population are engaged in agriculture.
(iii)Lack of Capital:-There is an acute shortage of capital. A vicious circle of poverty is created from both demand
side and supply side of capital. This vicious circle keeps poor country in poverty.
(iv)Huge Unemployment:-There is huge problem of unemployment and under-employment. It was estimated that
2004-05 unemployment was 8.3%. High rate of growth of population in one hand and low rate of economic growth
on other hand make unemployment problem critical.
(v)Inequality in distribution of Income:-It is estimated that 2009-2010, about 51.3% of household’s annual income
is rs.90000and1.7% household annual income is above rs.10 lakh. About 27.5% is below poverty line according to
2004-2005. Inequality wealth distribution is larger inequality in income distribution.
(vi)Heavy Population Pressure:-There is high rate of growth of population. In 2009-2010 population of India
increased to 1170 million from 1029 million in 2001. India has world’s 17% population in its 2.4% world’s
geographical area.
(vii)Low Rate of Saving and Investment:-Saving and Investment of India are very low compared to developed
country. In 2008-2009, gross domestic savings(at 2004-2005 prices) as a percent of GDP is 32.5% and gross
domestic investment as percentage of GDP is 33.0%. These rates are not adequate compare to developed country.
INGENIOUS CLASSES OF EXCELLENCE 9007190373

(viii)Low Level of Mechanical and Technological Skills:-Old technique of production is still used in India due to lack
of appropriate expansion of mechanical and technical education. Traditional techniques are still used in village
level cottage,agriculture,small scale industry,etc.
(ix)Low Quality of Human Capital:-Quality of Human Capital is life expectancy after birth, literacy,standard of
technical education. In 2007, life expectancy of Indian people was 63.4 and adult literacy was 66%. Whereas life
expectancy of people of Poland is 75.5 years and adult literacy is 99.3%. Further, percentage of technically
educated person is very low compared to total population.
(x)Poor Economic Organization:-Like other less developed countries, India has poor economic organization. Certain
Institution which promote economic development are inadequate. For example lack of financial institution to
mobilize savings in rural areas and to provide rural credits.
Q.4)What are signs of development in Indian Economy?
Ans: (i)There is a rise in NI and per capita income of the country during the plan period.
(ii)There is a significant change in occupation distribution of population from primary to secondary and tertiary
sector.Also there are important changes in sectoral distribution of domestic products.
(iii)There is a development of strong industrial base in the country which includes development of ironand steel,
heavy chemical engineering, fertilizers, etc. Also economic and social infrastructural has growth considerably.
Q.5) Examine the role of foreign trade in economic growth?
Ans: i)Before 1947 foreign trade pattern was typically colonial in nature. Indian was a supplier of food grains
mainly to British and importer of manufactured goods. Thus in pre-independent India industrialization not
permitted.
ii) After independency, to promote industrialization of the country we import machinery and other equipments
which cannot be produced initially at home. For instance imports required for setting up of steel plants,
locomotive factory, hydro-electric projects, etc. Imports are also required for raw materials and other intermediate
goods to utilize the capacity created in the country. These are called maintenance imports.
iii)A developing economy created also requires importing consumer goods that are short in supply at home during
industrialization. Such imports are anti-inflationary because they reduce scarcity of consumer goods in home
country.
iv)A developing economy must grow its exports to rectify its deficit in trade due to high imports. Quality of the
product must be raised. New markets may be invented. Tariff barriers may be reduced for export items.
v)Foreign trade lead to specialization. This reduces cost of production. Consumers get the commodities at cheaper
price. This increases consumer surplus.World’s total production and consumption increases. This generates
income, employment and production in the economy. NI increases. This leads to economic growth.
vi)We can import goods that are not produced in our country. International cooperation and understanding
improves.

AN OVERVIEW OF INDIAN ECONOMIC TREND
Q.1) What do you mean by Circular Flow of Income?
Ans:-The circular flow of income is defined as the flow of payment and receipts for goods and services and factor
services between different sectors of economy.Circular flow of income can be viewed from two different angles
real and money flows among households,firms,government and rest of the world.
Q.2) What do you mean by National Income? State the methods of calculating national income along with
problems?
Ans:- NI is defined as the value of all final goods and services by the normal residence of a country, whether
operating within the domestic territory of the country or outsider, in a year. There are three different methods of
measuring NI:-
Net Product Method / Value Added Method:-
In this method NI is the sum total of net final output produced or net value added by all the producing unit in an
economy during the year. It involves the following steps:-
1. Identifying production unit and classifying them into three broad sector namely primary,secondory and
tertiary sector. These sectors are further sub-sectors. CSO has distionguish for measurement of NI
2. Estimating net value added by the production unit.
Net Value added at factor cost = value of gross output –intermediate consumption – depreciation – net
indirect taxes.
The sum total of net value added at factor cost of all the industrial enterprise in the domestic territory of
a country gives us the NDP factor cost. We insist on final goods and service so as not to include
intermediate products and thereby avoid double counting. In practice double-counting is avoided by
taking the value added by each enterprise.
3. The final step is to add net factor income from abroad with the NDP at factor cost to get NI or NNP at factor
cost.
Precautions:-
1.Value of goods produced for self-consumption is to be included. Their value is to be estimated.
2.Own account production of fixed assets is to be included.
3.We should include the imputed rent of owner occupied houses form themarket rent of similar accommodation.
4.Services of house wife like cooking meals, taking care of child are excluded from NI accounting. In these cases, an
imputation is called for in principle, but it is not done in actual practice to keep the thing simple.
5.Sale and purchase of existing commodities or second-hand goods and services are excluded because these
transactions are not for current year. However, the commissions of brokers in these activities are included since
these are performed in the current year.

6. Sales and purchase of bonds and share are excluded from NI accounting since they only reflect transfer of
assets. However broking charges are included as explained above.
Difficulties in Estimation:-
1. Increase in inventories of goods is included in NI because it is a part of current production of goods and
services. However, there is a problem of valuation of inventories in view of changes in prices.
2. Estimation of depreciation also poses problem, whether it is to be valued at historical cost basis (i.e. the
cost price when capital goods were purchased) or replacement cost basis.
3. NI accountants are not very clear about whether certain products like education, transport expenses are
final or intermediate products.
4. In many cases, it is not possible to draw a clear-cut line of demarcation between intermediate and final
goods as it depends on its use.
5. Finally, lack of adequate and reliable data, particularly in the case of subsistence and unincorporated
sectors, is a serious problem in the measurement of NI in underdeveloped countries.
This method gives us useful information about NI by industrial origin.
Income Method:-
Goods and services are produced with the help of various factors of production. The income method measures NI
as the sum total of all incomes accruing to the primary factors of production used in producing the national
products.
Steps:
1. In the first stage producer enterprises which employ factor services are identified.
2. In the second stage, factor income is classified into the following 3 broad categories:
a) Labour income or compensation of employees is income from work. It includes wages and
salaries in cash, other benefits (both monetary and non-monetary), supplementarylabour income
in the form of employers’ contribution towards PF, pension etc. excluding employees
contribution.
b) Operating surplus is the income earned from ownership and control of capital. It includes income
from property like rent, interest and royalties. It also includes income from entrepreneurship like
dividends and undistributed profits of companies after payment of corporate taxes.
c) Mixed income composed of labour income and capital income of those people who provide both
labour and capital services in the production like earnings from agriculture, trading, transport,
legal and medical, professional, plumbers, carpenters, etc.
3. In the third stage the domestic factor income is estimated by adding the incomes paid out by each
enterprise of different sector.
4. In the last stage, NFIA is added to domestic factor income to arrive at NI.
Precautions:-
1. Value of production for self-consumption, imputed rent of self-occupied houses and imputed value of the
services provided by the owners of production units should be included.
2. All transfer incomes should be executed from estimation of NI because they have been received without
rendering any productive services.

3. Illegal incomes are excluded because they are result of illegal activities and are unaccountable.
4. Interest on national debt is excluded from NI accounting since it is treated as transfer income on the
assumption that the govt. borrowings are used for consumption purposes.
5. Money income received from the sale of second-hand goods is excluded but the commission of the
brokers on such transactions should be included in NI.
6. Private transfer payments, like pocket money given by parents to their children etc. are excluded from NI.
Also windfall grains, such as income from lotteries are excluded as they do not contribute to the current
flow of goods and services.
7. In calculating NI, we include profits before deducting corporation tax. Therefore corporation tax should
not be included separately.
8. Wealth tax, gift tax, etc. are paid out of current income or out of past savings. Hence, they are excluded
from NI.
Difficulties:-
1. It is difficult to estimate mixed incomes as it is difficult to get reliable information from such organized
sector.
2. There is differences in opinion among economist whether to include interest on national debt in Ni
accounting or not because they may be used for productive purposes.
3. Incomes received are generally calculated from income tax returns. Hence this method is of limited use in
less developed countries where a small part of income earners are tax payers.
However this method is useful because it provides information about distribution of NI among various factor
categories like share of wages, interest etc.
Expenditure Method:-
Everybody’s expenditure is somebody’s income. So NI may be equivalent to national expenditure. If we assume

there are two sectors in an economy household and firms. We further assume households make consumption
expenditure (C) while firms make investment expenditure (I) only then GNP = C + I. If we deduct depreciation of
capital from GNP we get NNP. If we assume there is government expenditure (G) along with open economy then
GNP becomes C+I+G+X-M, where X-M represents net exports.
Problems in estimation of NI India:
Conceptual or theoretical difficulties: Which goods are to be included to estimate NI, valuation of non-marketed
goods and services, public utility service, etc. cannot be valued. Such problem are present in all countries.
Estimators of NI follow certain convention to avoid such problem.
Practical or Statistical Problem:
1. Lack of Data: In India many people depends on agriculture. Farmers lack in keeping records of their
income and expenditure.
2. Illiteracy: There is still high rate of illiteracy in India. People are unable to provide information on
production, cost, etc.
3. Suspicion: Collection of correct data is a tough job. People are suspicious of the activities of data
collectors.

4. Indifference of the enumerators:The enumerators are indifferent to their responsibilities. They do not go
to the actual producer and give fictitious figures on production.
5. Problem of non-marketed goods:In India large part of output is non-marketed. There is better barter
system. It is difficult to determine imputed values of such commodities.
6. Unorganized industrial sector: A huge part of manufacturing sector in India is unorganized. It is mainly
small and cottage industries who do not posses proper information.
7. Lack of data on employment:There is no proper record of employment. Measurement of income is based
on unreliable information.
8. Illegal activities: Earning from such activities are excluded in NI accounting. There is sufficient data about
such earning.
9. Problem of black money: To evade taxes people suppress facts about income. This leads to black money.
This is excluded from NI. As the volume of black money increases, the size of error in the estimation of Ni
also increases.
Q.3) What is GDP and GNP?
Ans:- GDP is the money value of all goods and services produced in the domestic territory of country during a given
year. It may be ascertain in terms of market place or factor cost.
When we add NFIA to GDP we get GNP of the country. NFIA is the difference between the factor incomes received
from abroad and factor income paid to abroad.
GNP=GDP+NFIA.
Q.4) Discuss the trends of India’s National Income?
Ans:-In India, economic planning started since 1951-1952, during this plan period, NI has increased to some extent.
Net national product has increased from rs.204924 crore to rs.2530494 between 1950/51 to 2006/07 at 1999/00
prices. During the thirty years between 1950/51 to 1980/81 the annual rate of growth of net national income was
about 3.5%. This is called “Hindu Rate of Growth”.Increase in national income at current prices does not reflect
true rate of growth as price may also have risen. During the first ten years of planning of rate of growth of real
national income was 4.2%. After that period, this rate of growth started following 1970-71 to 1980-81 rate of
growth of real national income came down to 2.9%. However after that growth rate has gradually increased.
During 1990/91-2000/01, growth rate was 5.5%. During 2000/01-2006/07, this rate increased to 7.5%. Thus we can
see that growth rate was very poor at the start of plan period atleast upto 1980/81.
Q.5)What is Per-Capital Income? Discuss the trend of India’s per capital income?
Ans:-When we divide the NI of the country with the total population we get the per capital income.
Per Capital Income = ( NI ) / ( Total Population).
It is a good indicator of standard living and economic development.
Between 1950/51-2006/07 per capital income has increased from rs.5708 to rs.22535. With annual growth rate of
1.4%.
Per capital income is real terms(at 2004-05 prices) is likely to reach rs.33540 in 2009-10. With growth rate of 5.4%
against 5% previous year as per Central Statistical Organisation(CSO). Per capital income at current prices during
2009-2010 is estimated at rs.43749 against rs.41141 during 2008/09 showing rise of 9% from 2000/01-2006/07. It
has increased nearly by 5.6%. This rate is dissatisfactory. This is due to high growth rate of population. Thus

standard of living has not grown considerably. Over per capital income is lower than USA and even lower than
Pakistan and Sri-Lanka.
Q.6)Explain the sectoral distribution of NI in India?
Ans:-Sectoral Distribution of NI In India:--
According to Clark and Fisher, the economy of a country may be divided into primary sector which include
agriculture, forestry, fishing, mining,etc.; secondary sector that include industry, construction, electricity, gas and
water supply, etc.; and tertiary sector which include transport communication, trade and commerce , bank, and
insurance , etc. The occupations of people engaged in these sectors are called primary occupation, secondary
occupation and tertiary occupation respectively. This is called sectoral composition of NI of India. As economic
development proceeds contribution of the primary sector decreased and other sectors increases.
During our plan period’s share of primary sector in GDP has decreased from 55.4% to 21.9%. The share of
secondary sector has increased from 16.1% to 26.9%. There has been a significant growth in tertiary sector from
28.5 % to nearly 52.2%. Hence according to Clark Fisher thesis India has started her journey on the path of
economic development.
In India this sectoral change is very slow due to slow pace of industrial growth and high rate of growth of
population. The occupation structure in India has remained more or less unchanged. From different census reports
we have seen proportion of working population engaged in primary sector decreased marginally. The proportion
came down from 71.7% in 1901 to 56.7% in 1999-2000. Though the share of primary sector in GDP has increased,
the number of working population engaged in such activities did not decrease. The proportion of working
population in secondary and tertiary sector have also remained more or less the same. Hence we conclude that
occupation structure in India has remained stationary for a long time. It raises a question on the linkage between
growth and employment. It also indicates the backwardness of Indian economy. This is termed as structural
retrogression of India by VKRV Rao.
Q.7)Give the idea of trends of savings and investment in India.
Ans:-Savings and Investment play a vital role in economic development. If rate of savings rises then rate of
investment also rises resulting in rise in growth rate. There are mainly three sources of savings-(i)Savings of public
sector (ii)Savings of Private Corporate (iii) Savings of individual. Estimate of savings and investment in India is
prepared by RBI and CSO.
Over the plan period, the rate of savings and investment or rate of optimal formation has increased considerably.
Gross domestic savings at current prices was 10.4% of GDP in 1950-51. It rose to 12.7% in 1960-61 and further rose
to 15.75 in 1970-71. Thereafter, gross domestic savings rose rapidly to 21.2% by 1980-81 and to 24.3% in 1990-91
and reached its highest at 34.8% in 2006-07. After 1990-91, there was a slight decline in growth but recovered in
2000-21. The main reason for this was
 decline in the profitability in public sector

 fall in household savings due to inflation.
We see that gross domestic capital formation was 10.2% of GDP in 1950-51. It reached the level of 27.6% in 1990-
91, thereafter started falling in next decade. After that it has started rising in moderate rate and reached 35.9% in
2006-07. By international standards, rate of savings and investment is fairly high though rate of growth of national
income has not increased very much. This is reffered as paradox in Indian economy.

Q.8)What do you mean by occupational structure?
Ans:-Occupational structure refers to the different forms of economic activities in which people are engaged for
earning their livelihood. It refers to the share of people dependent on agriculture, industry and services sectors in
an economy.
Q.9)What is tertiary sector?
Ans:-The service sector or tertiary sector of an economy involves provision of services to other business
enterprises as well as to final consumers. It includes communication services like postaland telecommunication,
business services, professional services, education, energy, finance, transport, insurance, tourism, and health
services.

ISSUE OF INDIAN ECONOMY
Q.1) What do you mean by Unemployment?
Ans:-Unemployment refers to lack of employment opportunity. It can be voluntary and involuntary but in
economics we refer to involuntary unemployment i.e. a person is willing to do job at market wage rate but not
getting the job.
Q.2) What are the different types of Unemployment?
Ans:Types of Unemployment:
Employment in jobs of agriculture, services in holiday resortscr in rice mills etc. are seasonal. Unemployment in
such jobs during off-season is called seasonal unemployment.
Unemployment arising from decline in demand for production, disinvestment or reduction in manpower
requirement is called structural unemployment.
Introduction of new machines, computer may replace workers leading to technological unemployment.
Unemployment arising in the phase of decline or depression in trade cycles is called cyclical unemployment. Such
unemployment is mainly short term.
Unemployment arising from poverty, lack of resources, big population, low capital formation, etc. is called chromic
unemployment. It is a long term feature.
A Person who is employed but has no significant contribution towards production is called distinguish
unemployment.
A family farm is properly organized and four persons are working on it. However two more workers are
unemployed but there is no change in output; we may say that last two workers are disguisedly unemployed.
In India we mainly find Structural, technological, and cyclical unemployment in urban areas and season
unemployment in rural areas. Also one-third of India’s work force is disguisedly unemployed. In general most of
the unemployment in India is mainly structural.
Q.3) What are the cause of unemployment?
Ans: Unemployment in India is mainly due to slow rate of growth without adequate employment opportunity
along with growing population. Creation of employment was considered as by-product of development during first
three plans. But exception was not fulfilled and unemployment tends to increased. Further preference towards
capital intensive technologies in a labour surplus economy and impractical education system creates
unemployment. There is also lack of national employment policy. Also industries are operating at excess capacity
hence they cannot absorb enough labour. The problems of poverty and unemployment are interrelated. The
problem of poverty is yet to be solved in India. The unemployment rate is nearly 10% in India as estimated in the
year 2010.
Q.4) Discuss the employment generating programmes of Indian government?

Ans: The government has adopted different programmes to create employment. These are National Rural-
Employment Programmme(NREP) started in 1980 which gave employment in rural area for creating community
assets. It was merged with JawaharRojgarYojna(JRY) in 1989. Integrated Rural Development Programme (IRDP) was
created by merging many programmmes in 1989 to promote self-employment. Other programmes like
Employment Assurance Scheme (EAS) and Prime Minister RojgarYogna(PMRY) was launched. In 2005, National
Rural Emplyment Guarantee Scheme(NREGA) to ensure atleast 100 days of employment in a year to one adult of
the family. However, given such a huge population and poor rate of growth such programmes are not very
effective to remove unemployment. Further growth of development of agro-based industries can create
employment in rural areas. In urban areas, cottage and small-scaled industries must be developed to provide
employment. The 11th 5 year planning aimed at generation of 58 million work opportunities.
Q.5) What do you mean by Poverty and Poverty lines.
Ans:-Poverty is the social phenomenon in which the section of the section is unable to fulfill basic necessity of life.
Poverty is normally defined with respect to poverty line .We find out a majors of poverty by finding out number of
poor falling below the standard.
An individual has to consume some minimum goods and services for subsistence. Ithas been estimated that for
subsistence an individual should take at least 2250 calories per day. The money value of commodities required to
obtained these calorie, gives the minimum consumption expenditure called poverty line. Poverty Line is the cut-off
point on the line of distribution which divides poor and non-poor. According to planning commission, in 2012
poverty line is rs.28.65 per capital daily consumption inurban and rs.22.42 in rural areas, which gives India’s
poverty ratio to 29.8% in 2009-10.
Q.6) What are the causes of Poverty in India?
Ans: Causes:
Low Income from Agriculture due to small size of land holdings, inadequate, irrigation, lack of financial support,
dismal economic conditions of person engaged in non-agriculture activities in rural areas, political and social evils
in society and factors like family size, poor education, lack of motivation and feudal system are the main causes of
poverty in India. Growing population has also contributed to the problem of poverty in India.
Q.7) Give the estimate of Poverty in India?
Ans: The planning commission uses large sample survey on household consumption expenditure conducted by
NSSO every 5 year. The 61st round of NSSO provide poverty estimate based on:
1. Uniform recall period(URP)

2. Mixed recall period (MRP)
The URP consumption data uses a 30 day reference period for all items of consumption.
The MRP consumption data uses a 365 day reference period for 5 infrequently purchased non-food items namely
clothing, durable, education and institutional medical expenses and 30 day reference period for remaining items.
Recently, Oxford Poverty and Human Development Initiative and UNDP have worked out Multidimensionalpoverty
Index. It is based on ranged of deprivation at household level from education to health to assets and services.
According to this report, India has poverty index of 0.296 with annual rank of 119 among 196 countries

Q.8) Give account of Poverty Eradication majors in India?
Ans:-Poverty Eradication Measures:
Government adopted several poverty alleviationprogrammes like Pradhan Mantri Gram SadakYojna(PMGSY) ,
National Rural Employment Gurantee Act (NREGA), SwaranJayantiRozgarYojna(SJSRY), Employment Assurance
Scheme (EAS) etc. In recent time MGNREGS was launched to ensure atleast 100 days employment every year for
atleast one adult member in each family. However, unemployment has to be removed eradicate poverty. Also
price stability has to maintained so that real income of the people does not fall. Lastly income inequalities have to
been removed from society.
Q.9)What is Income Inequality?
Ans: By income inequality we mean disparity in distribution of income and economic assets among individual,
group within society and among countries. The richest enjoy the lion’s shareof NI and the poorer get almost a
fraction of NI. As per World Bank report of 1989, it was found that richest 20% family in India enjoyed 49.4% of NI
and poorest 20% enjoy only 7% of NI. There are some indices to measure inequity like GINI index, Robin Hood
index, however index and Theil Index in which GINI index is most common. According to human development
report 2011, GINI Index of India was 36.8 which is favorable than countries like South Africa(57.8), China(48.5),
USA(40.8),etc.
Q.10)What are the causes of Income in Inequality in India?
Ans:- (i)The main reason behind the income Inequality in India are massive unemployment and underemployment
with inadequate economic development.
(ii)Widespread tax evasion has concentrated income in few hands.
(iii)Severe inequality in distribution of wealth in both urban and rural areas has created income inequality.
(iv)During inflation few people are benefited and some are adversely affected. This leads to income inequality.
(v)Adoption of capital intensive methods of technology in production has led to concentration of wealth and
income in few hands. This increases income inequality.
(vi)Lastly dishonesty among businessmen, administrative inefficiency of the govt. , and lack of political will to
reduces income inequality, etc. helped to increase income inequality in our country.
Q.11) Give the account of measures taken by government of India to reduce income inequality?
Ans:-(i)Govt. introduce ceiling on land holding and took oversurplus land and redistributed it among the landless
and marginal farmers.
(ii)Govt. introduce ceiling on urban property to reduce income inequality among urban people.
(iii)Govt. has passed minimum wage act for agriculture workers.
(iv)Pension Scheme introduced for widows and old labourers in rural areas.
(v)Payment of bonus have been made compulsory in each industry.

(vi)Mainly incentives have been produced to develop industries in rural areas to remove regional inequality.
(vii)Measures are taken to unearth black money and to stop tax evasion.
Q.12)What is Inflation? What are its causes? What are the measures to control inflation? State its effects?
Ans:-Inflation: A continuous increase in prices of almost all commodities over a period of time is called inflation. It
does not mean high prices. Value of money i.e. purchasing power of money decreases during inflation.
Causes: When there is excess demand of goods and services compare to its supply due to extra flow of money or
otherwise are called demand-pull inflation. It is too much money chasing too few goods.
Increase in general price level due to rise in wage cost through trade union pressure, increase in price of essential
commodities like crude oil, steel, electricity, etc. is called cost-pull inflation.
Increase in public expenditure for non-productive purpose, deficit financing, and rapid growth of population fuel
inflation from demand side.
Poor agricultural production due to unfavourable monsoon, inadequate rise in industrial production, upward
revision of oil prices and salaries of government employees fuel inflation from supply side.
Large scale tax evasion, high rates of indirect taxes, black marketing and hoarding of essential commodities,
underutilization of industries, shortage of raw materials, and other infrastructural difficulties may lead to inflation.
Measure to check Inflation:
To control inflation momentary measures may be used by the central bank of the country like increasing repo rate
(the rate at which the commercial banks loan from the central bank) or reverse repo rate (the rate at which central
bank takes loan from commercial banks), conducting open market sale of govt. securities, increasing cash reverse
ratio (the mandatory portion of deposits that is to be kept with the central bank by the commercial banks). This
will reduce money supply and following Fisher’s Theory inflation rate may fall.
Fiscal Measure may also be undertaken by the govt. to control inflation like increasing direct taxes and introducing
new taxes, control over public expenditure, improving profits of public sector units to finance budget deficit.
Investment should be kept under control to tackle inflation because through multiplier effect it has a tendency to
increase income thereby purchasing power and aggregate demand.
Short term measures to control inflation include distribution of commodities through fair price shops, control over
movement of commodities from state to another or through import of essential commodities.
Long term measures to control inflation include accelerating economic growth and putting restrictions on present
consumption to improve saving and investment.
Effects:
1. On Production: In case of full employment production cannot be increase hence inflation is bad. In case of
under full employment a mild rate of inflation may accelerate the process of economic growth.
2. On Debtors: They are benefited because they repay a fixed sum whose value has fallen due to inflation.
3. Salaried Person: They are adversely affected because salaries do not increase in equal proportion
compare to the rate of inflation hence real income falls.

4. Self Employed People: They are benefited because they increase their fees during inflation to compensate
the loss in value of money.
5. Investors: Share investors gain because companies declare more dividends due to high profits. However
bond holders and creditors loses because they receive interest at fixed rate.
6. BOP Deficit: Since domestic goods become dearer more foreign goods are imported. Hence BOP deficit
increases.
Q.13) What do you mean by Parallel Economy?
Ans:- The amount of money undeclared to the tax authority in the country is called black money. Activities
financed by such unaccounted money are popularly called parallel economy.

INDIAN AGRICULTURE
Q.1)What are the causes of low productivity of Indian agriculture? What are the measures taken to increases the
agricultural productivity?
Ans:-Causes of Low Productivity:
i. Indian farmers are poor, illiterate and orthodox. They are bounded by customs and do not apply new
technique of production. Thus productivity is low.
ii. Agriculture credit, marketing system and storage facilities are inadequate. These affect productivity
significantly.
iii. The average size of land holding in India is very small and uneconomical. Intensive cultivation is
impossible. Thus productivity is low.
iv. In Indian agriculture farmers are tenants. They have no security of land. Hence they are not interested in
making qualitative improvement in land. This hampers productivity.
v. Lack of irrigation, uncertain monsoon leads to low productivity.
Measures to increases productivity:
i. Attempts are made to reduce the population pressure on agriculture by creating alternative employment
opportunities in non-agricultural sector.
ii. The government is trying to implement the land reforms to its fullest extent.
iii. Irrigation facilities improved and expanded.
iv. Rural credit system expanded through developments of co-operative societies. SBI and RRBs are opening
branches in unbanked areas.
v. Several measures are adopted to improve the agriculture marketing.
vi. Measures have been taken to introduce HYV seeds, fertilizers and pesticides.
vii. Agriculture research encouraged.
viii. Farmers given educational facilities. This will remove superstitious.
Q.2)What do you mean by Land Reforms? What are different land reform programmes? Indicate its major failures?
Ans:-Basically land reform means two things. First, it refers to the reform of ownership of land i.e., redistribution of
land. Secondly, land reform means reform of tenancy.
Objectives:
1. To increase agriculture productivity and

2. To reduce inequality in rural economy.
Different land Reform Programmes:
i. Government passed legislation to abolish on intermediate between farmers and the states who extorted
many illegal taxes and high rent. Land were acquired and distributed among landless farmers.
ii. In tenancy reforms all states have executed legislation for fixation of rent. Tenants cannot be evicted
except under few extreme cases. Tenants are granted ownership rights
iii. Ceiling on land holdings introduced. Beyond a certain specified limit, all lands of the landlords would be
taken over by the states and allotted to small farmers and landless labourers.

iv. Consolidation of land holdings and organization of co-operative farms were introduced as part of land
reform programme.
Major Failure of Land Reform:
1. Although intermediaries abolished but still a class exist between the farmers and the state. Huge
compensation given to zamindars leading to loss of revenue of the states.
2. There are many loopholes in the tenancy act through which poor farmers are forced to act as bonded
labourers.
3. Long time to execute legislations leads to benamitrasfers of land. Big holdings of land are shown as
orchards or fishing pond. The large farmers thus by-passed the ceiling laws.
4. The programme of consolidation did not advance too far except in Punjab, Haryana and in some parts of
UP.
5. Co-operative farming cannot be introduced in many parts of the country.
6. Indian bureaucracy did not allow the land reforms policy to its maximum level. Also the farmers are
unorganized. They are poor and illiterate. They could not execute pressure on the government. Also the
ruling party lacks the political will to implement such reforms.
7. Land records are poorly maintained. Names of tenants or share croppers are not always mentioned.
Q.3)What is green Revolution? What are its causes and effects?
Ans:-During 1965-1975 there was a remarkable increase in agricultural productivity in India due to application of
new strategy. Hence, many people preferred to call it green revolution.
Reasons:
1. It is due to use of imported high yielding varieties of seeds that helped double or triple cropping possible.
2. The use of chemical fertilizers has also increased tremendously.
3. Due to use of agro machinery like tractors, harvest, pumps sets etc. agricultural productivity has increased
considerably.
4. Expansion of irrigation facilities has reduced the uncertainty of monsoon. This also increased agro
production.
5. The government has revised agricultural products prices upward. This worked as an incentive to the
farmers.
Effects:
1. The fruits of green revolution were seen mainly in case of wheat but not in case of other crop like paddy,
pulses, maize or oilseeds. Even cash crop like cotton or jute did not record any significant increase. Hence
green revolution is obtained called Wheat Revolution.
2. Due to advent of farm machinery employment had fallen. However multiple cropping has increased
demand for labour. Hence it is difficult to explain whether employment has actually increased or
decreased.
3. Green Revolution has brought income inequality because it involved costly machineries that may be
executed only by big farmers and not by the landless marginal farmers. Further the new techniques were
unevenly distributed, which led to regional inequality.
4. New technology has turned agriculture into a profitable occupation. A new class of rich people emerged
in Punjab who invested their surplus fund in agriculture.

5. New technique can be executed only in areas with irrigation facilities and not in areas where irrigation
lacks.
6. Green revolution ignores land reforms. Hence it falls to help the small farmers. Also its effect was more
noticed in case of literate farmers rather than on illiterate farmers.
7. The revolution has also failed to remove the class conflict between different groups of people in rural
areas.
Q.4)What are the various source of rural credit in India?
Ans:- There are two source of rural credit available in India non-institutional and institutional. They are briefly
stated below:
(i)Non-Institutional Sources include professional money landers and agricultural money landers who provide cash
for both for short and long term needs. Traders and commission agents supply fund to farmers forproductive
purposes. Relatives of the farmers are also important source of rural credit because they are easily accessible.
Landlords also meet the financial requirement of the farmers.
(ii)Institutional Credits are provided by cooperative credit society at the cheapest rate. Land development banks
mainly provide long term loans to the farmers for the purchase of land, digging of well,etc. Commercial bank also
provide finance for agriculture and other allied activities associated with agriculture. Regional Rural Banks and
NABARD together comprise an important source of rural credit after 1982. They provide finance for movement of
crops and agriculture and other primary activities. They helped setting up warehouses facilities in rural area. The
govt. also provide funds to the rural sector through budgetary allocation
Q.5)What are the causes of Rural Indebtedness in India?
Ans:- (i)Till 1975 the main source of finance was provided by money lenders who charged high rate of interest,
manipulated accounts and cheated the poor uneducated farmers. As a result there was rural indebtedness.
(ii)The storage facilities are of poor standards. Agriculture products get spoiled. Farmers failed to get fair price for
their products. Thus rural indebtedness increases.
(iii)A great number of farmers live life for subsistence. They marketable surplus is very low or almost nil. Hence
loan cannot be repaid.
(iv)There is slow and uneven growth. Yield per unit areas is low. Agriculture system is not so modern. Land reforms
are incomplete. For all these reason rural indebtedness is very high.
(v)Govt. support does not come to poor farmers. There are number of agents between farmers and consumers,
who charges huge commission and fees. All the farmers are unaware of prevailing market prices.
Q.6) Discuss the roll of Indian Agriculture in Economy?
Ans:-Agriculture plays a vital role in Indian economy. It contributes the lion’s in NI during 1950’s. But in recent
times its shares has decreased in NI. It is the largest employer in the country unlike that of in developed nations.
The agriculture sector provides raw material to the industrial sector. It creates market for the industrial products. A
large number of our export items are agriculture products. Agriculture supports the transport system and internal
trade in the country and also provided food for the people. Hence, to develop the Indian economy, the agriculture
sector should be developed first.


INDUSTRIAL DEVELOPMENT IN INDIA
Q.1) Make the assessment of new Industrial policy 1991?
Ans:-The new Industrial Policy of 1991 is different from its earlier policies. It abolishes the system of licensing
except in few industries. Number of industries reserved for public sector is also reduced to eight. Private Capital
invited in iron and steel, heavy machinery, electricity etc. This increases efficiency of the producers and rate of
industrial growth. FDI is encouraged. MNCs are invited. FERA changed to FEMA. Foreign technologies are
permitted to any extent for which no permission is required from the govt. Public sector undertakings are allowed
to collect funds from the market. They are also given autonomy in the management. A social security mechanism
created for the interest of the workers. The policy also liberalized the MRTP Act. This policy freed the industrial
sector from bureaucratic controlled. This will bring more investment and foreign capital in the sector.
Few economists argued that poor domestic producers may not be able to compete with foreign capital. Excessive
freedom disturbs the economic sovereignty. Capital intensive method of production may create unemployment.
Further, huge concessions to the private sector will create income inequality in the society. There may be deficit in
BOT due to more imports. Due to liberalization imports will rise and exports will reduce.
Q.2) What is Industrial Sickness? What are its causes? State the remedies for industrial sickness.
Ans:-When any Industrial unit produces below the break-even point i.e. when it fails to cover its cost and
depreciation; it is called sick. Industrial Unit fails to produce profitably or repay its debt, it is called industrial
sickness.
Causes of Industrial Sickness:
1. Overregulation of industrial unit coupled with restriction on closing a financially sick unit or reducing staff
strength led to industrial sickness. Even the organization of industrial units exploited finance for personal gain,
which has even created trouble for financial institution that extended loans to these units.
2. The leading cause of industrial sickness is the faulty credit and the regulatory policies pursued by the
authorities along with mismanagement. According to RBI, 52% of industries are sick due to mismanagement.
3. The price of the commodity was insufficient to cover cost of variable inputs; also there was no proper wage
and labour policy of the industrial unit. This led to contract jobs, agency work leading to industrial sickness.
4. A financially sick unit was allowed to function even after repeated support only for the sake of the security of
the jobs of the few employees.
5. In 1987, Bureau of Industrial and Financial reconstruction (BIFR) and in 2002 National Company law Tribunal
was set up to look after reasons and to suggest ways of development of sick units. However they could hardly
proceed with any constructive suggestions.
Remedies for industrial sickness:
1. According to working Group appointed by the central trade unions penalties should be charged on
management personnel who are responsible for the sickness of the units. Government should immediately
take over the sick units. The financial and the management system of these units should be reconstructed.
2. Prof. Raj Krishna suggested the govt. should develop new industries and the workers of the sick industries
should be employed in these new enterprises.

3. According to George Fernandes the management of the sick units should be handed over to its employees.
The government should grant loans at a concessional rate. The government should exempt all sort of taxes
from these units and may merge it with other profitable units.
Q.3) Discuss the role of Public Sector in India’s Industrialization process. Review the pattern of disinvestment in
India’s public sector.
Ans:- By public sector we mean those production units which are owned by the government. The public sector has
played an important role in the development of infrastructural facilities in India. At present it contributes nearly
one fourth of our GDP.
The public sector generates financial resources for rapid growth, promote equality in distribution of income and
wealth, generate employment opportunities, provide balanced regional development and encourage growth and
expansion of small scale and ancillary industries.
Public sector develops the key industries like basic and heavy industries where the public sector are not interested
due to requirement of huge capital and long-time of return on invested money.
Govt. may manage an industrial unit in short run incurring losses due to greater social interest. This is impossible in
case of private sector.
Growth of public sector is needed to prevent concentration of economic power in few hands.
The public sector has also an important role in savings and capital formation of the economy.
Though an undeveloped economy, India occupies 8th position in world industrial output. Surely, a major credit of
this goes to the public sector of India.
Privatization in India generally is in the form of disinvestment of equity. Govt. first offered equity of PSU in
domestic market and then gradually opened it to international market. Time and again, govt. followed different
methods of disinvestment like cross-holding, warehousing, retaining golden share and pursuing the strategic sale
method. Disinvestment was put on hold for some political reasons. However the disinvestmentprogramme took
off again in 2009 with NHPC.
The disinvestment programmme was carried out in a hasty, unplanned and hesitant way. There was no perfect
long term policy of disinvestment. Govt. was selling shares of profit making PSUs rather than loss making units as
alleged by few economists. The govt. failed to rise the budgeted disinvestment in the capital market due to non-
acceptability of the shares of PSU in the capital market. Token privatization to the extent of 8-10% of the shares of
PSUs did not provide enthusiasm to the investors to buy these shares because they could hardly exercise any
control on PSUs. Thus, during the entire disinvestment programme, the public equity has been underpriced and
thus has been sold for a fraction of what it could actually fetch.
Q.4) Write a short note on Privatization of Public Sector.
Ans:- Privatization refers to transfer of assets or service functions from public to private ownership by franchising,
leasing and contracting.
Arguments in favour of privatization:
 Privatization will reduce burden of loss making public sector units.

 It will help to modernize profit making public sector units and diversify their business and make them more
competitive.
 In privatization the quality of decision making improves without any political and bureaucratic
interference.
 It can receive sick units that have become liability to the private sector.
 Privatization will force public sector to be efficient.
Argument against Privatization:
 Privatization will encourage monopoly power and disparity in income and wealth.
 Projects that are risky and having long gestation gap may be hampered.
 Infrastructural investment may decelerate.
 Social justice, public welfare and economic efficiency may not be done in privatization.
 Privatization cannot remove all economic problems overnight.
 Privatization may result in lopsided development of industries in the country.
Disinvestment is one of the methods of privatization. Disinvestment means selling of a public investment to a
private entrepreneur like that of Bharat Aluminium Company Limited, Indian Tourism Development Corporation,
VSNL, etc. Disinvestment programme is still unsuccessful in India. In 2009, disinvestment programme took off with
the IPO (Initial Public Offer) of NHPC (National Hydroelectric Power Corporation).
The main reason for the failure of disinvestment is non-acceptability of shares of PSUs in the capital market and
loss of vote banks.
Q.5)What are the causes of Industrial Sickness or Indian small scale industry?
Ans: (i)Lack of proper planning regarding location, technology, process of capital collection demand for products.
(ii)Lack of necessary fixed and working capital, inefficiency in working capital management, defective price policy.
(iii)Mangerial incompetence in production, in marketing and in finance.
(iv) Lack of power, labour dispute, irregular supply of raw material.

GLOBALISATION
Q.1) What do you mean by Globalization?
Ans: By Globalization we mean integrating domestic economy with the world economy. Foreign companies will
come in India and do business and domestic companies will do business abroad. There is exchange of goods,
services, technologies, capital, resources and manpower. The world becomes a global village. This was adopted on
large scale from 1991. Reebok shoes, Android phones have flooded Indian economy through globalization.
Q.2) Write a short note on WTO.
Ans: Introduction:
In 1947, 23 countries of the world agreed on certain terms and conditions on multilateral trade known as General
agreement on Tariffs and Trade (GATT). In the 8th round of negotiation that started in Uruguay in 1986 under the
then Director General of GATT Arthur Dunkel proposed a new draft and was subsequently approved in 1995. The
Dunkel draft paved the way for launching a new organization called World Trade Organization (WTO).
GATT WTO
 It was a mere agreement.  It is an organization.

 It had no legal status.  It has a legal status.
 Agreements were not binding on all members.  Agreements are binding on all members.
 Rules applicable only to trade in goods.  Rules applicable not only to trade in goods but
also to trade in services.
Benefits being a member of WTO:
1. India’s export of agriculture good will increase due to comparative cost advantages when developed
countries liberalized their import of agricultural goods.
2. Exports of agro-based industrial goods are also likely to increase.
3. Export of textile industries will increase when developed countries waive import restrictions on textiles.
4. Export of labour services, banking, insurance, etc. is likely to increase.
5. Process of economic development will be faster when restrictions on foreign investments are removed in
India.
Functions of WTO:
1. It promotes mutual cooperation and fellow feeling among members.

2. It solves trade related problems among the trading partners.
3. WTO reduces trade related barriers and facilitates free trade among members.
4. WTO is an international forum that liberalize trade related formalities and constraints among the trading
nations.
5. It acts as a watch dog whether the trading countries follow the rules and regulations of interest trade.
6. It encourages member countries to allocate funds for research and developments rather than wasting
funds in different process patent.
7. It advocates level playing concepts between foreign and home investments under different sectors in an
economy.

Disadvantages being a member of WTO:
1. Due to introduction of Trade Related Intellectual Property Rights products patent would come into force
instead of process hence royalty has to be paid to the first innovator. Prices of medicines will rise.
Multinational-cooperation willpatent agriculturalproducts, production process of agricultural
commodities or of biotechnological processes.
2. Due to Trade Related Investment Measures it will be difficult to control foreign investments.
3. Foreign investment will flow freely in servicing sector and Indian companies will not able to compete.
4. Unemployment problem will grow as small sector will close and more capital-intensive technique will be
applied.
5. Many apprehend that WTO will question the sovereignty of the state as no decisions regarding patent
laws, copyrights, trademarks, laws on use of natural resources or on control of domestic production can
be undertaken by the resident country.
Objectives of WTO:
The WTO has the following objectives:
1. To raise the standard of livings in members countries by ensuring full employment with expansion in
production of trade in goods and services.
2. To develop an integrated, viable, and durable multilateral trading system.
3. To promote sustainable development in member countries by the optimal use of resources.
4. To help the developing countries to get a share in the growth of international trade.
5. To reduce tariffs and other trade barriers among member countries and to eliminate discriminatory
treatment in international trade relations and
6. To ensure linkage between trade policies, environmental policies and sustainable development.
Conclusion:
Despite many disadvantages India cannot think to be out of WTO as almost all countries of the world are
within WTO. Staying outside will further aggravate unknown bilateral trade problems.
Q.3) Write a note on IMF.

Ans:
Introduction:
In 1945, immediately after World War II International monetary Fund (IMF) started it’s functioning with 44
member states to solve problems of international liquidity and multilateral trade problem problems with the
objective to increase cooperation among them. At present it has nearly 190 members.
Membership:
A member country assigned a quota, which determines the amount of subscription, of which 25% to be paid in
gold or any usable currency and the residual 75% in the country of the member state. Higher the quota higher will
be the loan getting power and value of its vote.
Functions:

1. It promotes international monetary cooperation and consultations to solve problems of international

liquidity. IMF was set up to provide finance mainly to the American and European member governments
but in recent times it has extended its facilities to Asian, African, South American nations as well.
2. It helps member countries to clear deficit in BOP. Loans are available to finance deficit in currency a/c
mainly. Foreign exchange support is mainly available for oil and other essential goods.
3. It promotes exchange stability and discourages competitive exchange rate depreciation among member
countries and provides machinery for the orderly adjustment of exchange rates. IMF advocates for market
determined rate of foreign exchange and discourages the central bank of the member countries to
artificially determine the rate of exchange through hoarding of foreign exchange. It directs its member
countries to avoid competitive exchange rate depreciation.
4. It aims at reducing tariffs and other trade related restrictions. It supports the activities of WTO and
encourages member governments to follow free trade policies. It also tries to solve multilateral trade
problems
5. IT provides mainly short term credit to the member government as well as provides technical assistance
and not capital transactions. It provides loans at cheaper rate of interest to tide over any crisis faced by
the member nations.
Limitations:
1. The fund is limited compare to its need.

2. Developed countries dominate over the policies of IMF due to inequality in the distribution of quota.
3. In the pretext of the conditions of loan taken IMF interferes in internal policy matters of the member
states.
4. IMF failed to remove different trade restrictions imposed by the member states.
5. It charges high rate of interest on loan and imposes strict terms of credit.
6. It has failed to maintain stability in exchange rate.
Conclusions:
Despite those limitations IMF promotes international economic cooperation and stand by the side of less
developed nations.
Q.4)Write an explanatory note on WB or IBRD.
Ans: Introduction:
IBRD a sister institution of the IMF started its functioning from 1945. It mainly provides long-term loan to its
member countries for the reconstruction and development of their economies.
Membership:
To be a member of the WB, each member country has to pay a subscription as under:
1. 2% of the subscription to be paid in gold or Us dollar.

2. 18% in own currency of the member state.
3. Remaining 80% to be deposited in the central bank ofthe member sate & can be mobilized by the WB as
and when necessary.
Functions:

The bank performs following functions:
1. It provides loans for reconstruction and development by investing in health and education.
2. It acts as a guarantor when one member country advances loan to another or any foreign organization
gives loan to a member country.
3. WB provides loan to the private enterprises of the member state.
4. The bank provides technical assistance with the loan.
5. It also provides training to the senior official of the developing member countries.
6. It is also engaged in Inter-organizational co-operation.
7. It helps the government of the member country to improve the quality of services in telecommunication,
electricity, insurance, banking, etc.
8. It provides assistance to protect the environment.
9. WB promotes macro-economic reforms to create stable environment for investment and long term
planning.
10. International Finance Corporation (IFC) another affiliate of the WB also invests directly in companies by
acquiring shares.
11. It promotes international trade and maintains BOP equilibrium of the member countries.
12. It settles investment related disputes among member nations through conciliation or arbitration.
Limitations:
There are some limitations in activities of the bank as stated below:
1. Inadequate capital & other resources in relation to the need of the developing countries.
2. The bank discriminates against day-to-day functioning of the developing economies of Asia & Africa.
3. Charges high rate of interest & commission from the underdeveloped nations.
4. It insists on repaying capacity before granting loan. However repaying capacity will increase only after
completion of the projects by utilizing the loans.
5. It provides loan for specific or urgent projects & not for general development of the country.
6. WB pays more attention to private sector than other sectors.
Conclusion:
Despite so many limitations it renders useful services to the underdeveloped countries for reconstruction &
development through International Development Association (IDA).

INDIAN FIVE YEAR PLAN
Q.1) What do you mean by “Economic Planning”?
Ans: Economic planning is essentially a way of organizing and utilizing resources to maximum advantages in terms
of defined social ends.
Economic planning implies that certain key economic decisions be made by some central authority instead of living
these to the pay of market forces, in order to achieve certain targets and objectives within a given period.
Q.2) What are the objectives of Indian Planning?
Ans:
1. High rate of economic growth: Rapid increase in national income as wellas per capita income is the first
and foremost aim of Indian planning to raise the standard of living.
2. Economic equality: The basic objective of planning is growth with social justice. Planning strategy has
been directed to increase the income and opportunities of the weaker sections of the people. This will
bring equality in distribution of income and wealth.
3. Full Employment: Removal of unemployment and underemployment is another objective of our planning.
From 5th year emphasis has been given on employment generation and several programmes adopted.
4. Economic Self-reliance: The plan emphasized on import substitution and export promotion to achieve
self-sufficiency in food grains production and capital goods sector. So that country can stand on its own
feet.
5. Rapid Industrialization: Development of basic and heavy industry is a top priority, 2nd five year plan
emphasized on it.
6. Removal of Poverty: It is amajor objective of planning in all underdeveloped countries where many people
live below poverty line.
7. Modernization of various sectors: Structural and institutional changes were introduced in 6th plan to
transform the feudal and colonial economy into a modern and progressive economy.
8. Removal of imbalances: Balanced regional development was emphasized from 2nd five year plan.
9. Self-Sufficiency in food and basic raw materials: Complete dependence on foreign countries for food and
raw materials is undesirable and dangerous during time of crisis. Stress was given on increase in
agricultural production to meet the basic requirements of industry and exports.
10. Raising the rate of Investment:To increase the rate of saving and investment is another major objective.
Basic and capital goods industries was given due importance to raise the rate of savings and investment.
Q.3) What are the achievements of Five Year Plans?
Ans:
1. Growth in National Income: NNP has increased annually on an average by nearly 3.8% (on basis of 70-71).
2. Agricultural Development:Due to green revolution rate of growth of food grains has surpassed rate of
growth of population. India is now self-sufficient in food grains production.
3. Industrial Growth: The capital goods sector has developed rapidly. The public sector has played a major
role in the development of basic and core industries. Industrial sector has also diversified.
4. Increase in per capita income and standard of living: Per capita income, consumption and standard of
living have increased due to increase in production of food grains, edible oil, fish and vegetables.

5. Increase in saving and investment rate: The rate of saving and investment is nearly 22% of national
income. This helped to achieve faster rate of growth.
6. Development of economic infrastructure:Energy, irrigation, transport has enlarged over the years. Power
generation has also increased.
7. Economic self-reliance: India is self-sufficient in production of food grains. India has developed import
substitution industries. There has been remarkable progress in science and technology
8. Diversification of exports and import substitution: Our export has diversified from traditional items to
software’s. India has also been able to limit its import.
9. Growth of Science and Technology: IITs and IIMs have catered to the needs of our modern industrial
structure. This has reduced our dependency on foreign countries.
10. Change in economic structure: Less number of people is dependent on traditional sector. Occupation
structure has changed significantly. These indicate economic development.
Q.4) What are the failure of Indian Five Year Plan?
Ans:
1. Insufficient rate of growth: The rate of growth has been low compare to the plan target. Population has
increased at a rapid rate. As a result per capita income has increased slowly. Total output increased at low
rate.
2. Mass Poverty: Poverty alleviation programme has failed miserably. One third of the population still lives below
poverty line. According to per capita income figures India is one of the poorest countries of the world.
3. Failure to develop a socialist economy: Due to the policy of liberalization there exist landless farmers, poor
performance of public sector, and concentration of economic power in the hands of few. Hence to build a
socialist pattern of society has failed.
4. Unemployment Problem: unemployment rate has increased steadily over the plan periods. Population growth
is mass reason.
5. Inequality in the distribution of income and wealth: Several initiatives has been taken to achieve equality in
distribution of income and wealth but they have failed. Such have also failed to reduce the concentration of
economic power.
6. Inflation: Prices of almost all goods has increased over the plan periods. Low and fixed income group faced
great difficulties.
7. Fiscal Failure: The fiscal policy of the government has failed to check the growth of black money in the
country.
8. Sectoral and Regional Inequality: the aim of balanced growth could not be achieved by the Indian plans.
9. Incomplete Land Reforms: Land reform laws have not been effectively implemented. Inequality of income in
rural areas is still high. Cooperative farming has not also developed in Indian agriculture.
10. Unfavourable BOP position: India has experienced a serious proportion of deficit in the trade balance till 1991.
This is always experienced which indicate major failure of five year plan.
Q.5) What is export promotion? What are the measures adopted for export promotions?
Ans: In recent times most of the under developed countries has adopted two strategies for economic
development:
1. Export promotion.
2. Import substitution.

When a country adopts the strategy of export oriented growth it is known as export promotion policy. Following
are the arguments in favour or significance of the policy of export promotion.
1. Such a strategy creates international specialization and makes optimum utilization of resources. This reduces
average cost of production. World’s total population and consumption increases.
2. Export promotion leads to higher earning of foreign exchange. BOP deficit may be corrected through export
promotion.
3. Due to export promotion there is exchange of information, ideas, and technology between nations.
4. This strategy makes the world a global village. Home industries will improve quality of the product and
consumer surplus may increase.
5. Such a strategy creates international cooperation and understanding better among trading nations. Volumes
of trade increases and national income may grow.
6. Export promotion ultimately strengthens the industrialization of the country. This helps the other primary
and service sector to grow efficiently.
At present the fastest growing economy of the world i.e. the Chinese economy has adopted such a strategy for
economic development. Others like Taiwan, Singapore, South Korea has also followed.
Measures adopted:
1. Govt. has set up several institutional measures like exports promotion councils to look after promotion
of exports. Bank credit facilities to export units are increased. Product standards are investigated time to
time. Trade fairs are organized regularly and state trading corporations of India also helping in exports.
2. In recent time new markets are explored, new products are also exported in countries of Asia and Africa.
3. Exporters are given the incentives to fully convert their foreign currencies in the domestic currency at
market rate and also at official rates. Concessional freight rates introduced in merchant shipping. Income
tax rebates allowed in earnings from exports. Licensing policies abolished or liberalized.
Q.6) What is Import Substitution? What are its advantages and disadvantages?
Ans:In recent times most of the under developed countries has adopted two strategies for economic development:
1. Export promotion.
2. Import substitution.
Reducing imports and producing the substitute of those imports goods at home is called import substitution.
Advantages:
1. This strategy helps the industrialization of the less developed nations. Thus self-sufficiency may be
achieved in long run. When imports are reduced the home industries will find a market for their product.
2. Import substitution saves scarce foreign exchange thereby reduces deficit in BOP account.
3. The policy of import substitution will increases labour employment. This is beneficial for a labour surplus
economy like India.
4. Import substitution is carried through direct foreign investments. Modern industrial techniques may be
adopted. This accelerates the rate of growth of the country.
5. Such policies may protect a country from economic recession originating from outside world. It reduces
too much dependency on foreign countries.

Disadvantages:
1. Import substitution creates inefficient monopoly in domestic market because there is no fear of foreign
competition. Domestic producer’s charges high prices for their products that are low in quality. This
reduces consumer’s surplus.
2. There is negative value addition because costly capital goods are to be imported. Collaboration with
foreign multinational companies leads to increase cost due to high amount of royalties that are to be paid
for using their technologies.
3. In many cases, import substitution encourages the production of luxury consumption goods that are
undesirable. Hence they are not helpful to the society.
4. Import substitute industries are mainly capital intensive hence they cannot generate adequate
employment in labour substitute like in India.
5. Essential commodities like Crude Oil, Uranium, etc. that is unavailable in our country cannot be produces
through import substitution strategies.
In past during post World War II period Japan has experienced economic growth through such strategies.

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VIKASH GUPTA 8981303685

INDIAN BUSINESS ENVIRONMENT

Q.1)What do you mean by Business Environment?

Q.2) Distinguish between Growth and Development?

Q.3)What are the features of the Under Developed Economy(India case)?

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Q.4)What are signs of development in Indian Economy?

Q.5) Examine the role of foreign trade in economic growth?

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AN OVERVIEW OF INDIAN ECONOMIC TREND

Q.1) What do you mean by Circular Flow of Income?

Net Product Method / Value Added Method:-

1.Value of goods produced for self-consumption is to be included. Their value is to be estimated.

2.Own account production of fixed assets is to be included.

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This method gives us useful information about NI by industrial origin.

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Everybody’s expenditure is somebody’s income. So NI may be equivalent to national expenditure. If we assume

Problems in estimation of NI India:

Practical or Statistical Problem:

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Q.3) What is GDP and GNP?

Q.4) Discuss the trends of India’s National Income?

Per Capital Income = ( NI ) / ( Total Population).

It is a good indicator of standard living and economic development.

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Q.6)Explain the sectoral distribution of NI in India?

Ans:-Sectoral Distribution of NI In India:--

Q.7)Give the idea of trends of savings and investment in India.

 decline in the profitability in public sector

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Q.8)What do you mean by occupational structure?

Q.9)What is tertiary sector?

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ISSUE OF INDIAN ECONOMY

Q.1) What do you mean by Unemployment?

Q.2) What are the different types of Unemployment?

Q.3) What are the cause of unemployment?

Q.4) Discuss the employment generating programmes of Indian government?

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Q.5) What do you mean by Poverty and Poverty lines.

Q.6) What are the causes of Poverty in India?

Q.7) Give the estimate of Poverty in India?

1. Uniform recall period(URP)

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Q.8) Give account of Poverty Eradication majors in India?

Ans:-Poverty Eradication Measures:

Q.9)What is Income Inequality?

Q.10)What are the causes of Income in Inequality in India?

(ii)Widespread tax evasion has concentrated income in few hands.

(iii)Govt. has passed minimum wage act for agriculture workers.

(v)Payment of bonus have been made compulsory in each industry.

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Measure to check Inflation:

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Q.13) What do you mean by Parallel Economy?

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Ans:-Causes of Low Productivity: