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Master of Social Work

Second Semester

MSWS - 14

ECONOMIC AND POLITICAL SYSTEM

SCHOOL OF SOCIAL SCIENCES

TAMIL NADU OPEN UNIVERSITY
577, ANNA SALAI, SAIDAPET, CHENNAI - 15.

April - 2022
Name of the Programme: Master of Social Work
Course Code: MSWS - 14
Course Title: Indian Economic and Political System

Curriculum Design
Mrs. J. Renee Arathi
Assistant Professor
Department of Social Work
School of Social Sciences
Tamil Nadu Open University, Chennai – 15

Course Writer
Mrs. J.Renee Arathi
Assistant Professor
Department of Social Work
School of Social Sciences
Tamil Nadu Open University, Chennai – 15

Course Coordinator & Content Editor

Mrs. J. Renee Arathi
Assistant Professor
Department of Social Work
School of Social Sciences
Tamil Nadu Open University, Chennai – 15

September 2021 (First Edition)

ISBN No: 978-93-5706-263-3
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 18.04.2022

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(K. PARTHASARATHY)
 ECONOMIC AND POLITICAL SYSTEM
MSWS-14

BLOCK 1 Indian Economy

UNIT-1 – Economic and political Concepts

1.1- Economic and Political concepts relevant for social Work
1.2- Rural and Urban Economic structure
UNIT-2- Political Structure
2.1 Political structure and political parties
2.2 GDP, GNP, Rural Urban differences

BLOCK 2 Economic Reforms and Demographic Features

UNIT-3 India as a Developing Economy
3.1 Meaning, Concepts and Characteristics,
3.2 Models of development
UNIT-4 Poverty.
4.1 Definition, Concept, Meaning and Types
4.2 Poverty alleviation Programmes

BLOCK 3 Developmental Issues in India

UNIT-5 Issues in development
5.1 – Various issues in development
5.2- Globalization, Privatization, Liberalization
BLOCK 4 Administrative Structures

UNIT-6 Panchayati Raj System

6.1 Urban Local Bodies
UNIT 7 Economic System
7.1 Capitalism, Socialism, mixed economy
7.2 Policy formulation and planning in India
BLOCK 5 Social Work ,Politics and Power
UNIT-8 State Power
8.1 Government, authority, political culture
8.2 Legitimacy, Import and Export policies

,
References:
1.Agarwal, A.N. Indian Economy: Nature, Problem and Progress. New Delhi:
VikasNirajPrakash, 1994.
2.Dutt, Ruddar, Sundharam, K.P. M. Indian Economy. New Delhi: Chand & Company, 2006.
3.Kumar, H. Social Work and Developmental Issues. New Delhi: Aakar Books, 2005.
4.Adams, R. Dominelli and Payne. M. Social Work – Themes, Issues and Critical Debates. New
York: Palgrave in association with the Open University, 2002.
5.Bhat, Anil. Development and Social Justice - Micro Action by Weaker Section. New Delhi:
Sage Publications, 1989.
6.Bhattacharya, S. Social Work Administration and Development. Jaipur: Rawat, 2006.
7.Dahiwala, S. M. Understanding Indian Society - The Non-Brahmanic Perspective. Jaipur:
Rawat Publications, 2006.
8.Jogdand, P.G. and Michael. S. M. Globalisation and Social Movements - Struggle for a
Humane Society. Jaipur: Rawat Publications,2006.
9.Pant, S.K. Human Development- Concept and Issues in the Context of Globalisation. Jaipur;
Rawat, 2006.
 ECONOMIC AND POLITICAL SYSTEM
MSWS-14

S.NO TITLE PAGE NO.

BLOCK 1 Indian Economy
Characteristics Of Indian Economy On The
Unit-1 1
Eve Of Independence
Development Strategies In India: Planning
Unit-2 32

Economic Reforms and Demographic

BLOCK 2
Features
Unit 3 Economic Reforms In India 53
Demographic Features And Indicators Of
Unit 4 69
Development.
BLOCK 3 Developmental Issues In India

Unit-5 Unemployment In India 78

Indian Economic Policies- Pre And Post

Unit-6 98
Reforms
BLOCK 4 Administrative Structures
Unit-7 Committees Of Indian Parliament 113
Unit -8 Council Of Ministers And Prime Ministers 135
UNIT - 1

CHARACTERISTICS OF INDIAN ECONOMY ON THE EVE

OF INDEPENDENCE

STRUCTURE

Overview
Learning Objectives
1.1Characteristics of Indian Economy
1.2 Industries and Handicrafts in Pre-British India
1.3 Commercialisation of Agriculture (1850-1947)
1.4 Causes of Famines

1.5 Process of Industrial Transition in India

1.6 Colonial Exploitation: Forms and Consequences
1.7 Fields of direct foreign investments
1.8 Colonialism and Modernization

Let us sum up

Glossary
Answers to check your progress
Suggested Readings

Model Questions

Overview

A close look at the economic development of India during the British

period reveals that whenever India‘s colonial economic links in terms of
foreign trade and inflow of foreign capital were disrupted, Indian
economy made strides in industrial development. During the 20th
century, the colonial economic links were interrupted thrice: first, during
the First World War (1914-18) and second, at the time of the Great
Depression (1929-34) and third during the Second World War (1939-45).
In other words, free flow of foreign trade and capital meant economic
stagnation in India, while their absence (partial or total) provided an
opportunity for Indian capital to open up avenues of industrial growth in
areas choked off by imports.

1
Learning Objectives

After reading this Unit students will be able to:

 Explain the characteristics of Indian Economy on the Eve of
Independence.
 Discuss Commercialisation of Agriculture.
 Assess the process of Industrial Transition in India.
1.1. Characteristics of Indian Economy

The Indian economy in the pre-British period consisted of isolated and

self-sustaining villages on the one hand, and towns, which were the
seats of administration, pilgrimage, commerce and handicrafts, on the
other. Means of transport and communication were highly
underdeveloped and so the size of the market was very small. To
understand pre-British India, it is essential to study the structure of the
village community, the character of towns, the character of internal and
foreign trade, the state of the means of transport and communications.

(a) The structure and organisation of villages

The village community was based on a simple division of labour. The
farmers cultivated the soil and tended cattle. Similarly, there existed
classes of people called weavers, goldsmiths, carpenters, potters, oil
pressers, washermen, cobblers, barber-surgeons, etc. All these
occupations were hereditary and passed by tradition from father to son.
These craftsmen were paid a stipend out of the crops at the harvest time
in lieu of the services performed.
Most of the food produced in the village was consumed by the village
population itself. The raw materials produced from primary industries
were the feed for the handicrafts. Thus the interdependence of
agriculture and hand industry provided the basis of the small village
republics to function independently of the outside world. Sir Charles
Metcalfe writes in this connection : ―The village communities are little
republics having nearly everything they want within themselves; and
almost independent of foreign relations. They seem to last where
nothing lasts. This union of the village communities, each one forming a
separate little state by itself... is in a high degree conducive to their
happiness, and to the enjoyment of a great portion of freedom and
independence.‖ The villages did acknowledge some out-side authority,
may be that of a local princeling, who in turn may be under a Muslim
Nawab or a Hindu king, by paying a portion of the agricultural produce

2
varying between one-sixth to one-third or even in some periods one-half
as land revenue. The land revenue sustained the government.
The agriculturists could be further divided into the land-owning and the
tenants. Labour and capital needed was either supplied by the
producers themselves out of their savings or by the village landlord or by
the village moneylender.
(b)The structure and character of the towns
Towns had come into being principally on account of the following three
reasons :
1. Towns were the places of pilgrimage or sacred religious centres.
Important examples of such towns were Allahabad, Banaras,
Gaya, Puri, Nasik etc.
2. Towns were the seat of a court or the capital of a province. In this
category may be included Delhi, Lahore, Poona, Lucknow,
Tanjore, etc. These towns lost their importance as the prop of the
court was withdrawn.
3. Towns were trading or commercial centres. These towns existed
on important trade routes. Mirzapur, Bangalore, Hubli, etc. are
examples of this category.
4. Towns had a life much different from the villages. There existed a
large variety of occupations and trades in towns. They catered to
wider markets.
1.2. Industries and Handicrafts in Pre-British India

The popular belief that India had never been an industrial country, is
incorrect. It was true that agriculture was the dominant occupation of her
people but the products of Indian industries enjoyed a worldwide
reputation. The muslin of Dacca, the calicos of Bengal, the sarees of
Banaras and other cotton fabrics were known to the foreigners. Egyptian
mummies dating back to 2000 B.C. were wrapped in Indian muslin.
Similarly, the muslin of Dacca was known to the Greeks under the name
Gangetika.
The chief industry spread over the whole country was textile handicrafts.
The high artistic skill of the Indian artisans can be visualised from this
account given by T.N. Mukherjee : ―A piece of the muslin 20 yards long
and one yard wide could be made to pass through a finger ring and
required six months to manufacture.‖Besides the muslins, the textile
handicrafts included chintzes of Lucknow, dhotis and dopattas of
Ahmedabad, silk, bordered cloth of Nagpur and Murshidabad. In addition

3
to cotton fabrics, the shawls of Kashmir, Amritsar and Ludhiana were
very famous.
British period that prompted the Industrial Commission (1918) to record :
―At a time when the West of Europe, the birth place of modern industrial
system, was inhabited by uncivilised tribes, India was famous for the
wealth of her rulers and for high artistic skill of her craftsmen. And even
at a much later period, when the merchant adventurers from the West
made their first appearance in India, the industrial development of this
country was, at any rate, not inferior to that of the more advanced
European nations.‖
1.3. Commercialisation of Agriculture (1850-1947)

Another noteworthy change in Indian agriculture was its

commercialisation that spread between 1850-1947. Commercialisation
of agriculture implies production of crops for sale rather than for family
consumption. At every stage of the economic history of the nation, a part
of the agricultural output is produced for the market. Then, what
distinguished commercial agriculture from normal sales of marketable
surplus ? It was a deliberate policy worked up under pressure from
British industries. By the middle of the nineteenth century. Industrial
Revolution had been completed in England. There was a tremendous
demand for raw materials, especially cotton, jute, sugarcane, groundnuts
for the British industries. By offering a higher bait of market price, the
peasants were induced to substitute commercial crops for the food crops
as the former were more paying than the latter. Consequently, the
peasants shifted to industrial crops and in some districts, the movement
for commercial agriculture became so strong that the peasants started
buying foodstuffs from the mandis for their domestic needs. This led to a
fall in the production of food and, consequently this period is marked by
the occurrence of most terrible famines in the economic history of India.
Commercial agriculture was also, to some extent, the result of the
mounting demands of the land revenue by the state and excessive rents
by the landlords from the peasantry.
The process of commercial agriculture necessitated by the Industria
Revolution was intensified by the development of an elaborate network
of railway in India after 1850. Railways linked the interior of the country
with ports and harbours, urban marketing centres and thus Indian
agriculture began to produce for world markets. Large quantities of
wheal from Punjab, jute from Bengal and cotton from Bombay poured in
for export to England. The same railways which carried commercial
crops from the various parts of the country, brought back the foreign

4
machine-made manufactures to India. Thus, railways and link-roads
connecting the hinter-land of country with commercial and trading
centres were instrumental in intensifying commercial agriculture on the
one hand and sharpening competition of machine-made goods with
Indian handicrafts, on the other. These factors led to the ruin of Indian
industries.
1.4. Famines and Famine Relief in India

The new land system and commercialisation of Indian agriculture

produced very adverse economic consequences on the Indian economy.
These influences retarded, nay halted, the process of industrialisation
the Indian economy, created ―built-in depressors‖ in agriculture and were
responsible for the occurrence of famines in India.
The Nature of Famines in India
Before the advent of modern means of transport, especially railways, the
famines in India were localised scarcities of food in those regions where
the crops had shrunk on account of bad rains. Both the construction of
railways and the growth of trade after 1860 brought about a radical
change in the nature of famines. Previously a famine meant extreme
hunger and the population had to undergo suffering on account of lack of
food because there were no means of transporting the surplus foodgrain
even if it was available in other parts of the country. The position after
1860 was that the rapid means of transport made it possible to carry
food from one region to the other without much loss of time. But periods
of famine were invariably periods of high food prices and extensive
agricultural unemployment. Therefore, the mass of the poor people
found it impossible to purchase food. Consequently, the earlier famines
were described as food famines but later ones are more appropriately
described as purchasing power famines. The Famine Commission
(1898) made it abundantly clear when it emphasized that food was
―always purchasable in the market though at high and in some remote
places at excessively high prices.‖ Two factors were responsible for
pushing up food prices : First, an impending shortage of food meant
hoarding and speculation which helped to push up the price level very
fast. Secondly, government did not allow any decrease in the export of
foodgrains even in the lean years. Consequently, the speculator and the
Government both accentuated the gravity of the problem.

5
Causes of Famines

There is no doubt that the immediate cause of famines was the failure or
the unseasonableness of rains. It is common knowledge that the means
of irrigation were undeveloped and rainfall played a crucial role in
agricultural production. Famines were a common occurrence in the dry
regions and areas with a rainfall varying between 15 and 60 inches. The
areas affected most by famines were Bihar, West Bengal, Orissa,
Rajasthan. Tamil Nadu. Maharashtra, Andhra Pradesh and Karnataka.
Failure of rains caused an absolute deficiency which resulted in great
famines, but unseasonableness of rainfull also proved destructive to
crops and, therefore, created food scarcity. In a country wholly or mainly
depending on rainfall, considered as the most dominant factor
determining agricultural production was the behavior of monsoons.
To understand the real factors which led to the occurrence of famines
again and again in India--while they were banished after 1850 from
Europe--it is quite desirable to understand the economic and sociological
transformation that took place during the British rule. Three factors can
be discerned in the Indian agricultural society during the British period :

(1) The destruction of Indian handicrafts : Fierce competition from

British manufactures resulted in the destruction of Indian handicrafts. It
stripped the artisan, the weaver and the handicraftsman of his means of
livelihood. Under the circumstances, the unemployed increased the
pressure of population dependent on land. This led to excessive sub-
division and fragmentation of land, the creation of a class of landless
labourers and an increase in the rent of land. Whereas in 1842, Sir
Thomas Munro did not deem it necessary to statistically measure the
number of landless labourers because they formed a too insignificant
portion of Indian agricultural population, in 1872 the Census Commission
counted agricultural labourers as 18 per cent of agricultural working
force. This sudden increase of the agricultural proletariat in the 30-year
period exposed the most vulnerable section of the population in Indian
rural society to the uncertainties of weather.
(2) The new land system : The British created a class of landlords so
as to affix responsibility for land revenue, but the British left the process
of rent fixation to the free market mechanism. The increasing demand
for land for a growing agricultural population led to an exorbitant
increase in rents. Land was transformed in this process to an attractive
capital asset. Thus, there was a great desire among the moneylending
classes to acquire land. The rise in prices of land enhanced the value of
the security in the form of land against which peasants could borrow.

6
This led to increase in agricultural debt of the Indian peasantry
repeatedly exposed to uncertainties. The high rates of interest charged
by the moneylending classes made it impossible for the peasants to
repay their debts. Gradually lands passed on to the moneylending
classes. The dispossession of the peasantry by the moneylenders
added to the process of pauperisation of the cultivating classes.
Thus, the new land relations which embodied the creation of a class of
land owners and a class of cultivators (whether on a tenancy basis or a
daily wage) separated ownership from cultivation. The landlords were
interested in extracting high rents leaving a pittance with the cultivators.
The investment on land fell sharply because the cultivators had to part
off with a major portion of the produce in the form of rent to the landlords
and interest to the moneylenders. This created in Indian agriculture a
built-in-depressor. Thus, the new agrarian relations were disincentive-
ridden and therefore, retarded the process of agricultural development.
(3) The impact of colonial rule : Colonialism also had a deep impact
on the repeated occurrence of famines in India. The destruction of the
Indian handicrafts increased unemployment in the rural areas. Whereas
in England, surplus labour from rural areas was quickly absorbed in new
industries created in the process of industrialisation, nothing of this kind
happened in India. The industrialisation of the Indian economy would
have deprived England of a ready market for its goods and so the
colonial interests were opposed to the development of industries in
India. Thus, labour thrown out of employment in traditional industries
imposed additional burden on a subsistence agriculture.
But the burden of colonialism was to be borne by agriculture. The cost of
extravagant and lavish British administration, the cost of imperial wars in
Burma and Afghanistan, the depreciation of the value of the Indian
currency since 1873 and the growing burden of home charges were to
be paid by the Indian people. The major taxes were land revenue,
excise, salt tax, stamps and opium. Income tax which was levied in 1886
was withdrawn because its yield was too poor. Apart from opium, all
other taxes fell on the rural classes. Land revenue was the chief fiscal
engine and this increased the burden on the peasantry.
On account of these factors, India was forced to keep a favourable
balance of trade with England. But her principal exports were mainly
food and agricultural raw materials. Thus, even in the famine years
exports of foodgrains had to be maintained in order to create an export
surplus on merchandise account. There is evidence that after 1870,
foodgrains exports increased because the railways became a

7
convenient vehicle of mobilisation of the food surplus. Thus, the
compulsions of colonialism in maintaining an export surplus, burdening
the peasantry with higher taxes and the swelling up of an agricultural
population led to the impoverishment of the rural classes.
1.5. Process of Industrial Transition in India

The process of industrial transition in the British period is broadly divided

into industrial growth during the 19th century and industrial progress
during the 20th century. It was mainly the private sector--whether
indigenous or foreign-- that carried industrialisation forward. Only after
the First World War some protection was granted to Indian industries
otherwise Indian industry had to weather all storms and face world
competition on its own strength. This explains the slow growth of
industrialisation.
(A) Private enterprise and industrial growth in the 19th century
The outstanding industrial events of the 19th century were the decline of
indigenous industries and the rise of large-scale modern industries. This
change was brought about by private enterprise. The rise of large-scale
industries was slow in the beginning but by the close of the 19th century,
the movement was more rapid.
The period 1850-55 saw the establishment of the first cotton mill, first
jute mill and the first coal mine. In the same period, the first railway line
was laid in India. In a period of 25 years, that is, by the last quarter of the
19th century, there were 51 cotton mills and 18 jute mills. During the
same period, India produced one million tonnes of coal per annum and
the Indian railways had a mileage of 8,000. By the end of the 19th
century there were 194 cotton mills and 36 jute mills, and coal
production had risen to over 6 million tonnes per annum. In spite of the
very rapid increase in industrialisation and the fact that the foundations
for the development of modern industries for the utilisation of coal and
iron resources were laid by the end of the 19th century, India was being
gradually converted into an agricultural colony of the British. By 1900,
India had become a great exporter of rice, wheat, cotton, jute, oilseeds,
tea, etc. and an importer of British manufactures. In this way India had
become an appendage of the British colonial system.
During the 19th century, it was but natural that British business should
pioneer industrial enterprise in India. The Britishers had experience of
running industries at home. British enterprise received maximum state-
support. Besides, much of the business developed in India was related
either to the Government or interests in some way connected with

8
Britain. Though industrialisation was started by the British in the 19th
century, the Britishers were more interested in their profit and not in
accelerating the economic growth of India.
Apart from the British, the Parsis, the Jews and the Americans were also
prominent first as merchants and later as industrialists. They were close-
knit and highly progressive communities. The Parsis were particularly
progressive to rapidly adopt European business methods.
Within the Indian community, conditions were not favourable for the
emergence of industrial leaders, partly because of the peculiar way in
which factory industry came to India, as compared to its development in
England. In the West two principal groups were ready to set up factories:
the merchants and the master craftsmen. The merchants had capital,
marketing ability and capacity to manage labour. The master craftsmen
did not have capital but had understood the materials and their proper
handling. Because of certain peculiar features, neither Indian merchants
nor Indian craftsmen took interest in the factory system. Most Indian
merchants belonged to the Baniya or moneylending community. They
possessed capital and were always eager for its security and profits. But
when the factory system was introduced in India by the British, the
merchant class found greater opportunities for trade. The development
of shipping and the building of railways resulted in larger trade, both
external and internal. Besides, there were more opportunities for lending
money. Thus, the merchants found greater scope for profits in their
traditional occupations and hence did not give them up and take to the
factory industries.
At the same time, Indian craftsmen too did not play the part played by
their western counter- parts in the field of industrialisation because they
did not possess large capital. Besides, they were without proper training
and education.
However, Indians joined the ranks of industrialists early in the middle of
the 19th century and their role grew throughout the period, continuously
and steadily. They used the same managing agency system as the
Britishers. They were becoming increasingly important members of
companies established by the Britishers. Those indigenous business
groups who gave up traditional occupations and who took to industrial
ventures were the Parsis, the Gujaratis, the Marwaris, the Jains and the
Chettiars.
(B) Private enterprise and industrial growth in the first half of the 20th
century

9
Over 70 cotton mills and nearly 30 jute mills were set up in the country.
Coal production was more than doubled. Extension of railways
continued at the rate of about 800 miles per annum. The foundation of
iron and steel industry was finally laid during this period.
The war of 1914-18 created enormous demand for factory goods in
India. Imports from England and other foreign countries fell substantially.
Besides, the government demand for war-purposes increased
considerably. As a result, great stimulus was given to the production of
iron and steel, jute, leather goods, cotton and woollen textiles. Indian
mills and factories increased their production and were working to full
capacity. But on account of the absence of heavy industries and also of
the machine tools industry, they could not develop fast enough.
(C) Causes of slow growth of private enterprise in India‘s
industrialisation (1850-1957)
It is important to find out the reasons why Indian industry did not expand
significantly relative to the rest of the economy over the hundred years
before Independence. They were :
(a) Unimaginative private enterprise : One important reason
frequently mentioned is the inadequacy of entrepreneurial ability. Indians
were reluctant to enter the industrial field because of the comparatively
easier and secure scope for profit which existed in trading and
moneylending. The Britishers who pioneered industrial change in India
were not eally interested in industrialisation of the country as such. But
then Indian industrialists too were so short-sighted, they rarely bothered
about the future and cared very little for replacement and for renovation
of machinery. They were influenced by nepotism rather than ability in
their choice of personnel. They were also influenced by their trading
background viz., high price and high profit margin rather than low prices
and larger sales. They emphasized sales than production. To a certain
extent, therefore, unimaginative private enterprise was responsible for
the slow growth of industrialisation in this country.
(b) Problem of capital and private enterprise: In the 19th and 20th
centuries, Indian industrialists had suffered from lack of adequate
capital. Just as British enterprise was prominent, so also British Capital
was significant in India‘s industrialisation. A larger part of the total
invested capital in modern enterprises in India was imported from
Britain. Capital was scarce not only because the resources of the
country were underdeveloped but also because the avenues for the
investment of surplus wealth were few. There were no Government

10
loans or company stocks and debentures. Accordingly, people held their
wealth in the form of gold and silver.
There was complete absence of financial institutions to help the transfer
of savings to industrial investment. The indigenous financial institutions
concerned themselves with rural moneylending and financing of internal
trade. Institutions which concerned themselves with rural savings for a
comparatively long period, were altogether neglected. In the early days
of industrialisation, people were generally hesitant to entrust their
savings to the company promoters.

(c) Private enterprise and the role of the Government : One of the
important reasons and according to some authorities, the most important
reason for the slow growth of Indian industries was the lack of support
from the Government. In the 19th century, the Government did provide
certain overhead investments which helped private enterprise. Examples
were the railways and communications. But the Government did not
provide the other conditions essential for private enterprise. The
important fact to remember is that in the critical years of growth
(between 1850 and 1947) Indian enterprise was operating under a
foreign government which was extremely unsympathetic to native private
enterprise
1.7 Colonial Exploitation: Forms and Consequences

The major form through which the exploitation of India was done was
trade. Later, the British started making investments in Indian industries
and the process of economic drain started through investment income in
the form of dividends and profits. In addition to this, India had to pay the
costs of British administration, in the form of home charges. They
included salaries of British officers (both civil and military), payment of
pensions, furloughs and other benefits, as also interest payments on
sterling debt.
The main forms of colonial exploition were:

(i) Trade policies aimed at developing a colonial pattern of trade in which

India would become an exporter of foodstuffs and raw materials and an
importer of manufactures; (ii) encouragement of British capital to take up
direct investment in Indian consumer goods industries; (iii)
encouragement of finance capital, through the managing agency
system, to appropriate a major portion of the profits through various
malpractices; and (iv) to force India to pay the costs of British
administration as well as to finance the wars and expeditions undertaken
by the British Government.

11
(a) Exploitation through Trade Policies
Trade policies were used against India by the East India Company and
later by the British Government to drain away wealth from India to feed
the expanding British industry with raw materials and also to encourage
the trend towards commercialisation of agriculture so that the Indian
economy could be transformed as an appendage of the British colonial
system. Thus, trade policies were a very convenient, but a potent source
of exploitation.
1. Exploitation of cultivators to boost indigo-export: East India
Company wanted to encourage indigo export. Some (500 to
1000) European planters were settled in Bengal. They were
given land at a very nominal price. They forced the cultivators on
their land to cultivate and sell the indigo plant at a very low price.
Even other zamindars were compelled to allocate a portion of
their land for indigo cultivation. Once an agreement was signed
with a zamindar to accept the advance for cultivation he had to
suffer the ruthless exploitation of the indigo planters who made
fabulous profits from its export.

2. Exploitation of artisans through Company agents to deliver cotton

and silk fabrics much below the market price. During the 18th
century, the East India Company wanted to benefit from the
export of Indian cotton and silk fabrics which enjoyed a world-
wide reputation. For this purpose, the Company made use of
agents called as Gomastas. The gomastas who were Indians in
the employment of the Company, would go to the village and
force the artisans to sign a bond to deliver a certain quantity of
goods at a price to be fixed by the gomasta. The price fixed was
at least 15 per cent and in extreme cases, even 40 per cent
lower than the market price. In case, an artisan refused to accept
the advance offered by the Company‘s gomasta, he was
punished by flogging and in certain cases, by imprisonment. In
this way, through the Company‘s gomastas, the East India
company was able to procure cotton and silk fabrics at very low
prices. Thus, the poor artisan was squeezed so that the East
India Company made huge profits through the export of these
fabrics. The ruthlessness of the Company was so inhuman that
the artisans worked like bonded labour and this explains their
growing pauperisation.

12
 3. Exploitation through the manipulation of import and export
duties Though Great Britain professed to be a follower of free
trade, but her trade policies towards Indian goods only revealed
that she never followed the policy of free trade. During the 18th
century. Indian goods, specially cotton and silk fabrics, enjoyed a
lead over the British goods. The aim of British trade policies was
to destroy the supremacy of the Indian goods, protect the
interests of British industries and ultimately succeed in
penetrating the Indian market by the machine-made goods.

(b) Exploitation through export of British Capital to India

In the early phase of colonialism, the chief instrument of exploitation was
trade but later the British thought of encouraging investment in India.
There were three principal purposes of these investments. Firstly after
the first war of Indian Independence (1857), which, the British described,
as the Mutiny, it was realised by the Government that for the effective
control and administration of the country, it was essential that an efficient
system of transport and communication should be developed. Secondly,
in order to effectively exploit the natural resources of India, it was
essential to develop public utilities like generation of electricity and water
works. Thirdly, to promote foreign trade so that food and raw materials
collected in various mandis are quickly transported abroad and the
manufactures imported in India are quickly distributed in various
markets, the British thought it necessary to link railways with major ports
on the one hand and the marketing centres (mandis) on the other. This
explains why railway development in India was planned in such a
manner that it served the colonial interests. Thus, the major fields of
direct foreign investments were as under :
1.8 Fields of direct foreign investments

(1) Economic overheads and infrastructure like railways, ports, shipping,

generation of electric energy, water works, roads and communications;
(2) for promoting mining of coal, gold and petroleum and metal-lurgical
industries; (3) for promoting commercial agriculture, investments in tea,
coffee and rubber plantations; (4) to undertake investments in consumer
goods industries like cotton and jute textiles, matches, woollen textiles,
paper, tobacco, sugar, etc; (5) investments in banking, insurance and
trade; and (6) some investments were made in machine building,
engineering industries and chemicals.
All these investments were undertaken by the British multi-nationals
operating through their subsidiaries. Some of these investments took the

13
form of loans to the British Government in India in the form of sterling
debts.
Two major forms of investment
1. Direct private foreign investment in India was made in
coal,mining companies, in jute mills, tea, coffee, rubber
plantations and in sugar.
2. Sterling loans given to the British Government in India and public
and semi-public organisations to undertake investments in
railways, ports, electricity undertakings and other public utilities.
These loans represented sterling debt.
a. Exploitation through finance capital via the Managing agency
system
Indian business did not possess any experience of the organisation of
modern industry by setting up joint stock companies. The British
merchants who had earlier set up trading firms acted as pioneers and
promoters in several industries like jute, tea and coal. These persons
were called as managing agents.
The managing agency firms may be described as partnerships of
companies formed by a group of individuals with strong financial
resources and business experience. The managing agency firm is
entitled to the management of the whole affairs of the Company unless
otherwise provided in the agreement.
The principal functions of the managing agents were as follows: (i) to do
the pioneering work of floating new concerns; (ii) to provide their own
funds and also to arrange for finance by acting as the guarantors; (iii) to
act as agents for the purchase of raw materials, stores, equipments and
machinery; (iv) to act as agents for marketing of the produce; and (v) to
manage the affairs of the business.
(d) Exploitation through payments for the costs of British
administration

The British employed a large number of British officers for the military
and civil administration of the country. The British officers in the army
were given a separate cadre and were paid much higher salaries and
allowances than their Indian counterparts. All the top ranking positions
were monopolised by the British officers.
Similar situation prevailed in the civil administration. All the key positions
and top ranks were manned by British officers. They were also paid
fabulous salaries and allowances. Besides this, they were provided other

14
benefits for the maintenance of their children. These officers had
immense administrative powers. They could award contracts for supplies
and stores and thus the contractors paid them commissions for the
favours. These unauthorised earnings had also become a part of the
system. These officers after a certain specified period of service could
seek retirement and thus were entitled to benefits of pension. The
payments which were remitted to England out of the savings of the
officers living in India and also on account of pension and other benefits
were called as family remittances. These payments were a heavy drain
on our resources. Besides, India had also to pay interest on sterling
loans raised for the construction of railway and irrigation works.
Payments accruing on account of interest on debts incurred by India and
those connected with civil departments in India, such as pensions,
gratuities, furlough allowances, and payments for stores purchased in
India — all taken together were called Home Charges. In 1931, the
payments accruing to Britain on account of home charges amounted to`
43 crores.
Not only that, India was forced to pay for the various wars of the East
India Company like the Mysore and Maratha Wars, the Afghan and
Burmese Wars. The British forced the Indian people to pay through their
nose for their expeditions to Prussia, Africaetc. The entire cost of the
telegraph line from England to India was charged from India.
During the two World Wars, India exported more to Britain than it
imported. Against this positive balance of trade, Britain authorised the
Government of India to issue more currency on the backing of the
Sterling Balance held in England. India exported more and imported
less. The Sterling Balances, therefore, represented the sweat, the tears
and the toil of the millions of the poor people of India. But Great Britain
by its policy only exported inflation to India. This accounted for a much
larger rise of the price level in India during the war. It imposed a heavy
burden on the Indian people.
The consequences of the various forms of exploitation were that :

(i) India remained primarily an agricultural country and its

agriculture became commercialised to serve the interests of
Great Britain by exporting tea, coffee, spices, oilseeds,
sugarcane and other foodstuffs, besides other raw materials.

(ii) India which was an industrially advanced country during the 16th
and 17th century was not permitted to modernize her industrial
structure during the 18th and 19th century. Her handicrafts were
destroyed and she became an importer of manufactured goods.

15
 (iii) The British employed the policy of discriminating protection along
with imperial preference to have complete control over the Indian
market. This also helped to provide safe and secure avenues for
the British investors in India.
(iv) The British developed the economic infrastructure in the form of
railways and irrigation and electricity works with a view to
promote foreign trade and exploit India‘s natural resources to
their advantage. Direct British investment was made in consumer
goods industries like tea, coffee and rubber plantations, but no
effort was made to develop heavy and basic industries.
(v) The Managing Agency System did help to promote consumer
goods industries in the initial phase, but became exploitative in
character later. It appropriated nearly 50 per cent of the gross
profits as managerial remuneration.
(vi) The British exploited India through the economic drain via home
charges. India was also forced to pay for several wars like
Afghan and Burmese Wars. This was indicative of the highly
exploitative character of the British rule.

The net result of the British policies was poverty and stagnation of the
Indian economy.
Poverty of the Masses and the Economic Drain Dadabhai Naoroji, a
distinguished Indian economist, in his classic paper on the ‗Poverty of
India‘(1876), emphasized that the drain of wealth and capital from the
country which started after 1757 was responsible for absence of
development of India. According to Dadabhai Naoroji. ―The drain
consists of two elements—first, that arising from the remittances by
European officials of their savings, and for their expenditure in England
for their various wants both there and in India : from pensions and
salaries paid in England : and second that arising from remittances by
non-official Europeans.‖ This implies that India had to export much more
than she imported in order to meet the requirements of the economic
drain. During the period of the East India Company, an outright plunder
in the form of gift exactions and tributes was carried out. Dadabhai
Naoroji. Y.S. Pandit and S.B. Saul have estimated the annual drain for
various periods. Taking the estimates based on the balance of payments
alone, Saul‘s figure for 1880 amounts to 4.14% of the Indian national
income. Irfan Habib, therefore, writes : ―The fact that India had to have a
rale of saving of 4% of its national income just to pay the Tribute must be
borne in mind when economists speak of the lack of internal capacities

16
for development, or the low per capita income base, from which the
British could not lift the Indians, however, much they tried.‘‘
The economic drain of wealth prevented the process of capital creation
in India but the British brought back the drained out capital and set up
industrial concerns in India owned by British nationals. The government
protected their interests and thus the British could secure almost a
monopoly of all trade and principal industries. The British component of
industries established in India further drained off Indian wealth in the
form of remittances of profits and interest. Thus, the economic drain
which commenced right from the inception of the British rule acted as a
drag on economic development till 1947.
1.9 Colonialism and Modernization

The British economists have always upheld that the backwardness of

the Indian economy and its failure to modernize itself was largely due to
the value system, i.e.. Spiritualism, asceticism, the caste system, joint
family, etc. Similarly, the British economists have always argued that
Indian capital was proverbially shy, it always sought safe avenues of
investment and thus lacked the basic quality of adventure, which is an
essential condition for dynamic entrepreneurship. Dr. Bipan Chandra
who has examined the impact of colonial rule in modernizing India
rejects both these arguments for absence of modernization as mere
shibboleths. He writes : ―It is a historical fallacy to assume that India
under British rule did not undergo a fundamental transformation, or that
it remained basically traditional.‖ But the modernization of India was
brought within the political parameters of a colonial economy. Thus, the
colonial links between India and Britain resulted in the progress of the
Industrial Revolution in Britain while it meant the modernization of those
sectors of the Indian economy which strengthened the process of
integration of the Indian economy with British capitalism. ―It was,
therefore, not an accident nor was it historically exceptional that India
was integrated into world capitalism without enjoying any of the benefits
of capitalism, without taking part in the industrial revolution. It was
modernized and underdeveloped at the same time.‖

It is also not correct to argue that British capital showed a spirit of

adventure. The British developed the railways in India under the
Guarantee System which assured a minimum return on whatever capital
they invested. Similarly, the development of tea and coffee plantations or
investment in jute industry was undertaken only when the British investor
felt attracted by high profits available in these areas. Not only that, the
entire policy of protection was aimed at protecting British industrial and

17
commercial interests. The introduction of the clause of most favoured
nation treatment‘ further made it clear that along with profit
maximization, the British used the arm of the state to obtain security
maximization. There is, therefore, no basis for the assertion that British
capital was more adventurous than Indian capital.
The British rule was a long story of the systematic exploitation by an
imperialistic government of a people whom they had enslaved by their
policy of divide and rule. The benefits of British rule were only incidental,
if any. The main motive of all British policies was to serve the interests of
England. Thus, in 1947 when the British transferred power to India, we
inherited a crippled economy with a stagnant agriculture and a peasantry
steeped in poverty. As Jawaharlal Nehru put it : ―India was under an
industrial capitalist regime, but here economy was largely that of the
procapitalist period, minus many of the wealth-producing elements of
that pre-capitalist economy. She became a passive agent of modern
industrial capitalism suffering all its ills and with hardly any of its
advantages.‖
Check Your Progress

1. Choose the correct option:

(i) The Great Depression happened during.
(a) 1929-34 (b) 1914-18
(c) 1939-45 (d) None of these
(ii) The Suez Canal was opened in
(a) 1890 (b) 1862

(c) 1869 (d) None of these

(iii) The commercialization in Indian agriculture was spread during.
(a) 1850-1947 (b) 1857 -1919

(c) 1891-1951 (d) None of these

(iv) During the 18th century, the East India Company wanted to benefit
from the export of Indian cotton, the company made use of these agents
called.
(a) East India Company (b) Company agents
(c) Gomastas (d) None of these.

18
Glossary

1. Labour- the hard work done manually

2. Commercial- making or intended to make a profit.
3. Famine- an extreme scarcity of food
4. Pauperisation- the act of making someone poor
Answers to Check Your progress

1. 1929-34
2. 1869
3. 1850-1947
4. Gomastas
References and Suggested Readings
1. The Indian Economy; S.K. Ray; Prentic, Hall of India Private Limited
New Delhi - 110001.
2. Indian Economy; Gaurav Datt and Aswani Mahajan; S. Chand and
Company LTD. Ram Nagar, New Delhi-110055.
Model Questions
1. Describe the causes and consequences of famine in pre
independent India.
2. Explain the process of Industrial transition in India.

19
UNIT - 2

Development Strategies in India: Planning

STRUCTURE

Overview
Learning Objectives
2.1 Planning in India

2.2 Objectives of Economic Planning in India

2.1.1(a). Economic Planning and Removal of Poverty
2.1.2(b). Economic Planning and Social Justice

2.3 Strategies and Evaluation of Planning

2.4 Mahalanobis Model of Growth
2.5 The Need for Rapid Industrialisation

2.6 Implications of Heavy Industry Strategy

2.7 Development Strategy and Employment Objective
2.8 Strategy to Achieve Social Objectives : Use of Fiscal

Policy
2.9 Appraisal of the Heavy Industries Development Strategy
2.10 Models of Economic Development : Nehru Vs. Gandhi
2.11 The Gandhian Model of Growth
2.12 Agriculture
2.13 Cottage and Village Industries

2.14 Basic Industries

Let us sum up
Glossary

Answers to check your progress

Suggested Readings
Model Questions

20
Overview

India follows the concept of mixed economy, with public and private
sectors playing complementary roles, remaining active partners in the
common tasks of development. Since independence, India has following
planning for social and economic development. This means the state
plays a proactive role in deciding about ‗what, how, how much, where
and whom‘ in economic and social activities of the system. At the same
time, it also by and large respects institutions of private property and
market. The Indian Constitution itself gave scope for market to function
and yet asked the State to intervene in the functioning of the market.
India‘s democratic planning aims to achieve a high and sustained rate of
growth, a progressive improvement in the standards of living of the
people, eradication of poverty and unemployment to lay the foundation
for a self-reliant economy. It may be noted that planning strategy
envisaging the role of state vis-a-vis market has drastically shifted in
favour of market in the 1990s onwards.
Learning Objectives
After reading this unit, the learner will be able to

1) Understand the process of economic planning in India

2) Understand and analyze the strategies and evaluation of
planning
3) Understand, various models of economic development in India.
2.1. Planning in India

Mixed economy is the outcome of the compromise between the two

diametrically opposite schools of thought—the one which champions the
cause of capitalism and the other which strongly pleads for the
socialisation of all the means of production and of the control of the
entire economy by the state. The economic development of U.K., USA
and many free nations of Europe and America was due to private
enterprise. This explains why in the writings of the 18th and 19th century
economists, the concept of mixed economy finds no mention, since in
those days, economic liberty and non-interference of the state in
economic affairs were cardinal principles. According to the English
classical and neo- classical economists, the economic system worked
smoothly and what was most profitable for the individual, was also most
conducive to the economic welfare of the community at large. Perfect
harmony in the economic system could be achieved through the

21
acceptance of the invisible hand of self-interest and the use of market
forces of demand and supply.
Karl Marx believed that the capitalist economy allowed a few powerful
industrialists and traders to exploit the vast majority of workers. Marx
advocated socialization of all the means of production and wanted the
state to direct the economy. He would have no private enterprise system
based on self- interest, private property, market forces of demand and
supply and maximization of profit for the individual. The rise of
communist regimes in USSR in 1917 and eastern European countries,
Communist China, Vietnam, Cuba etc., later was the direct consequence
of the impact of Marxist ideas.
2.2. Objectives of Economic Planning in India

The Committee produced a series of studies on different subjects

concerned with economic development. The Committee laid down that
the State should own or control all key industries and services, mineral
resources and railways, waterways, shipping and other public utilities
and, in fact, all those large-scale industries which were likely to become
monopolistic in character.

Besides the National Planning Committee (NPC) eight leading

industrialists of India conceived ―A Plan of Economic Development‖
which was popularly known as the Bombay Plan. There was also a
Gandhian Plan which was prepared by Shriman Narayan. The world
famous revolutionary M.N. Roy formulated the People‘s Plan. All these
plans were only of historical importance because they were just paper
plans which were never implemented. But they stimulated thinking about
the various aspects of planning in India.
Just after the attainment of Independence the Prime Minister Nehru set
up the Planning Commission in 1950 to assess the country‘s needs of
material capital and human resources and to formulate economic plans
for their more balanced and effective utilisation. The First Five Year Plan
commenced in 1950-51 and it was followed by a series of Five-Year
Plans.
The Directive Principles of our Constitution laid down : ―The State shall,
in particular, direct its policy towards securing - (a) that citizens, men
and women equally, have the right to an adequate means of livelihood :
(b) that the ownership and control of the resources of the community are
so distributed as best to subserve the common good : (c) that the
operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment.‖ The

22
Directive Principles of the Indian Constitution are, thus, an expression of
the will of the of people of India for rapid economic growth. Accordingly,
the Government of India adopted planning as a means of fostering
economic development. The Planning Commission set out the following
four long term objectives of planning :
(a) to increase production to the maximum possible extent so as
achieve higher level of national and per capita income;
(b) to achieve full employment;
(c) to reduce inequalities of income and wealth; and
(d) to set up a socialist society based on equality and justice and
absence of exploitation.
The First Five-Year Plan expressed clearly the long-term objectives of
goals of economic planning in India as follows : ―Maximum production
and full employment, the attainment of economic equality or social
justice which constitute the accepted objectives of planning under
present day conditions are not really so many different ideas but a series
of related aims which the country must work for. None of these
objectives can be pursued to the exclusion of others, a plan of
development must place balanced emphasis on all of these.
In his book ―Planning and the Poor‖. B.S. Minhas a former member of
the Indian Planning Commission states : ―Securing rapid economic
growth and expansion of employment, reduction of disparities in income
and wealth, prevention of concentration of economic power, and creation
of the value and attitudes of a free and equal society have been among
the objectives of all our plans.‖
We may discuss the above socio-economic objectives under the
headings of (a) Economic planing and removal of poverty, and (b)
Economic planning and social change.
2.2.1. (a). Economic Planning and Removal of Poverty

Rapid economic growth : The basic aim of economic planning in India is

to bring about rapid economic growth through development of
agriculture, industry, power transport and communications, and all other
sectors of the economy. The basic measure of economic growth of a
country is the continuous expansion, year after year, of real national
income and real per capita income. Economic growth, should also
include improvements in quality of life consisting of life expectancy,
infant mortality, literacy, etc. A little consideration will show that all these
indicators of development are inter-related in the sense that expansion

23
of real national income is the basis for increase in per capita income and
also improvement in the quality of life. For a poor country such as India
with a large mass of people steeped in poverty and misery, increase in
national income by itself is not enough-instead. consistent increase in
per capita income over a period, alongwith improvement in quality of life
is the yardstick to judge the economic development of India.
Indian planners aimed at increasing national and per capita incomes on
the assumption that the continuous increase in these incomes would
reduce and eventually remove poverty and misery and raise the
standard of living of the masses. But when our planners found that
increase in national income was not accompanied by reduction of
poverty in the country, the objective of planning from the Fourth Plan
onwards was not simply economic growth but raising the standard of
living of those who have been living in abject poverty for generations,
nay, for centuries. According to the Fourth Five-Year Plan, ―the basic
goal is a rapid increase in the standard of living of the people‖, and
again‖ emphasis is placed on the common man, the weaker sections
and the less privileged.‖ In fact, the slogans of ―garibi hatao‖ (Removal of
poverty) and ―growth with justice‖ were coined during the early 1970‘s to
indicate clearly that the emphasis would be on removal of poverty and
not simply on increase in national income.
Increase in employment : Unemployment and under-employment are
important causes of poverty in India. Hence, from the very beginning,
removal of unemployment and underemployment has been an important
objective of economic planning in the country. The Planning Commission
has all along assumed that increase in investment would be
accompanied by increase in employment as well as increase in national
income of the country. The Commission argued explicitly in the Third
Plan that as national income increased in response to investment and
development outlay, the demand for labour would automatically rise and
more employment would the created.
At the same time, the removal of unemployment would result in increase
in gross national product and standard of living of people on the other.
Accordingly all the Five Year Plans had programmes of economic
growth, with increase in employment as inherent in the development
programmes.

Even though employment has been mentioned as one of the objectives

of economic planning in all our Five-Year Plans, it has never been
accorded a high priority. In no plan, do we find separate employment
plans framed for each one of the sectors and regions, so as to boost

24
employment on the one side and national income on the other. This
explains why unemployment has increased over the years. For the first
time, the Planning Commission admitted in the Janata Party Sixth Plan
(1978-83) the possibilities of real conflict between employment and
economic growth and accorded employment a pride of place in the Plan.
However, in the Sixth Plan (1980-85) which was finally accepted and
implemented by the Congress Party, the main focus reverted to the
traditional growth approach, with the usual assumption that employment
would increase with rise in investment, irrespective of choice of
techniques. Thus, not a single plan has been framed keeping
employment generation as a primary objective and only lip service was
paid to the achievement of full employment goal.
2.2.2. (b). Economic Planning and Social Justice
In an unplanned society, various types of retrogressive forces operate,
such as inequalities of income, poverty, absence of equal opportunities
for progress, etc. India‘s economic plans made conscious effort to
remove all these retrogressive forces and foster social as well as
individual development. Reduction of inequalities of income and the
establishment of a socialist society create conditions in which everyone
will have equal opportunities in the matter of education and employment.
Besides, there will be no concentration of economic power and
exploitation of one individual by another.
Reduction of inequality of incomes : A very small group of persons in
India are better-off and have not experienced poverty and misery. These
are rich landlords in the countryside, merchants, industrialists, bankers,
top officials of the Government, etc. The vast majority of people are,
however, very poor because their income is very low. Extreme
inequalities of income and wealth in India have their roots in the
traditional social formation and necessarily, therefore, the reduction of
inequalities of income and wealth would be possible only through
abolishing the semifeudal relations of production in our villages. The
Planning Commission outlined such measures as the removal of all
intermediaries and the ceiling on landholding for reduction of inequalities
of wealth and income in rural areas.
Another aspect of inequalities of income in India is the large disparities
between rural and urban incomes which are bound to be accentuated
over the years with industrialisation and economic growth. The Planning
Commission has suggested measures to raise agricultural productivity,
development of agro-based industries, fair price to farmers for their
products, etc.

25
Even though reduction of income inequalities has always been
mentioned as one of the objectives in all the plans, in terms of priority
this objective invariably got a very low position. This could possibly be so
because Nehru, the architect of Indian planning, did not believe that the
problem of economic inequalities of income and wealth could ever be
solved merely by redistribution. The Fourth Plan stated clearly : ―In a rich
country, greater equality could be achieved in by transfer of income
through fiscal, price and other policies. No significant results to be
achieved through such measures in a poor country.
2.4. Strategies and Evaluation of Planning
The basic objectives of our Five-Year Plans were development along
socialist lines to secure rapid economic growth and expansion of
employment, reduction of disparities in income and wealth, prevention of
concentration of economic power and creation of values and attitudes of
a free and equal society.‖ In order achieve these objectives, the planners
formulated a strategy of planned economic development.
2.5. Mahalanobis Model of Growth
It was only with the Second Plan that there was a clear enunciation of a
strategy of development by Indian planners. Prof. P.C. Mahalanobis who
was the real architect of the Second Plan, was responsible for
introducing a clear strategy of development based on the Russian
experience. This strategy emphasised investment in heavy industry to
achieve industrialisation which was assumed to be the basic condition
for rapid economic development. For Jawahar Lal Nehru, the first Prime
Minister of India, the development of heavy industry was synonymous
with industrialisation. He stated : ―If we are to industrialise, it is of
primary importance that we must have the heavy industries which build
machines.‖ Again, ―there are some who argue that we must not go in for
heavy industry but for lighter ones. Of course, we have to have light
industries also but it is not possible to industrialise the nation rapidly
without concentrating on the basic industries which produce industrial
machines which are utlised in industrial development.‖ Nehru was, thus,
extremely forthright in pointing out that industrialisation meant
development of heavy industries. The Plan frame of the Second Plan
stated this, in unequivocal terms, as follows:
―In the long run, the rate of industrialisation and the growth of the
national economy would depend upon the increasing production of coal,
electricity, iron and steel, heavy machinery, heavy chemicals and heavy
industries generally-which would increase the capacity tor capital
formation. One important aim is to make India independent as quickly as

26
possible of foreign imports of producer goods so that the accumulation
of capital would not be hampered by difficulties in securing supplies of
essential producer goods from other countries. The heavy industry must,
therefore, be expanded with all possible speed.‖
Thus the core of the strategy adopted by Indian planners for the Second
Plan and with minor modification for the subsequent three Plans (i.e. up
to the Fifth Plan) - was rapid industrialisation through lumpy investment
on heavy, basic and machine-building industries.
2.6. The Need for Rapid Industrialisation

The planners justified their strategy of rapid economic development

through rapid industrialisation.
(a) At the time of Independence, India was essentially agrarian,
though the country with its vast natural and human resources was ideally
suited for industries. The planners felt that diversification of the use of
resources would be in the interest of the country from the point of view of
production, employment and defence. Resources should, therefore be
applied more towards the development of industry rather than to
agriculture.

(b) Indian agriculture was already, suffering from heavy population

pressure on land and productivity of labour on land was quite low—it
was even thought that marginal productivity of labour on land might be
zero and even be negative. One method of reducing this pressure of
population on land and to raise agricultural productivity was to reduce
the percentage of people living on land, and to shift the surplus
population to industries. The setting up and expansion of the industrial
sector was thus a necessary condition for raising the national product in
general and for agricultural development in particular.

(c) Rapid industrialisation was an essential condition for the

development of not only agriculture but also for all other sectors in the
country. For instance, with the expansion of industries and the shifting of
labour from rural to urban areas, the demand for foodgrains and
agricultural raw materials (such as cotton, jute, oil seeds, etc.) would
increase. At the same time, increased production and supply of
fertilisers, pesticides, agricultural machinery, etc. would help in the
expansion of agricultural production. With rapid industrialisation, and
with rapid expansion of markets, there would be expansion in trade and
commerce, in transportation, in banking and finance, etc.
(d) Productivity of labour is much higher in manufacturing than in
agriculture. The growth rates are much higher in industry than in

27
agriculture. Rapid increase in national and per capita income would be
possible only through rapid industrialisation.
(e) The income elasticity of demand for industrial goods was much
higher and export opportunities for manufactured goods were also high.
It was for all these reasons that industrialisation was emphasised by the
Indian planners.
2.7. Implications of Heavy Industry Strategy

The important implications of this strategy may be noted here.

Small scale industries and supply of consumer goods : The planners of
the Nehru era were clear in their mind that the growth of heavy
industries would be limited by the growth of consumer goods in the
household sector. Naturally, they did not ignore or neglect the growth of
small sector for instance, the Second Plan framework stated : ―The
greater the marketable surplus of consumer goods in the household or
hand industries, the greater will be possibilities of investments in heavy
industries with any fear of inflation.‖
For one thing, the growing population has fed and clothed; actually, the
demand for constituted goods will increase with the growth of population.
For another, increasing rate of investment on he industries with long
gestation periods would responsible for increase in money supply with
general
public and in the absence of matching of supply of consumer goods will
result in inflationary press. The Nehru-Mahalanobis model, gave and
encouragement to cottage and small indudtries producing consumer
goods. It was asserted that input-output ratio would be low in small-scale
cottage industries and the gestation period was very short and
obviously, the small sector was ideal suited to increase the supply of
consumer go Besides, Professor Mahalanobis argued that the co-
production in the cottage and small sector need not higher than that of
the factory sector since the sector would also be making use of modern
machines and electricity.
Nehru also gave due importance to small sector of industries and
agriculture which were the sources consumer goods. In his own words,
―The test; country‘s advance in industrialisation is heavy industry—not
the small industries that may be put. That does not mean that small
industries should ignored. They are highly important in themselves
production and for employment.‖ The framework the Second Five Year
Plan stated : ―The strategy requires all-out efforts for the maximum

28
utilisation of capacity in existing industries and for the development of
additional production in the capital light small sector of industries.‖
Place of Agriculture in the development strategy : On agriculture, Nehru
stated : ―We shall that this industrial progress cannot be achieved
without agricultural advance and progress... Every knows that unless we
are self-sufficent in agriculture we cannot have the wherewithal to
advance industries. If we have to import food, then we doomed so far as
progress is concerned. We can import both food and machinery.‖
It is thus clear that the Mahalanobis strategy self-sustained growth
based on heavy industries not ignore or neglect the growth of small and
cottage industries for increasing the supply of consumer good.
In spite of many favourable factors for increasing the supply of consumer
goods, Professor Mahalanobis nobis did anticipate shortage in supply of
consumer goods and possible rising prices and costs endangering the
planning process. In his strategy of development, therefore, he provided
for fiscal and physical controls including rationing to keep the prices in
check.
Role of the Public Sector : The Mahalanobis investment strategy
assigned a dominant role to the public sector. As investment in the
heavy sector was very high and as the gestation period was too long
and that too with low profitability, the Government felt that heavy
industries should be, by and large, in the public sector. Except in
isolated cases, the private sector too was not keen on providing
infrastructural facilities. Besides, the control of the public sector would
vest the control of the commanding heights with the Government and
this would help the development of a socialist economy. Above all, the
public sector would prevent the rise of monopoly ownership and
exploitation which are inherent in the private sector. It was for these
reasons that from the Second Plan onwards, the Government went in a
big way for the expansion of the public sector.

The role of the private sector : While giving direct responsibility to the
public sector for infrastructure investment and the development of heavy
industry, the development strategy expected the private sector to
develop and expand its activities in a large area of economic activity. In
fact, the private sector was given an important place in the mixed
economy of India. But the activities of the private sector were seen to be
essentially complementary to a rapidly growing public sector. The private
sector was also expected to function in harmony with the overall aims
and policies of economic planning. The planners anticipated a growing
trend towards concentration of economic power in the private sector and

29
to counter this trend, the planners provided larger opportunities for new
entrants for medium and small-sized units and also for extensive use of
controls and regulations and also use of appropriate fiscal measures.
Role of foreign trade and foreign aid: Initially, the Planning Commission
relied considerably on foreign aid to meet India‘s requirements of capital
goods, as our foreign exchange earnings were inadequate. At the same
time, the planners had to provide for foreign aid, since the rate of
domestic savings was inadequate to match the planned higher rate of
investment. They also emphasised that the creation of export surplus
and export promotion should go hand in hand with rapid industrialisation.
However, this aspect of the strategy was forgotten in practice even
during the first decade of planning. The Third Plan clearly brought out
this point : ―One of the main drawbacks in the past has been that the
programme for exports has not been regarded as an integral part of the
country‘s development effort.‖
2.8. Development Strategy and Employment Objective

The Mahalanobis strategy of planning was essentially to achieve the

objective of self-sustained long-term growth via investment in the heavy
sector. For ―rapid industrialisation and diversification of the economy‖,
the Mahalanobis strategy considered the development of ―basic
industries and industries which make machines to make machines
needed for further development as the crucial element. This strategy
naturally came in conflict with the employment objective of our plans.
For, a fast and self-sustained economic growth could be ushered in only
through emphasis on capital- intensive production, namely, ―by building
of economic and social overheads, exploration and development of
minerals and promotion of basic industries like steel, machine building,
coal and heavy electricals‖. To solve the conflict between rapid growth
on the one side and immediate increase in employment opportunities on
the other, Mahalanobis strategy adopted a ―policy of encouraging labour-
in-tensive techniques in consumer goods industries even as the capital-
intensive sector of heavy industry was being expanded rapidly.‖
2.9. Strategy to Achieve Social Objectives : Use of Fiscal Policy

The Mahalanobis investment strategy broadly implied that increase in

production would be accompanied by better and more equal distribution
of income and wealth. Apart from this assumption, Indian planners relied
on Fabian socialist strategy of using fiscal policy of taxation and public
expenditure to achieve the two social objectives of planning, viz., the
removal of inequalities of income and wealth on the one hand and the

30
establishment of a socialist society based on equality and justice, on the
other.
Fiscal policy aiming at the reduction of inequality of income and wealth
had two aspects. Highly progressive income tax was to be imposed to
lop off the high incomes beyond a certain level (marginal rate of income
tax at one time was 97.25 per cent). Estate duty was to be highly
progressive so as to remove a portion of large fortunes; other taxes
falling exclusively on affluent sections of the community included wealth
tax, capital gains tax and gift tax. While direct taxes attempted to transfer
part of the income and wealth of the rich to the Government, public
expenditure was specifically used to promote the welfare of the lower
income groups and weaker sections of the community.
A fast and concerted development of education was to be an important
means for ensuring greater equality of opportunity to different sections of
the population. Public expenditure on public health and sanitation,
housing, etc. was used to achieve ―a measure of redistribution in the
consumption of basic necessities such as health and medical care,
sanitation, water supply and cheap housing. Tribals, Dalits and other
backward classes were to receive favoured treatment under special
programmes.‖
Apart from the use of fiscal policy, the planners did not adopt any
measures for direct redistribution of property and wealth to achieve
reduction of disparities of income and wealth and to prevent
concentration of economic power. The only exception was the half-
hearted attempts at land reforms and ceiling on land holdings in rural
areas.
2.10. Appraisal of the Heavy Industries Development Strategy

The ―heavy industries‖ investment strategy formulated during the

Second Plan was the basis of the development of the Indian economy
during the last five decades, except for the short period of two years or
so — 1977-79 when the Janata Party attempted a shift in favour of small
industry and consumer goods.
The heavy industries strategy was hailed during the Second and Third
Plans but came in for considerable criticism later. It was commended for
the smart rise in saving and investment rates in the country, for the
impressive development of economic infrastructure specially in irrigation,
energy, transport and communication, etc., considerable expansion in
the capital goods sector via the dominant role of the public sector, self-
sufficiency in consumer goods and in basic commodities, diversification

31
and expansion of industrial capacity and impressive growth of science
and technology. However, this development strategy was severely
criticised for its inadequate emphasis on agriculture and small-scale and
cottage industries, for the emergence of continuous trade deficits, for
growing unemployment in the country and above all, for growing
inequality of incomes and wealth on the one side and very slow
reduction of poverty on the other.
2.11. Models of Economic Development : Nehru Vs. Gandhi

Nehru-Mahalanobis model of development emerged as the driving force

of the strategy of development adopted in the mid-fifties at the time of
formulation of the Second Five Year Plan. This strategy has continued
right upto the eighties with a short interregnum about 2-3 years when
Janata Party was in power during 1977-80. Nehru-Mahalanobis model
was based on long run development strategy which accorded greater
preference to the long-term goals of development, rather than
succumbing to the immediate and short-term goals. The strategy,
therefore emphasised
 a high rate of saving so as to boost investment to a higher level,

 it preferred a heavy industry bias to development the industrial

base of the economy,
 it opted for the protectionist path so as the safeguard infant
industry,
 it encouraged import-substitution so as the achieve self-reliance,
and

 it aimed at enlargement of opportunities for the less privileged

sections of the society.
Growth wave social justice was thus the goal of Nehru-Mahalanobis
model since it intended to foster a self-generating path development with
an assurance to the common man the poverty, unemployment, disease
and ignorance would removed so that individuals could realise their
potent with the extension of social and economic opportunities. Since it
was the credo of the fifties that market mechanism could not bring about
judicious allocation of the sources to meet the objective of growth with
social justice, a much greater role was assigned to the State. The
principal functions of the State in the economic sphere were the
development of economic and social infrastructure. The economic
infrastructure was concerned enlargement of irrigation, power, transport
and communications so as to expand markets as also to remove

32
constraints in the form of power on industrial development and irrigation
for agricultural development. He increasing social infrastructure in the
form of education and health, the State intended to develop skilled man
power so that it could provide the necessary skills need for the
functioning of the new industries. To channelise investment into socially
desired lines of production, the State nationalised major banks. Thus, in
the Nehru-Mahalanobis model the State controlled the commanding
heights of the economy through the public sections.
2.12. The Gandhian Model of Growth

Acharya S.N. Agarwala brought out the ‗Gandhian Plan‘ in 1944 and re-
affirmed it in 1948. These publications form the basis of Gandhian
planning or ‗Gandhian model of growth. The basic objective of the
Gandhian model is to raise the material as well as the cultural level of
the Indian masses so as to provide a basic standard of life. It aims
primarily at improving the economic conditions of the 5.5 lakh villages of
India and therefore, it lays the greatest emphasis on the scientific
development of agriculture and rapid growth of cottage and village
industries.
2.13. Agriculture

The Gandhian model aims at the reform of agriculture as the most

important sector in economic planning in India. The primary objective of
agricultural development is national self-sufficiency in foodstuffs and
maximum regional self-sufficiency in food. This has to be achieved not
only by larger and better inputs but also through land reforms-change in
the system of tenure, abolition of the proprietary rights on land,
consolidation of holdings, organisation of co-operative farms, etc.
Money-lending should be abolished, and there should be increased
credit facilities for the farmers. The Gandhian model lays special
emphasis on dairy farming as an occupation and as an auxilliary to
agriculture.
2.14. Cottage and Village Industries

The primary aim of the Gandhian plan is the attainment of maximum

self-sufficiency in village communities. Hence, the plan emphasises the
rehabilitation, development and expansion of cottage industries side by
side with agriculture. Spinning and weaving are given the first place. The
manufacturing of khadi is important and it is almost on the same level as
the production of rice and wheat. ―Just as villagers cook their own roti
(bread) and rice so must they make their own khadi for personal use.
The surplus, if any they may sell.‖ The Gandhian plan outlines a scheme

33
for making every village self-sufficient in cloth. At the same time, the
Gandhian plan wants the State to consider the revival and expansion of
rural cottage industries as the main plank of its industrial planning.
Gandhi emphasized the conflict between village industries and capital-
intensive pattern of industrialisation based on high degree of
urbanisation. E. Haribabu of the Indian Institute of Technology (Kanpur)
writes : ―The twin compulsions of reconstructing the economy and
achieving rapid economic development after Independence, prompted
India‘s rulers to adopt a model of development based on the experience
of the West : the implicit emphasis on capital-intensive industrialisation
and urbanisation. Over a time a distinct bias became apparent towards
urban settlements in general and big cities in particular‖. Explaining the
role of rural areas in the process of industrial development of India in the
post-Independence period, the late Annasaheb Sahasrabudhe wrote :
―The rural areas were encouraged to start such industries which provide
urban population with things like milk, vegetables, oil seeds, cotton and
foodgrains and purchase from the urban areas items such as cloth, oil
and other manufactures‖. The villagers have thus been turned into
second class citizens to supply cheap raw materials and semifinished
products to the urban organised sector. The principal element in this
strategy is the transfer of all but most primitive jobs to the cities. In 1910,
village industries constituted 40 per cent of the labour force. By 1946,
this had decreased to 10 per cent. Today, they remain at two per cent.‖
Claude Alvares, therefore, questions in a very incisive manner : ―How
long can we continue to assume the illusion that when the British
destroyed local industries, that was wicked, but that when we do so, it is
desirable.‖
2.15. Basic Industries

There is a general misconception about Gandhi being against the

development of large-scale industries. Actually, the Gandhian Plan
recognises the need for and the importance of certain selected basic
and key industries in India, especially defence industries, hydro-electric
and thermal power generation, mining and metallurgy, machinery and
machine-tools, heavy engineering, and heavy chemicals. The Gandhian
Plan would like the development of basic industries not to interfere with
or to hinder the growth of cottage industries. The most dynamic scientific
aspect of the Gandhian model is that the basic and key industries will be
owned and managed by the State-they will be in the public sector. On
this point there is no difference between Nehruvian and Gandhian
models of growth.

34
Generally, people assume that Gandhi‘s emphasis on cottage industries
and handicrafts is a clear indication of his opposition to modern
machinery. This is wrong. Gandhi is not against all machinery, for the
spinning-wheel itself is a piece of machinery. He protests, however,
against the craze for machinery and its indiscriminate multiplication. He
believes that the factory system using extensive machinery has become
the source of exploitation of labour by a few capitalists. He welcomes
machinery and modern amenities wherever they lighten the burden of
the villagers without displacing human labour. Machinery is good when it
operates in the interests of all; it is evil when it serves the interests of the
few.
If we carefully analyse the Gandhian model, we will find that the aim is to
develop agriculture and industries side by side and to integrate them.
The handicrafts and cottage industries are emphasised from the point of
view of production as well as that of employment. After Independence.
Nehru dominated the Indian scene and Gandhi and his economic ideas
were forgotten. During the short period of the Janata rule 1977-79 as
well and as in the Draft Sixth some of these ideas were incorporated. In
concernt terms the Gandhian model of growth calls for following
changes in the present system of planner.
(a) Employment-oriented planning to repeat production-oriented
planning : The basic prem here is that unemployment is our greatest
enemy that in its solution lies the key to the problems poverty and
inequality. It would, therefore, advisable to replace production-oriented
planner with employment oriented planning. This work necessitate
demarcation of areas of high employments potential which also ensures
high and efficiency production.

(b) Agriculture and employment potential : Agriculture offers great scope

for enlarging emplement in : (i) agriculture including animal husband
compost-making, sanitation and gobar gas;

(ii) new works such as irrigation projects, soil conservation land

reclamation, afforestation etc. and (iii) rural cottage industries.
Under intensive cultivation-land can support much larger number of
workers. According to an easy mate, in 1971, 39 workers were
employed per land acres in India and as such India was classified as
low-performance country but in Japan, South Korea, Taiwan and Egypt
during 1965, the number of women employed per 100 acres was
between 87 and. These countries are high-performance nations models
of small farms and highly labour-intensive pattern. The experience of
these countries shows home another 50 to 60 million people can be

35
employed agriculture in India and at the same time increase total output.
The employment potential in the newly-integated areas can be increased
by 60 per cent provided there is only limited mechanisation i.e., the
adoption of machines which supplement human effort and easy or
lighten its burden rather than supplant it—‖the Japanese style of farm
machinery.‖
(c) Large Vs. Small Industries : The Gandhian model of growth is in
favour of small-scale and cottage industries and it is against large scale
industries producing consumer goods. Charan Singh, an arden
supporter of the Gandhian model of economic growth states : ―No
medium or large-scale enterprise shall be allowed to come into
existence in future which will produce goods or services that cottage or
small-scale enterprises can produce and no small scale industries shall
be allowed to be established which will production goods or services that
cottage enterprise can produce.‖
(d) Equitable distribution : Growing concentration of economic power
in the hands of a few and inequality of incomes are the two major
economic ills of the Indian economy despite the profession of Socialism
under Nehru model of economic growth. Accumulation of wealth and the
concentration of economic power are directly due to centralisation of the
means of production and centralised large-scale production. Gandhi has
got probably the best and the most natural solution to the problem of
distribution. The natural solution is decentralised small-scale
production—this will cut at the very root of accumulation of wealth. And
wherever large-scale production is inevitable (as in basic and key
industries), it should be left to Government ownership and management.
In the Gandhian model, the problem of distribution is tackled at the
production end and not at the consumption end.
The Gandhian model of growth hopes to achieve a national minimum
level of living within the shortest possible time and aims at removal of
concentration of income and wealth and growth with stability.
Check Your Progress
Choose the correct option:

1.The communist regimes in USSR rised in

(a) 1917 (b) 1914
(c) 1939 (d) None of these

2.LPG model of Deployment was introduced in

(a) 1990 (b) 1962

36
(c) 1991 (d) None of these
3. First Food Security Summit took place in
(a) 2004 (b) 2000
(c) 1996 (d) None of these
4.The End of Laissez Fair was written by
(a) Karl Marx (b) Keynes C) Engels (d) None of these
Glossary
1) Mahalanobis - the key economist of India's Second Five Year
Plan

2) Heavy Industries- Heavy industry is an industry that involves one

or more characteristics such as large and heavy products; large
and heavy equipment and facilities (such as heavy equipment,
large machine tools, huge buildings and large-
scale infrastructure); or complex or numerous processes.
3) Investment- an asset or item acquired with the goal
of generating income or appreciation
4) Urbanisation- the process through which cities grow, and higher
and higher percentages of the population comes to live in the city
5) Equitable- dealing fairly and equally with all concerned an
equitable settlement
Answers to Check your progress

1.1917
2.1991
3. 1996

4. Keynes
2.17. Suggested Readings

 Indian Economy ; Gaurav Datt and Aswani Mahajan; S. Chand

and Company LTD. Ram Nagar, New Delhi-110055.
 The Indian Economy ; S.K. Ray; Prentic, Hall of India Private
Limited New Delhi – 110001.

37
Model Questions

1. Write the objectives of Economic planning in India.

2. Describe the Mahalanobis Model of Growth
3. Describe the Gandhian model of Economic development and
distinguish it from Nehru model.

38
UNIT - 3

ECONOMIC REFORMS IN INDIA

STRUCTURE

Overview
Learning Objectives
3.1 Economic Reforms in India Since 1991

3.2. GDP Growth and Poverty reduction

3.3. Economic Reforms and Reduction of Poverty
3.4. GDP Growth, Employment Growth and Poverty

3.5. Trend of Employment in Organised Sector

3.6. Increase in Productivity and Real Wage Earning
3.7. Neglect of Agriculture — The Major Sin of Economic
Reforms
3.8. Economic Reforms and Industrial Growth
3.9 Performance of Public Sector Enterprises
3.10. Economic Reforms and Movement of WPI and CPI
3.11. Trend of Growth in Infrastructure
3.12. India’s Foreign Trade and Balance of Payments
3.13. Foreign Investment
3.14. Reduction of Regional Disparities
3.15. Social Infrastructure and Human Development

Let us sum up
Glossary
Answers to check your progress

Suggested Readings
Model Questions

39
OVERVIEW

It is now about 15 years when the reform process was initiated in 1991.
There is near unanimity among political parties regarding the
implementation of economic reforms. The two major political parties-
Congress and the BJP have a common agenda of economic reforms.
Even the left political parties - CPI, CPI (M) and Janata Dal (United) are
not opposed to economic reforms. However, they stress that the
interests of labour and the common man should not be ignored and the
reform process should not follow the dictates of capitalist lobbies.
Similarly, regional parties have also been wooing foreign capital to
undertake investments in their states. Thus, every political party is keen
on accelerating the pace of economic reforms to acquire higher GDP
growth, enlarge investment in infrastructure, and persuade Indian big
business and multinationals to promote investments. It is believed that
the levels of living of the people cannot be improved unless the growth
process is accelerated and the country achieves a sustained growth of
GDP of 7-8% for over a decade or two in futures.
LEARNING OBJECTIVES

After reading this unit the learner will be able to

1.Understand the Economic reforms in India since 1991.
2. Understand GDP and Poverty reduction
3. Understand India‘s foreign trade and Foreign investment
3.1. Economic Reforms in India Since 1991

There is near unanimity among major political parties on the

implementation of economic reforms. The agenda of the two major
political parties viz., the Congress and the Bhartiya Janata Party have
shown a very large consensus about economic reforms. Janata Dal,
CPI, CPI(M), though indicated some shades of difference, have also
accepted the reform package. Some of the regional parties like DMK.
AIDMK. Samata Party, Samajwadi Party, the Rashtriya Janata Dal also
woo foreign capital to undertake investments in their respective states.
In nutshell, it may be pointed out that a consensus has been achieved in
the country to introduce and implement economic reforms so as to
accelerate the process of development.
The reforms process has completed 17 years and this cannot be
considered as too short a period to assess the impact of economic
reforms. It would, therefore, be proper to undertake an appraisal of the
achievements and shortcomings of economic reforms to understand as

40
to whether the country is moving in the right direction, or alternatively,
there is a need to reform the reform process undertaken during the
nineties.
Before undertaking an appraisal of the economic reforms, it would be
desirable to state the goals of the process of economic development. The
reforms process while accelerating economic development should lead
thus to the following ends :
A higher rate of growth;
 an enlargement of employment potential leading to full
employment;
 reduction of population living below the poverty line;
 promotion of equity leading to a better deal for the poor and
less well-off sections of our society; and
 reduction of regional disparities between the rich and the
poor states of India.

 It would be of interest to examine economic reforms in

terms of goals of the society listed above.
3.2. GDP Growth and Poverty reduction

There is no doubt that economic reforms have been able to promote a

relatively higher growth. After the teething troubles of the first two years
viz., 1991-92 and 1992-93, the growth rate during 1993-94 to 1997-98
has averaged to more than 7 per cent per annum. After 1991 -92, the
momentum of growth has been maintained providing increasing
evidence that the growth potential has improved as a result of the
reforms initiated in 1991.
If we compare the annual average growth rate during the pre-reform
period (1980-81 to 1990-91) which was of the order of 5.2 per cent per
annum, then the post-reform decade (1990-91 to 2000-01) also shows a
little higher average annual growth rate of 5.8 per cent of real GDP.
However, there is a distinct improvement in growth rate of GDP during
the 5-year period (2000-01 to 2003-04) to an average of 6.0 per cent and
further to 8.7 percent in next 5-years from 2004-05 to 2009-10.
3.3. Economic Reforms and Reduction of Poverty

Dr. Gaurav Datt of the World Bank in his article ―Has Poverty
Declined Since Economic Reforms ?‖ has compared the decline in
head-count index, poverty gap index and squared poverty gap index
for rural and urban India in the pre-reform and the post-reform period.

41
 The main conclusions of the study are as under :
Mid-1980s seems to be a significant watershed in the evolution of living
standards in India. While there was a marked decline in both rural and
urban poverty rates between 1973-74 and 1986-87, there is no sign of
anything comparable.
a) For the rural sector, the results indicate that while there was a
significant trend decline in all the three poverty measures up to
mid-1991 (at an annual rate of 2.7 per cent for the headcount
index, 4.5 per cent for the poverty gap and 5.9 per cent for the
squared poverty gap index), the rate of decline since then is not
significantly different from zero.
b) For the urban sector, in the pre-reform period (1973-74 to 1990-
91), the results indicate a declining trend in all the three poverty
measures upto mid-1991 (at an annual rate of 2.2 per cent for
headcount index, 2.8 per cent for poverty gap and 3.1 per cent for
squared poverty gap), the same trend is continued even in the
post-reform period (1990-91 to 1996-97) and all the three
poverty measures register a decline (at an annual rate of 2.2 per
cent for headcount index, 2.65 per cent for poverty gap and 3.7
per cent for squared poverty gap).
c) While the urban sector appears to have continued its trajectory of
growth and poverty reduction through the 1990s, rural poverty
reduction was choked off by lack of rural growth.
3.4. GDP Growth, Employment Growth and Poverty

The question arises : Why is it that although GDP growth rates have
been very high during the recent years (especially after 1993-94), they
have not been accompanied by corresponding reduction in poverty. If
poverty implies either unemployment or under- employment or absence
of good quality employment, then it would be of interest to study the
change in employment scenario before and after the economic reforms.
Data provided in Table 3 reveals that total employment increased from
3,026 lakhs in 1983 to about 3,568 lakhs in 1990-91 and then improved
to about 3.829 lakhs in 1997-98. The rate of growth of employment was
of the order of 2.39 per cent per annum during 1983 and 1990-91, which
was just equal to the rate of growth of labour force during this period.
However, it was hoped that if this rate of growth of employment is
sustained in the next decade, the country would be able to reduce the
backlog of unemployment significantly. But unfortunately, the period of
reforms (1990-91 to 1997-98) reveals that the overall growth rate of

42
employment was only of the order of 1.0 per cent. It may also be noted
that since the reform process is limited to the organised sector, more so
to the large corporate sector, the growth rate of employment in the
organised sector also decelerated to 0.60 per cent during 1990-91 to
1997-98 as against 1.73 per cent per annum witnessed in the 7-year pre-
reform period of 1983 - 1990-91. This was just one-third of the growth
rate of the employment witnessed earlier. There was also a substantial
slowdown in the employment growth rate of the unorganised sector to
merely 1.1 per cent during 1990-91 to 1997-98 as against employment
growth rate of 2.41 per cent witnessed during the 7-year pre-reform
period (1983 to 1990-91). This leads one to the natural conclusion that
the trickle down effects of the growth process did not benefit the poor.
Dr. S. P. Gupta, therefore, states: ―All these trends make one rethink the
utility of an exclusive policy on ‗GDP growth‘ in resolving poverty or
employment. In contrast, it has been observed that high growth in
employment in India has almost always been associated with some
reduction in poverty. For example, the period of high growth of
employment in the 1980s with a comparatively lower GDP growth has
witnessed a significant reduction in poverty. In the 1990s as
hypothesized, a low growth of employment is seen to be associated with
an increase in poverty.‖
3.5. Trend of Employment in Organised Sector
Since the focus of the reform process is on organised sector
employment, it would be desirable to examine the growth of
employment in the organised sector.
3.6. Increase in Productivity and Real Wage Earning

Industrialist lobbies have frequently charged labour for not raising labour
productivity, but forcing an increase in the real wage of earnings of
labour. Shariff and Gomber (1999) have studied the problem of increase
in labour productivity and real earnings of regular wage/ salaried
employees. Their study reveals, whereas overall real labour productivity
showed an increase during 1983-88 by 3.16 per cent and during 1988-94
by 3.32 per cent, the real earning of workers increased at the annual
average rate of 7.0 per cent during 1983 and 1987-88, but showed a
miserably low increase of 1.0 per cent during 1987-88 and 1993-94.
Though the post-reform period is not long enough to arrive at any
definite conclusion, but it does give some indication of the straws in the
wind that the gains of productivity increase during 1988-94 by 3.32 per
cent were passed on to the workers by only 1.0 per cent and the rest were
pocketed by the employers.

43
This had an unhealthy impact on labour welfare. The upshot of the
analysis given above is that the basic problem with economic reforms is
not to treat labour as an asset but as a mere instrument, which can be
dispensed with when in the judgment of the employer, it is no longer
useful. This is a very mechanical view of labour, which is resented by
trade unions on the one hand, and judiciary on the other. For the
employer, it is an attempt at downsizing leading to cost reduction, for the
employee, it is the loss of job. In developed countries, where social
security systems have been extensively developed, the process of
downsizing is much less painful, because the worker can at least get
some dole and thus is not deprived of a basic minimum essential for
livelihood, but in a developing economy like India, this restructuring and
downsizing leading to retrenchment or closure results in depriving the
workers of their livelihood.
3.7. Neglect of Agriculture — The Major Sin of Economic Reforms

A major criticism of the process of economic reforms is the neglect of

agriculture. Data reveal that foodgrains production increased from 129.6
million tonnes in 1980-81 to 176.4 million tonnes in 1990-91 resulting in
annual compound rate of 3.1 per cent. But during the 18-year period of
economic reforms, foodgrains production increased from 176.4 million
tonnes in 1990-91 to 234 million tonnes in 2008-09, indicating an annual
average growth rate of 1.6 per cent, which was lower than the growth
rate of population. Complacency on the foodgrains front can certainly
cost the nation very dearly in the coming decade.
Various reasons have been assigned for this situation. Firstly, the reform
process has emphasised the growth of manufacturing and service
sectors and thus neglected agriculture.

Agricultural growth has stagnated around 2 percent during the last

decade. It was 2.1 percent during the Ninth Plan (1997-2002) and is
estimated to be 2.3 percent during the Tenth Plan (2002-07). Economic
Survey (2006-07) explaining the situation states : ― The structural
weaknesses of the agriculture sector reflected in low level of investment,
exhaustion of the yield potential of new yielding varieties of wheat and
rice, unbalanced fertilizer use, low seeds replacement rate, an
inadequate incentive system and post-harvest value ad-dition were
manifest in the lack luster agricultural growth during the new
millennium.‖
That total investment in agriculture as a percentage of GDP was only
2.8% in 1999-00. It fell to 2.4% of GDP in 2003-04 but improved
marginally to 3.34 percent in 2008-09 but again fell to 2.97 percent in

44
2009-10. While the economy has indicated a sharp increase in
investment to 36.5% of GDP in 2008-09. the share of investment in
agriculture to a level of 2.97 % of GDP is too inadequate, more so when
cognizance is taken of the fact that agriculture provides livelihood to 58
percent of population.
It may also be pointed that public sector investment in irrigation, flood
control, water harvesting, rural infrastructure reclamation of degraded
lands etc. has a much greater spread effect. In contrast, private sector
investment in tube wells, tractors and harvesters increases the income
of the landowning classes only. It has impacted to reduce employment.
This lack of development of irrigation infrastructure by withdrawing
public sector investment with the hope that the private sector
investment will expand irrigation, did not materialise. This was specially
the case in backward states like Bihar, Madhya Pradesh and Orissa,
which indicates ‗very poor growth rates in foodgrains production - even
lower than the national average. Last but not the least, whereas the
green revolution states like Punjab, Haryana, Uttar Pradesh have
reached a plateau, the country could not trigger higher yields in
backward states. Dr. G. S. Bhalla and G. R. Singh (1997) in their study
have pointed out ―a sharp pick-up in agricultural growth experienced by
the East-ern Region has been facilitated by a remarkable increase in
area under irrigation triggered by a substantial private investment in
pumpsets and tubewells.‖
If we study the implementation of the Water-Seed-Fertilizer technology
(popularly known as the Green Revolution), then during the decade
1970-71 to 1980-81, irrigated area indicated an annual average growth
rate of 3.6 per cent, which declined to 2.7 per cent during the decade
1980-81 to 1990-91 and further to merely 1.9 per cent during 1990-91 to
1997-98. Since irrigation is the basic input which helps the fuller
utilisation other inputs - seeds and fertilizers, we also observe declining
growth rates in the irrigated area under rice and wheat from seventies
to eighties and nineties. In case of pulses, irrigated area growth
experienced a negative growth rate of the order of 1.5 per cent per
annum. A similar trend was observed in the case of extension of area
under HYV in case of paddy and rice. Fertilizer consumption indi-cated a
sharp decline from 8.5 per cent annual average growth rate during the
eighties to just 3.7 per cent during the nineties. In this connection, it is
relevant to consider the trend in major and minor irrigation. Major
irrigation acts as a supplement to minor irrigation in keeping the water
table high, while minor irrigation provides water-security to the peasant

45
in case of failure of rains. The slowing down of the growth rate of
irrigated area under minor irrigation from 3.5 per cent during eighties to
2.3 percent during nineties is another contributing factor to slow-down
of over-all agricultural growth. Economic reforms did not pay adequate
attention to expansion of irrigation and this is a major sin responsible for
low growth of agricultural production and productivity during the
nineties.
The upshot of the entire analysis is that the major sin of economic
reforms is gross neglect of agriculture— the mainstay of livelihood of
over 60% of the population. This is more so in view of the fact that
though India had seven good monsoon years in succession,
agricultural production indicated year-to-year fluctuations. This casts a
shadow on sustainability of agricultural growth, unless there is a
reorientation of priorities with much greater emphasis on agriculture and
rural industrialisation. The state, instead of withdrawing from investment
in agriculture, irrigation and rural infrastructure, has to strengthen public
sector investment in these areas.
3.8. Economic Reforms and Industrial Growth

Economic Reforms were mainly intended to remove the bottlenecks,

which acted as obstacles in industrial production. To pursue this goal,
Industrial licensing was abolished in all but 18 Industries. Later the
government delicensed several others. During 1998-99, three Industries
viz., (i) Coal and Lignite, (ii) Petroleum (other than crude and its
distillation products), and (iii) Sugar were delicensed. Accordingly, there
are only six Industries now under compulsory licensing. Two Industries,
viz., Coal and lignite were taken out from the list of Industries reserved for
public sector. At present, there are only four industries reserved for the
public sector. Put another way, it can be stated that the reform process
dismantled the system of Industrial licensing which was considered to be
a main roadblock in the progress of industrial development.

Despite all this, data provided in table 9 reveals where as the eighties
(1981-82 to 1990-91). general index of Industrial production recorded an
annual average growth rate of 7.8 per cent, growth rate of IIP slowed
down to 7.2 per cent during 1993-94 to 2009-10. In manufacturing, it
increased from 7.6 per cent in the ‘80s to 7.7 per cent, and in electricity
it declined from 9 per cent to 5.5 per cent and in mining & quarrying it
slumped from 8.3 per cent to just 3.9 per cent. Thus, the expectations
that growth of IIP would be stimulated did not materialise. Further if we
break the period from 1993-94 to 2009-10 in two parts namely 1993-94 to
2000-01 and 2000-01 to 2009-10, we find that in the second period

46
growth rate decelerated in case of electricity, while it accelerated in case
of mining and quarrying. In manufacturing it remained at the same level.
Table 1 provides growth rates of Industrial production on the basis of
use-based classification. The data reveal that but for intermediate
goods, which recorded a slightly higher growth rate of 6.3 per cent in
post-reform period as compared to 5.9 per cent in the eighties, in all the
other sectors, growth rates recorded in the eighties were higher In the
capital goods sector, growth rate slipped to 10.7 per cent in the post-
reform period as against a robust growth rate of 11.5 per cent in the
eighties.
Even in consumer durables, a decline in annual average growth rate was
observed 9.2 per cent as against a much higher growth rate of about
13.9 per cent in the eighties.
From the index of growth rates of industrial production, it becomes evident
that the performance of the industrial production during 1995-96 and
2009-10, which is generally identified as a period of wide-ranging
reforms in the industrial sector, was not up to the mark. It failed even to
equal the performance observed in the eighties, not to speak of
improving the performance as a consequence of the reform process in
post-reform period. The failure of the basic goods and capital goods
sector really put a question mark on the success of the reform process.
Table 1 : Annual Average Growth Rate of Industrial
Production (Use-based Classification)

Sector 1981-82 to 1995-96 to

1990-91 2009-10

a. Basic Goods 7.0 5.2

b. Capital goods 11.5 10.7

b. Intermediate 5.9 6.3

Goods

d. Consumer Goods 6.7 7.1

(i) Durables 13.9 9.2

(ii) Non-durables 5.5 6.4

General Index 7.8 6.7

47
 Source : Computed from RBI, Handbook of Statistics on
Indian Economy, (2009-10)
3.9. Performance of Public Sector Enterprises

Information about the performance of the much-maligned Central

Public Enterprises, reveals that gross profit as percentage of capital
employed was 11.61 per cent in 1993-94, 15.88 per cent in 1995-96
and then to 21.5 per cent in 2004-05. A similar trend was observed in
net profit, which was of the order of 2.84 per cent in 1993-94 but
improved to 12.1 percent in 2005-06. Value added per unit of capital
which indicates the efficiency of capital employed also showed an
improvement from 0.26 in 1993-94 to 0.44 in 2001-02. Obviously,
Central Public Sector Enterprises have shown better perfor-mance
during the 12-year period of reform (1993-94 to 2005-06). The basic
question which needs to be raised is : If the ground realities indicate
better performance of the Central Public Sector Enterprises, is it
desirable to undertake disinvestment of these enterprises ? Would it not
be better to introduce reform of public sector enter-prises so that they
can improve their performance still further. By 2005-06, the
Government had signed Memo-randum of Understanding (MOU) with
102 PSEs. Evaluation of their performance reveals that 44 were rated as
excellent, 36 very good and 14 as good. If 94 PSEs out of 102 have
shown an improvement, there is a case for innovating measures to
improve performance of PSEs, rather than giving them a bad name
and hang them.
3.10. Economic Reforms and Movement of WPI and CPI
If we leave out the first two years of the post-reform period assuming
them to be teething troubles and compare the relative movement of
prices for the 11-years period (1993-94 to 2004- 05), then the following
objective reality is indicated.
Rise of prices affects the labour classes adversely as against the
capitalist classes who gain disproportionately with a rise of prices. The
movement of wholesale price index (WPI) reveals that in the pre-reform
period (1981-82 to 1991-92), the annual average increase in WPI was
of the order of 6.9 per cent and in the post-reform period (1993-94 to
2009-10), it was of the order of 6.21 percent. Obviously, the situation in
the rise of WPI improved during the post-reform period.

But a better index of measuring welfare would be to study the

movement of Consumer Price Index (CPI). The data reveal that CPI for
Industrial Workers (CPI-IW) indicated an annual average rise of 7.1 per

48
cent for the period 1993-94 to 2010-11 which is higher than increase of
WPI. Similarly. CPI for Agricultural labourers (CPI-AL) increased
annually by 6.9 per cent in the post-reform period which also indicates
a relatively higher increase than WPI.
The upshot of the analysis is that in the post-reform period (1993-94 to
2009-10), the movement of the CPI was slightly higher than the
movement of WPI. This indicates that retail inflation in post-reform
period was slightly higher than wholesale inflation.
3.11. Trend of Growth in Infrastructure

The analysis reveals that in case of saleable steel and cement, the
growth rates were higher in the post-reform period than in the pre-
reform period. In case of steel, the growth rate of production increased
by 8.1 per cent during 1993-94 and 2010-11 as against only 4.9 per cent
in the pre-reform period (1980-81 to 1990-91). Similarly, the growth of
cement production also indicated sharp increase by 8.3 per cent during
1993-94 to 2010-2011 as compared to only 4 per cent in the pre-reform
period. However, it should be pointed out that the momentum gained in
the post-reform period for acceleration in the production of cement was
the consequence of introduction of dual pricing in the case of cement
introduced in 1982 with progressive reduction in the percentage of
controlled cement to eventually freeing cement prices from state control.
This led to massive increase in the cement capacity and output.
Similarly, gradual easing of steel price control was accepted by the
Government in 1983. But all these measures were taken in the pre-
reform period, which helped to provide an environment to these
industries to raise their capacity and output without any bottlenecks.
However, other infrastructure Industries - electricity, coal and petroleum
did not fare well in the post-reform period. In the case of electricity,
whereas in the eighties growth rate of generation was of the order of 9.1
percent, it was just 5.5 percent in the post-reform period. Likewise, coal
production declined from 6.4 per cent in the eighties to just 4.0 per cent
during 1993-94 to 2010-11. In case of petroleum, growth rate dipped from
12.2 per cent in the eighties to just 1.5 per cent during 1993-94 to 2010-
2011. While the state withdrew from these sectors and did not undertake
investment in infrastructure, the private sector - Indian as well as foreign
- failed to fill the vacuum. Obviously, excessive dependence on private
sector in the post-reform period did not yield the much-trumpeted and
desired results.

49
3.12. India’s Foreign Trade and Balance of Payments

Although policies of liberalisation in foreign trade were initiated in 1985-

86 but their impact though felt during the period 1986-87 to 1990-91 was
slow and after 1991 the new economic reforms went in for a more rapid
globalisation of the Indian economy by reducing and/or abolishing
quantitative restrictions and also reducing tariff barriers which hindered
trade. The main implications of reform measures were intended to boost
exports as well so as to facilitate developmental imports or such imports,
which were vital for increasing industrial production, may be of some raw
materials. It would, therefore, be appropriate to compare trend of foreign
trade in the pre-reform periods i.e. 1980-81 to 1990-91 (described as the
eighties) and the period 1991-92 to 2004-2005 the post-reform period.
The Reserve Bank of India has revised the data of India‘s balance of
payments in dollar terms recently. It would, therefore, be appropriate to
review the position of foreign trade on the basis of this updated
information.
The decade has been divided into two sub-periods. During the first five
years (1981-82 to 1985- 86), India achieved a growth rate of 2.3 per cent
in exports, but in imports, the growth rate was barely 2.0 per cent. India
followed a restrictive import policy during this period. Consequently, as
against the average annual exports of $ 9,514 million, average annual
imports were of the order of $ 16,404 million. As a result, average trade
deficit was $ 6,890 million. Since net invisibles were positive, the surplus
from this head on the average was $ 3,474 million. Thus, surplus from
invisibles was able to neutralize the trade deficit by 50.4 per cent.
Consequently balance of payment deficit on current account could be
restricted to $ 3,416 million. During this period, exports as a percentage
of imports were only 58 per cent and thus, the situation was highly
unsatisfactory.
3.13. Foreign Investment

Data reveal that during the 16 year period, a total of US $ 136.5 billion
was invested in India in the form of foreign investment, out of which $
72.09 billion (52.8 per cent of total) was in the form of direct investment
and $ 64.44 billion (47.2 per cent) was in the form of portfolio
investment. Segregated data reveal that direct investment flows remained
subdued during 1991- 92 to 1994-95 and in this period portfolio
investment accounted for a larger share, but in the later period 1995-96
to 2002-03, direct investment flows picked up and they accounted for

50
quite a significant share and from 1997-98 and 1998-99, direct
investment became dominant. It may also be noted that portfolio
investment is of a very undependable and volatile nature. This is
witnessed by the fact that portfolio investment slumped to a level of US $
1.83 billion in 1997-98 as against 3.31 billion in 1996-97 and became
negative in 1998-99. The sudden fall of portfolio investment to a
negative level resulted in the total inflow declining from US $ 6.13 billion
in 1996-97 to $ 2.40 billion in 1998-99. This only highlights the fact that
although foreign investment is welcome, it would be more desirable to
depend on inflows of foreign direct investment. The sharp decline of
portfolio investment from $ 3,026 million in 1999-00 to a low level of 979
million in 2002-03 and then a sudden spurt to $ 11,377 million in 2003-
04 and again a decline to $ 9,315 million in 2004-05 is indicative of its
volatile and undependable nature. Portfolio investment again sharply
increased to in 2005-06 to $ 12.492 million (64%) to again decline to $
7,003 million in 2006-07 accounting for merely 24 percent of total foreign
investment, and further increased to $ 27,271 million during 2007-08. But
due to economic crisis if became negative SI3.855 million during 2008-
09. In 2009-10 we find a record foreign investment of $ 70,139 million as
portfolio investment reached its record and direct investment was also
very high at $ 37,763 million. In 2010-11 provisional figures for foreign
investment was put at $ 5,84,95 million.
3.14. Reduction of Regional Disparities

One of the major objectives of development is to reduce regional

disparities. With this end in view, State policies have been patterned to
help the backward regions. It was also included as a part of the
devolution of funds and higher allocations were made for the backward
states so that regional disparities could be narrowed down.
The reform process initiated in 1991 has been emphasising the use of
the market forces, which naturally attract investment to regions more
developed in infrastructure - both economic and financial. It does not
pay any attention to the question of regional imbalance.
It would be, therefore, desirable to understand the impact of economic reforms
on various states.
An analysis of the growth of the Net State domestic Product (at 1993-
94 prices) for the post- reform period reveals that NSDP in forward
states indicated an annual average growth rate of 5.6 per cent during
1990-91 and 2002-03. but as against them in the backward states,
growth rate of NSDP was merely 1.7 per cent. This only underlines the
stark reality that the reform process helped the forward states much

51
more than the backward states and could be held responsible for
widening regional disparities. It may also be noted that in Bihar, the per
capita NSDP growth during 12-year period (1990-91 to 2002-03) was
negative to the extent of (–) 0.9 per cent per annum and in Uttar
Pradesh, it was barely 0.4 per cent. These two states which account for
about 27 per cent of the population pulled down the average all-India
growth of per capita NSDP. The ratio of maximum and minimum per
capita NSDP which was 2.7 in 1990-91 increased to 4.73 in 2004-05
which also supports the fact that the reform process widened income
disparities among the states. However period after 2004-05 shows
some imoprovement in the performance of backward states and this
ratio declined to 4.2 in 2008-09. Dr. N. J. Kurian of the Planning
Commission who made an extensive study of the ―Widening Regional
Disparities in India‖ has indicated that more than two-thirds of
investment proposals (69.2 %) in the post-reform period were
concentrated in the forward states and a similar situation prevailed in
terms of financial assistance disturbed by All-India Financial Institutions
as well as State Financial Corporations. The All India Financial
Institutions viz., IDBI, IFCI, ICICI, UTI, LIC, GIC, IRBI and SIDBI
disbursed 67.3 per cent of total financial assistance to forwards states
upto 31st March 1997. Even among the 9 forward states, four states,
namely Maharashtra, Gujarat, Tamil Nadu and Andhra Pradesh were
able to appropriate about 51 per cent of total assistance. Even in the
case of State Financial Corporations, 70 per cent of total assistance
was received by forward states. This analysis underlines the fact that the
reform process has favoured the forward states in terms of approval of
investment proposals as well as financial assistance. Consequently, the
already betteroff states can further accelerate the growth process while
the backward states being unfavourably treated face a retardation in
growth. This explains the growing disparities in terms of growth of
NSDP — both total and per capita.
Situation seems to have worsened later. Figure of per capita state
domestic product at current prices show that the ratio of per capita state
domestic product of Haryana (highest per capita state domestic product
of ` 58531) and that of Bihar (` 10570) was 5.5 even in 2007-08. Though
rate of growth of some underdeveloped states has improved in the last
few years, lot more is needed to be done to reduce regional inequalities.
3.15. Social Infrastructure and Human Development

Data on selected indicators of Human Development viz., life

expectancy, literacy rate, infant mortality rate (IMR). If the purpose of all

52
development is to improve the quality of life, then human development
indicators are the end-products of the development process.
Wide disparities are observed among different states. Kerala and to
some extent Tamil Nadu have shown that it is possible to achieve higher
levels of human development even with low levels of economic
development. But, by and large, better levels of per capita NSDP are
associated with higher levels of human development. To achieve higher
levels of human development, it is necessary that investment in
educational and health infrastructure be stepped up. Among the back-
ward states. Uttar Pradesh, Bihar. Rajasthan and Madhya Pradesh have
very poor record in terms of literacy, especially female literacy. They
have also failed in investment in health infrastructure and consequently
have lower life expectancy, higher infant mortality and higher birth rate.
The private sector which is the torch-bearer of economic reforms my be
setting up nursing homes or elite educational institutions with higher
levels of charges or fees to meet the demand of the upper middle class
and affluent sections, but it does not offer anything for the welfare if the
poor. Either the private sector should assume a higher social purpose or
the state should invest more in education and health infrastructure.
Let us Sum Up

India has seen many Economic Reforms since the late 1970s in the form
of liberalization. However, a whole battery of Economic Reforms came
about in 1991, which had a direct effect on the growth rate of the
Country. The new Economic Reforms refer to the neo-liberal policies
that the Indian Government introduced in 1991.The three main pillars of
this Reform were: Liberalization, Globalisation, and Privatization.
Check Your Progress
1. Choose the correct option:

(i) Economic reforms in India were introduced in

(a) 1991 (b) 1978

C)1985 (d) None of these

(ii) Water seed fertilizer technology popularly known as
(a) Growth development (b) Green revolution

(c) Peasant reforms (d) None of these

(iii) What is GDP

53
 Glossary

Fiscal - relating to government revenue, especially taxes

Unanimity - agreement by all people involved; consensus
Disparity - a great difference
Reclamation - returning something to a former, better state
Fluctuation - an irregular rising and falling in number or amount; a
variation
Answers to Check Your progress

1. 1991
2. Green revolution.
3. GDP stands for "Gross Domestic Product" and represents the
total monetary value of all final goods and services produced
(and sold on the market) within a country during a period of time
(typically 1 year).
References and Suggested Readings Model Questions

 The Indian Economy; S.K. Ray; Prentic, Hall of India

Private Limited New Delhi - 110001.
 Indian Economy; Gaurav Datt and Aswani Mahajan; S.
Chand and Company LTD. Ram Nagar, New Delhi-
110055.
Model Questions

1. Explain the role of Economic reforms in reduction of poverty in India.

2. As a Social Worker, analyze the economic development of our
country and suggest measures to improve the socio economic status

of people.

54
UNIT - 4

DEMOGRAPHIC FEATURES AND INDICATORS OF

DEVELOPMENT

STRUCTURE
Overview
Learning Objectives

4.1Demographic Features and Indicators of Development

4.2 Trends in Population Growth
4.2.1. Distribution of Population by States

4.3. Growth Rate of Population

4.4. Density of Population
4.4.1. Inter-State Variations

4.5. Life Expectancy

4.6.1. Age and Sex Composition
4.7. Literacy

4.8. Nature of the Population Problem in India

4.8.1. Effects on Economic Development
4.9. Population Policy in India
4.10. National Population Policy, 2000
4.11. Indicators of Development
4.11.1. Economic Growth and Economic Development

4.11.2. Human Development Index

4.11.3. Computation of HDI
Let us sum up

Glossary
Answers to check your progress
Model Questions

Suggested Readings
OVERVIEW

55
The growth in population explains the difference in the growth of national
income and the per capita income since human resources have a major
role in generating aggregate flow of goods and services. Thus, the
demographic features and indicators of development are closely related.
For instance, human resources have a two-pronged relationship with
economic growth. We see that as a resource, people are available as
factors of production to work in combination with other factors of
production such as land, capital and enterprise. Moreover, as consumers,
human beings make demand on the national produt of the economy. In
this way, the size of population is a significant determinant of economic
growth. It may be noted that a large population may not necessarily
contribute to economic growth. Thus, a large fast-rising population may
find itself in a situation of over-population. We may discuss whether
economic growth alone constitutes economic development and see that it
is not the case. Therefore, we must know about economic development
and the indicators of economic development.
LEARNING OBJECTIVES
After reading this Unit, the learner will be able to understand the
following,
1. Demographic Features of India.
2. Life Expectancy
3. Nature of population problem in India
4.Population Policy of India.
4.1. Demographic Features and Indicators of Development

With the help of Indian census data, a concise demographic profile of the
country can be prepared. In 1872, the country‘s first all India Census
was completed. Decennial censuses have been organised then on in
1881, 1891, 1901, 1911, 1921, etc. The 14th census was completed in
March 2001. It may be noted that the census in India is conducted under
the Census Act, 1948, which makes it obligatory for the public to provide
all answers correctly and fully for a correct analysis.
4.2. Trends in Population Growth

However, India has got only 2.4% of the total land area ofthe world.
Thus, India has been seriously handicapped a large proportion of the
world population is found jam-packed in a small area of the country.
Major trends of Indian population are given as under :

1. Since 1951, the upward trend in population growth rate was

56
 maintained which got reversed during the decades 1981-2001.
2. The increase in population after the country‘s independence was
more rapid. Before that the census of 1931 and the following
census of 1941 recorded an increase of the magnitude of about
.76 crore and 3.97 crore respectively. In this way, while India‘s
population had increased by about 12 crores during the first fifty
years of the present century, i.e. during 1901-51, it increased by
about 32.5 crore during the three decade period of 1951 to 1981
itself.

3. The year 1921 is known as the ‗Year of Great Divide‘. Here, it may
be noted that before 1921, the growth of population was very
slow. A decline was caused by famines and epidemics during
the 1911-21.
4.2.1. Distribution of Population by States : Different States of India
have different number of inhabitants with a large gap. For instance,
Uttar Pradesh has a population as large as 16.60 crore while Sikkim
has barely 5.40 lakh people. Some relatively large states have a
population of more than 5 crore such as Bihar, Maharashtra, West
Bengal, Andhra Pradesh, Madhya Pradesh, Tamil Nadu, Gujarat,
Karnataka and Rajasthan. There are other states with less than 5
crore population.
4.3. Growth Rate of Population
The change in population caused by net migration as a proportion of total
population of the country is almost insignificant and, therefore, can be
easily ignored. The birth and death rates in India have followed the
general trends indicated in the theory of demographic transition. The
following conclusions may be made for India‘s population growth :

1. The natural growth rate of population picked up to reach

the maximum at 22.20 per thousand or about 2.22% per
annum during 1971-1981 (and 21.1% during 1981-91).
The crude death rate showed a marked decline in the
decade 1921-31 and ever since has been continuously
declining. However, during this period lasting till the mid-
1970s, there was hardly any fall in the birth rate.
2. The stage for the third phase of transition was set with
the beginning with the 1970s when the birth rate
registered a fall. However, this has been neutralised by
declining mortality. Here, it may be noted that the growth
rate of population during 1981-1991 and 1991-2001 has

57
 been less than that in 1971-1981 which is an indication
of third stage of transition.
4.4. Density of Population

The density of population in the country is 324 (Census 2001). It is

calculated as a ratio of the number of persons per sq. km. of land area.
It may be noted that a country like Myanmar with a density of
population of only 75 has a per capita income of only $200 as against
$530 in India. However, Japan with a density of 349 has a per capita
income of $34,510. In this way, the density of population helps to
determine the magnitude of the burden that land is being called upon to
carry and to determine the future potentials of growth in the country.
4.4.1. Inter-State Variations : Generally, the density is generally high in
industrially-developed states or in those regions which have a better
climate, rainfall and irrigation facilities. India is an economy where the
agrarian sector dominates and hence the above factors exercise an
influence on the density of population in the country.
4.5. Life Expectancy
The occurrence of high death rate and/or death at an early age means
life expectancy will below. However, if the death rate is low and/or
death occurs at an advanced age, life expectancy will be high for a
given area. It has been observed that in the last few decades, the
death rate in India has recorded a perceptible fall which is reflected in
the rising life expectancy. At present, life expectancy at birth is 63.87
years for males and 66.91 years for females. We see that rising life
expectancy has
social implications. For instance, it creates pressure on the job market. As
persons reaching retirement age remain fit to work, they seek extension
of their jobs or fresh employment. Moreover, as the elderly continue to
live longer, the number of joint or multi-generational families tends to
increase. But we know that the average size of households has not
increased significantly over the last five decades and the total number of
households has risen sharply for the period.
4.6.1. Age and Sex Composition : The consequence of past trends in
fertility and mortality is reflected in the age and sex composition. If high
birth and death rates persist for a fairly long time it would result in a
bottom-heavy age pyramid. For India, the age distribution indicates that
every one person, on an average, has to earn for himself and for one
dependent also. Here, the dependency ratio of the population is about
64.07%. A high dependency ratio acts as a serious drag on production

58
and improvement of living standards of the population.
4.7. Literacy

A person may be called literate if he or she can read and write with
understanding in any language. In India, a substantial progress in
literacy has been made during the 1951-2001.
At the same time, sex differentials in literacy rates are narrowing down. For
instance, in 1951, the female literacy rate as a percentage of male literacy
rate was about 33 which has gone upto 71.40 in 2001.
4.8. Nature of the Population Problem in India

India has a large population and is densely populated. Moreover, since

the 1950s, the growth rate of population has been consistently high. It is
due to persistence of high fertility and declining mortality. Apart from this,
persistence of high birth and death rate for fairly long time has resulted in
a bottom- heavy age pyramid; the dependency ratio in the economy has
been very high. Further, the country shows a rising masculinity with the
proportion of women in the total population gradually falling. The rural
sector dominates the economy. Finally, about one-third of the total
population is illiterate.
4.8.1. Effects on Economic Development : The fast growth of
population in India has caused a number of problems as given below :
1. Coale and Hoover’s Argument : Coale and Hoover say that the
GNP per capita would be lower under higher fertility than under
lower fertility. Undoubtedly, per capita product in India is lower
than it would have been had population been growing more
slowly, because of three reasons given below :
 Due to the smaller number of workers, the amount of capital
per worker would have been greater.

 The labour force would have been little smaller in size in case
the fertility had been lower for a longer period. However, the
number of people it had to support would have been much
smaller during the period.
 If the effect of diminishing returns in agriculture was
equivalent to a lower average productivity of capital, the
capital itself would have been more productive.
2. Cassen’s Argument : According to R.H. Cassen, there are two
main relationships through which population growth affects the
economy : savings effect and composition of investment effect.

59
 (a) Savings Effect : According to this, savings are reduced by
population growth because of the increase of burden of
dependency. As all must consume while relatively fewer
produce, consumption per head rises and savings per head
falls.
(b) Composition of Investment Effect : With an
increasing population, a share of investible resources has to be
utilised towards reproducing for additional people ‗unproductive‘
facilities of the economy. Thus, the pressures of population
growth have become progressively more intense.
4.9. Population Policy in India

The population problem in India needs a policy which aims at a rapid

reduction in the birth rate of the country. The focus of the population
policy should be :
 To increase the rate of employment at a rate that it will
do away with unemployment among population of
working age.
 To control the growth of population through family
planning.
4.10. National Population Policy, 2000

The National Population Policy, 2000 has the following aims :

 The immediate objective is to meet the ―unmet‖
needs for contraception, health care infrastructure,
health personnel and integrated service delivery in
the country.
 The mid-term objective is to bring the total fertility to
replacement levels, that is, two children per couple.

 The long-term objective is aimed at stabilisation of

population by 2045.
In the policy, 16 promotional and motivational measures have been
outlined to implement it. Some of the important are given below :
 For couples below poverty line, with two living children,
who undergo sterilisation, a health insurance cover of
Rs. 5,000 has been fixed.
 Panchayats and Zila Parishads to be rewarded for
promoting small family norm.

60
  Child Marriage Restraint Act and Pre-natal Diagnostics
Techniques Act, to strictly enforced.
 Provision of funds and soft loans for providing ambulance
services in rural areas.
 Abortion facilities scheme to be strengthened.
 Couples below poverty line, who marry after legal age,
have first child after the mother reaches 21, accept small
family norm and undergo sterilisation after birth of two
children are to be rewarded.
Government has established a National Commission on Population,
headed by the Prime Minister, to monitor the new policy measures.
4.11. Indicators of Development

National income estimates (and the corresponding per capita income

estimates) are used as indicators of economic growth. There is another
concept called economic development which is a broader concept than
economic growth.
4.11.1. Economic Growth and Economic Development : An
increase in real terms of the output of goods and services that is
sustained over a long period of time, measured in terms of value added
may be defined as economic growth. On the other hand, the concept of
economic development focuses on the achievement of the following
three aims :
 Increasing the availability and widening the distribution of
basic life sustaining goods.

 Enhancing the levels of living.

 Widening the range of economic and social choice to
individuals and nations by freeing them from servitude
and dependence not only in relation to other people and
nation-states, but also to the forces of ignorance and
human misery in society.

Keeping the above three objectives in mind, the quality of life is

regarded as an important index of development. Several factors are
involved in the measurement of such ‗quality‘. For example, life
expectancy, the level of nutrition, education and literacy rates,
consumption of energy per head and so on. While some of these factors
are ‗non-monetary‘, others are ‗monetary‘. In this direction, at least two
most important indices are Human Development Index and Economic

61
Development Index.
4.11.2. Human Development Index : A process of enlarging
people‘s choices may be called Human development. The United
Nations Development Programme prepares the Human Development
Index (HDI) annually. In theory, the choices can be infinite and change
over time.
4.11.3. Computation of HDI : There are three indicators of HDI. First,
longevity, as measured by life expectancy at birth (25 years and 85
years); second, educational attainment, as measured by a combination
of adult literacy (two-thirds weight) (0% and 100%) and combined
primary, secondary and tertiary enrolment ratios (one-third weight) (0%
and 100%); and third standard of living, as measured by real GDP per
capita (PPP$) ($100 and $40,000 (PPP$)).For each of these indicators,
fixed minimum and maximum values have been set in order to
construct the index :

General formula for computing individual for any component of the HDI

Actualxi value - Minimumxi value

Index =
Maximumxi value - Minimumxi value

Accordingly, the HDI is a simple average of the life expectancy index,

educational attainment index and adjusted real GDP per capita (PPP$)
index. Thus, it is derived by dividing the sum of these three indices by
3. According to the Human Development Report, 2004 India ranked
127 in the group of 177 countries.
Let us Sum up

National Council of Applied Economic Research (NCAER) of New Delhi

has developed a new measure called EDI. We may note that the EDI
develops further on the HDI and is based on three components the
health attainment index, the education attainment index, and per capita
GDP of the economy. NCAER‘s model can analyse policy changes in
Government expenditure on health and education and changes in
public investment and tax rates on macro- economic variables such as
output, prices and the current account balance as well as on human
development in the country.

62
 Check Your Progress
1. Choose the correct option:

1. The first census was completed in

(a) 1890 (b) 1872
(c) 1860 (d) None of these
2. The year ........ is known as the 'Year of Great Divide'.
(a) 1921 (b)1940
(c) 1930 (d) None of these.
3. What is meant by Life-Expectancy?
Glossary
1) Per Capita- the average per person
2) Fertility- the ability to conceive children

3) Mortality- the state of being subject to death

4. Sterilization- surgery to make a person or animal unable to
produce offspring
Answers to check your Progress
1.1872.
2. 1921
3. Life expectancy‖ refers to the number of years a person can expect to
live.
Reference and Suggested Readings

1. Indian Economy; Gaurav Datt and Aswani Mahajan; S.

Chand and Company LTD. Ram Nagar, New Delhi-110055.
2. The Indian Economy; S.K. Ray; Prentic, Hall of India Private
Limited New Delhi – 110001
Model Questions

1. What is meant by the density of population of a country?

2. Describe the problems due to population explosion in India.

63
UNIT -5

UNEMPLOYMENT IN INDIA

STRUCTURE
Overview
Learning Objectives

5.1. Concept of Unemployment in India

5.2. Causes of Unemployment in India
5.3. Government Policies for Employment

5.4. National Rural Employment Programme

5.5. Rural Landless Employment Guarantee Programme
5.6. IRDP, NREP, Rural Poverty—an Employment
5.7. Philosophy behind the IRDP Programme
5.8. Targets and Achievements
5.9. Jawahar Rozgar Yojana
5.10. Objectives of JRY
5.11. Target Groups and Special Safeguards
5.12. Modification under JRY
5.13. Million Wells Scheme (MWS)
5.14. Indira Awaas Yojana (LAY)
5.15. Third Stream — Innovative and Special Employment

Projects
5.16. Employment Assurance Scheme (EAS)
5.17. Evaluation of Jawahar Rozgar Yojana (JRY)

5.18. Employment Policy in the Ninth Plan

5.20. Strategy of Employment Generation in the Ninth Plan
5.21. An Assessment of the Employment Strategy

64
 Let us sum up
Glossary
Answers to check your progress
Model Questions
Suggested Readings

OVERVIEW

The total population of an area, region or country has three components

: the workforce (the employed), the unemployed and the non-workers.
Taken together, the workforce and the unemployed together make up
the labour force. A person who participates in any economic activity is
called a worker and his or her human capital endowment is utilised by
the economy. In the process, he or she earns a living. Thus, all workers
constitute the workforce or the employed. On the contrary, those who
are not workers are called non-workers. Among the non-workers, there
may be some who are looking for work or are available for work and are
called the unemployed. While the worker is engaged in economic activity
and produces the national product, the unemployed is available for being
engaged in such activity but the economy is unable to utilise it and the
non-worker is not available for utilisation in economic activity of the
society. This unit explains how the three components of the population
enumerated and what their proportion in the population is.
LEARNING OBJECTIVES

After reading this unit, the learner will be able to understand

1. The concept of unemployment, its causes and consequences in

India,
2. Measures of the Government to alleviate poverty through
employment generation
3. Employment policy of India,
5.1. Concept of Unemployment in India

India is a developing economy, the nature of unemployment, therefore,

sharply differs from the one that prevails in industrially advanced
countries. Lord Keynes diagnosed unemployment in advanced
economies to be the result of a deficiency of effective demand. It implied
that in such economies machines become idle and demand for labour
falls because the demand for the products of industry is no longer there.

65
Thus Keynesian remedies of unemployment concentrated measures to
keep the level of effective demand sufficiently high so that the economic
machine does not slacken the production of goods and services.
This type of unemployment caused by economic fluctuations did arise in
India during the depression in the 1930‘s which caused untold misery.
But with the growth of Keynesian remedies, it has been possible to
mitigate cyclical unemployment. Similarly, after the Second World War,
when war-time industries were being closed, there was a good deal of
frictional unemployment caused by retrenchment in the army, ordnance
factories, etc. These workers were to be absorbed in peacetime
industries. Similarly, the process of rationalization which started in India
since 1950, also caused displacement of labour. The flexibility of an
economy can be judged from the speed with which it heals frictional
unemployment.
But more serious than cyclical unemployment or frictional unemployment
in a developing economy like India is the prevalence of chronic under-
employment or disguised unemployment in the rural sector and the
existence of urban unemployment among the educated classes. It would
be worthwhile to emphasize here that unemployment in developing
economies like India is not the result of deficiency of effective demand in
the Keynesian sense, but a consequence of shortage of capital
equipment or other complementary resources.
5.2. Causes of Unemployment in India

It is obvious that the unemployment situation is grim indeed. It has,

therefore, to be tackled with appropriate measures and on an urgent
basis. However, before we discussed the ways and means of removing
unemployment, it is necessary that we understand the causes that given
rise to it. The major causes which have been responsible for the wide
spread unemployment can be spelt out as under.
(1) Rapid Population Growth

It is the leading cause of unemployment in Rural India. In India,

particularly in rural areas, the population is increasing rapidly. It has
adversely affected the unemployment situation largely in two ways. In
the first place, the growth of population directly encouraged the
unemployment by making large addition to labour force. It is because the
rate of job expansion could never have been as high as population
growth would have required.

66
It is true that the increasing labour force requires the creation of new job
opportunities at an increasing rate. But in actual practice employment
expansion has not been sufficient to match the growth of the labor force,
and to reduce the back leg of unemployment. This leads to
unemployment situation secondly; the rapid population growth indirectly
affected the unemployment situation by reducing the resources for
capital formation. Any rise in population, over a large absolute base as in
India, implies a large absolute number.
(2) Limited land

Land is the gift of nature. It is always constant and cannot expand like
population growth. Since, India population increasing rapidly, therefore,
the land is not sufficient for the growing population. As a result, there is
heavy pressure on the land. In rural areas, most of the people depend
directly on land for their livelihood. Land is very limited in comparison to
population. It creates the unemployment situation for a large number of
persons who depend on agriculture in rural areas.
(3) Seasonal Agriculture
In Rural Society agriculture is the only means of employment. However,
most of the rural people are engaged directly as well as indirectly in
agricultural operation. But, agriculture in India is basically a seasonal
affair. It provides employment facilities to the rural people only in a
particular season of the year. For example, during the sowing and
harvesting period, people are fully employed and the period between the
post harvest and before the next sowing they remain unemployed. It has
adversely affected their standard of living.
(4) Fragmentation of land

In India, due to the heavy pressure on land of large population results

the fragmentation of land. It creates a great obstacle in the part of
agriculture. As land is fragmented and agricultural work is being
hindered the people who depend on agriculture remain unemployed.
This has an adverse effect on the employment situation. It also leads to
the poverty of villagers.
(5) Backward Method of Agriculture

The method of agriculture in India is very backward. Till now, the rural
farmers followed the old farming methods. As a result, the farmer cannot
feed properly many people by the produce of his farm and he is unable
to provide his children with proper education or to engage them in any
profession. It leads to unemployment problem.

67
(6) Decline of Cottage Industries

Employment particularly of the landless people. They depend directly on

various cottage industries for their livelihood. But, now-a-days, these are
adversely affected by the industrialisation process. Actually, it is found
that they cannot compete with modern factories in matter or production.
As a result of which the village industries suffer a serious loss and
gradually closing down. Owing to this, the people who work in there
remain unemployed and unable to maintain their livelihood.
(7) Defective education

The day-to-day education is very defective and is confirmed within the

classroom only. Its main aim is to acquire certificated only. The present
educational system is not job oriented, it is degree oriented. It is
defective on the ground that is more general then the vocational. Thus,
the people who have getting general education are unable to do any
work. They are to be called as good for nothing in the ground that they
cannot have any job here, they can find the ways of self employment. It
leads to unemployment as well as underemployment.
(8) Lack of transport and communication

In India particularly in rural areas, there are no adequate facilities of

transport and communication. Owing to this, the village people who are
not engaged in agricultural work are remained unemployed. It is
because they are unable to start any business for their livelihood and
they are confined only within the limited boundary of the village. It is
noted that the modern means of transport and communication are the
only way to trade and commerce. Since there is lack of transport and
communication in rural areas, therefore, it leads to unemployment
problem among the villagers.
(9) Inadequate Employment Planning

The employment planning of the government is not adequate in

comparison to population growth. In India near about two lakh people
are added yearly to our existing population. But the employment
opportunities did not increase according to the proportionate rate of
population growth. As a consequence, a great difference is visible
between the job opportunities and population growth.
On the other hand it is a very difficult task on the part of the Government
to provide adequate job facilities to all the people. Besides this, the
government also does not take adequate step in this direction. The faulty
employment planning of the Government expedites this problem to a

68
great extent. As a result the problem of unemployment is increasing day
by day.
5.3. Government Policies for Employment

Following the publication of the Bhagwati Committee report in 1973, the

Government took the following measures to provide employment and
alleviate under-employment.
Rural Works Programme : The emphasis under the programme was on
the construction of civil works of a permanent nature as would contirbute
to the mitigation, if not the total eradication, of the scarcity condition in
the areas concerned.
Marginal Farmers and Agricultural Labourers : Under the scheme,
families were to be assisted with subsidised credit support for
agricultural and subsidiary occupations like dairy, poultry, fishery,
piggery-rearing, horticultural operations, etc.
Small Farmers Development Agencies : The object of the scheme was
to make available to small farmers credit to enable them to make use of
the latest technology to practise intensive agriculture and divrsify their
activities.

Integrated Dry Land Agricultural Development : Under the scheme,

permanent works like soil conservation, land development and water
harnessing were undertaken. These programmes were labour-intensive
and were expected to generate considerable employment opportunities.
Agro-service Centres : The schemes provided for assistance for self-
employment to the unemployed graduates and diploma-holders in
mechanical, agricultural and electrical engineering and allied fields and
graduates in agriculture and science with experience in industry or
agriculture. It aimed to help in establishing work-shops, organising
agricultural machinery, repairing and hiring facilities and other technical
services like supply of spare parts, inputs, etc.
Area Development Schemes These schemes related to the development
of adequate infrastructure facilities like roads, market complexes, etc. in
areas commanded by ten major irrigation projects.
Crash Programme for Rural Employment : The primary objective of the
scheme was to generate additional employment through a network of
rural projects of various kinds which are labour-intensive and productive.
The scheme had a two-fold purpose. Firstly, a project in each block was
to provide employment to 100 persons on an average ccontinuously
over a working season of 10 months in a year. Secondly, each project

69
was to produce works or assets of durable nature in consonance with
the local development plans. The various types of projects included
schemes relating to minor irrigation, soil conservation and afforestation,
land reclamation, flood protection and anti-waterlogging, pisciculture,
drinking water and construction of roads.
The various schemes under the Fourth Five-Year Plan or the Crash Plan
could not succeed in removing rural unemployment and under-
employment because efforts were not made to organise the army of the
rural unemployed into appropriate supply camps to be shifted to places
of demand al the desired minimum wage. The Auditor-General in his
report to the Lok Sabha presented in August 1974 brought out the tragic
fact that the various ‗crash‘ and rural employment programmes on which
the Central Government had spent ` 170 crores during the Fourth Plan
had been wholly infructuous.
5.4. National Rural Employment Programme

The Food for Work Programme was restructured and renamed as

National Rural Employment Programme (NREP) from October, 1980.
This was implemented as centrally sponsored programme with 50 per
cent central assistance. Additional employment of the order of 300-400
million mandays per year for the unemployed and underemployed was
envisaged under the NREP. Besides this, the NREP aimed to create
community assets for strengthening rural infrastructure. These included
drinking water wells, community irrigation wells, village tanks, minor
irrigation works, rural roads, schools and Balwadi buildings, panchayat
ghars etc.
A critical assessment of the projects undertaken brought out the
following shortcomings :

(i) ―Works implemented through NREP are often, not coordinated or

integrated with the requirements of families identified for assistance
under IRDP. Potentiality of NREP worked to assist newly liberated
bonded labourers or to support the attempts of agricultural workers to
secure minimum wages fixed under the law is also not always
appreciated. Stereo-typed earth excavation works mainly relating to
Kachcha village roads, reminiscent of the old famine relief works, are
undertaken ignoring the fact that this programme has a crucially
supportive role to play for the beneficiary oriented development
programme of IRDP and other area development programmees.‖
(ii) There is a tendency to go in for building construction with high
material components. This runs counter to the basic objectives of NREP.

70
The principal purpose of NREP is to utilise local resources, both in terms
of materials and manpower towards the generation of more employment.
5.5. Rural Landless Employment Guarantee Programme

The Rural Landless Employment Guarantee Programme (RLEGP) was

launched on the 15th August, 1983 with the objective of generating
gainful employment, creating productive assets in rural areas and
improving the overall quality of rural life.
The programme was funded by the Central Government on 100% basis.
Resources were allocated to the States/Union Territories on the basis of
the prescribed criteria giving 50% of weightage to number of agricultural
labourers, marginal farmers and marginal workers and 50% weightage
to incidence of poverty. Wages were paid to the workers under the
Schedule of employment in the Minimum Wages Act. Part of the wages
were required to be paid in the form of subsidized foodgrains. It was also
stipulated that the wage component on a project should not be less than
50% of the total expenditure on the project. The programme included
projects of social forestry, Indira Awaas Yojana and Million Wells
Scheme.

The progress of RLEGP during the Seventh Plan (1985-86 to 1988-89)

revealed that during the first four years, a sum of ` 2,412 crores was
utilized and this helped to generate employment to the tune of 1,154
million mandays.
As a result of the RLEGP, social forestry programme 5.2 lakh hectares
of land was covered and 533 million plants were planted during the 3-
year period. Besides this, 4.27 lakh houses at a cost of` 425.5 crores
were constructed upto Dec. 1988. The cost per dwelling unit worked out
at ` 9,954.

The Government decided to merge NREP and RLEGP. The merger was
based on the premise that the objectives and implementation in the field
of these two programmes were by and large similar. But it may be
pointed out that merger of NREP and RLEGP is merely tinkering with the
problem. A much more serious consideration should be given to develop
a much tighter administration of rural employment scheme to eliminate
malpractices so that real beneficiaries can be helped to cross the
poverty line. Improving effectivity of implementation is the crux of the
matter and not administrative reorganisation.

71
5.6. IRDP, NREP, Rural Poverty—an Employment

A multiplicity of agencies have been carrying on the task of providing

rural employment. They included : Employment Guarantee Schemes,
Food for Work Programme, Small Farmers Development Agency
(SFDA), Marginal Farmers and Agricultural Labourers (MFAL), Drought
Prone Area Programme (DPAP) and Desert Development Programme
(DDP), Command Area Development Programme (CADP), etc. The
Sixth Plan (1980-85) proposed that ―such multiplicity of programmes for
the rural poor operated through a multiplicity of agencies should be
ended and replaced by one single integrated programme operative
throughout the country.‖ This programme was named as the Integrated
Rural Development Programme (IRDP).
5.7. Philosophy behind the IRDP Programme
A large body of economic experts have shown in their studies that
whereas economic growth may be able to raise per capita incomes in
developing countries, it may not be accompanied by a reduction of
poverty as well as elimination of unemployment and under-employment.
Rather the process of economic growth in third world countries, India
being no exception, has benefitted relatively developed areas and
better-off people. In other words, the percolation of benefits of economic
growth to backward areas and the poor people have not taken place.
To remedy this situation, it was thought necessary that a direct attack on
poverty should be made. This necessitated progammes for alleviating
rural poverty by endowing the poor with productive assets or skills so
that they can employ themselves usefully to earn greater incomes and
thus cross the poverty line. To achieve this objective, the Sixth Plan
conceived of two important programmes— IRDP and NREP. The basic
strategy was to promote self-employment of the poor households
through IRDP so that with the transfer of productive assets, they may
earn incomes that help them to cross the poverty level. The NREP
(National Rural Employment Programme) was to provide wage
employment to fill in the periods of seasonal and sporadic
underemployment. It was also intended to enlarge absorptive capacity of
labour in rural areas in non-agricultural occupations by creating
infrastructure— social and economic—which help to increase the
productive capacity of the economy.

72
5.8. Targets and Achievements

The IRDP was initiated on October 2, 1980 in all the 5,011 blocks in the
country. During the 5-year period (1980-85) in each block 600 poor
families were to be assisted. In this way, a total of 15 million families of
about 75 million persons below the poverty line were targeted to be
beneficiaries. For each block a uniform allocation of ` 35 lakhs was to be
shared between the Centre and the States on a 50-50 basis.
The programme was based on a graded scheme of subsidies which
amounted to 25 per cent of the capital cost of small farmers, 33.3 per
cent for marginal farmers, agricultural labourers and rural artisans and
50 percent for tribal beneficiaries. Following the Antyodaya principle, the
programme was intended to reach the poorest households first and later
to reach other poor people in an ascending order.
Community works were eligible for 50 per cent subsidy. Nearly 20
percent of the outlay was to be utilised for administrative and
infrastructural support and the balance of 80 percent is meant for
subsidies to beneficiaries for acquisition of assets.
The major weaknesses of the programme were as under :

 Selection of ineligible families, though thd Government claims to

be below 8 per cent, is in fact larger.
 Training was not imparted to majority of the beneficiaries.
 In about 22% cases, no incremental income was generated.
 Adequate infrastructure facilities were not available to
beneficiaries. The input facility was available to barely 40%
cases, marketing in 14% cases and repair facility in 5% cases.
The programme assisted a total of 108 lakh families, out of which 50% of
belonged to SC/ST categories, thus achieving the target set for the plan.
But the percentage of women beneficiaries was only 34%, which was
below the target of 40%.
Besides this, the Government decided to introduce the Family Credit
Plan by enlarging its magnitude. Under the scheme, multiple assets
could be given to more than one member of the family to enable the
household to cross the poverty line. The level of investment per family
was targetted at ` 20,000- 25,000 under the scheme. With a view to
encourage higher levels of investment per family, security norms for
IRDP were enhanced. Banks were earlier required not to obtain
mortgage of land as security for loans up to ` 2,000. This limit was raised

73
to ` 5,000. In addition, banks were not to obtain collateral security for
moveable assets up to ` 15,000.
According to the Mid-term Appraisal of Ninth Five Year Plan (1997-2000)
published in October 2000, since the inception of the programme till
1998-99, 53.50 million fami lies have been covered under IRDP at an
expenditure of ` 13,700 crores. During the first two years of the Ninth
Plan (1997-98 and 1998-99), about 3.37 million families reported to have
been covered.
The average investment per family remained at subcritical levels, too
inadequate to generate income of ` 2,000 per family per month as the
programme had envisaged. At the beginning of the Ninth Plan, an
investment of ` 16,753 per family was not much higher in real terms as
compared with ` 7,889 at the beginning of the Eighth Plan. Such low-
level per family investment cannot finance self-employment projects to
yield adequate income on a sustained basis.
5.9. Jawahar Rozgar Yojana

Prime Minister Rajiv Gandhi announced on 28th April, 1989 the

launching of the Jawahar Rozgar Yojana (JRY). All the existing rural
wage employment programmes were merged into JRY. This implies that
National Rural Employment Programme (NREP) and Rural Landless
Employment Guarantee Programme (RLEGP) have been merged so as
to be brought under this umbrella programme referred to as Jawahar
Rozgar Yojana.
Main features of the Scheme

 As a result of the operation of NREP and RLEGP during 1980-81

to 1988-89, rural employment programmes reached only 55 per
cent of the village panchayats around the country. JRY aimed at
reaching every single panchayat.
 The scheme will be administered by the village panchayats to
implement rural employment programmes benefitting 440 lakh
families living below the poverty line in India.
 Whereas in the earlier rural employment programmes. Central
and State assistance was provided on 50 : 50 basis, JRY has
stipulated that Central assistance will finance 80 per cent and the
States share will be 20 per cent.

74
5.10. Objectives of JRY

Primary Objective : Generation of gainful employment for the

unemployed and under-employed, men and women in rural areas.
Secondary Objectives : JRY had several secondary objectives :
(i) creation of sustained employment by strengthening the rural
infrastructure;
(ii) creating community and social assets;
(iii) creating assets in favour of the poor for their direct and
continuing benefits;
(iv) to produce positive impact on wage levels; and
(v) to bring about over-all improvement in quality of life in rural
areas.
5.11. Target Groups and Special Safeguards

JRY was specially targetted to help people below the poverty line.
Preference was to be given to Scheduled Castes, the Scheduled Tribes
and freed bonded labourers. At least 30 per cent of the employment was
to be provided to women under the JRY.
5.12. Modification under JRY

Based on the experience gained in the implementation of the Jawahar

Rozgar Yojana (JRY) and to achieve the objective of providing 90-100
days of employment per person in backward districts, JRY was modified
from 1993-94 and was implemented in the following three streams :
First Stream: On the existing pattern with two sub-schemes, namely
Indira Awaas Yojana (IAY) and Million Wells Scheme (MWS)

Second Stream : An intensified JRY in 120 identified backward districts

with additional allocations
Third Stream : Special and innovative projects

First Stream of JRY

Under this stream of JRY, two sub-schemes, viz.. Indira Awaas Yojana
(IAY) and Million Wells Scheme (MWS) were implemented. 10 per cent
of the total resources of JRY were earmarked for the IAY and 30 per
cent for the MWS.
Works to be undertaken under first stream of JRY

1. Social forestry works on Government and community lands

belonging to panchayats etc. road side plantations, plantations

75
 along canal banks or on wastelands or on sides of railway lines
etc.
2. Soil and water conservation works
3. Minor irrigation works, such as, construction of community
irrigation wells, drains and field channels
4. Construction/renovation of village tanks for providing irrigation as
well as drinking water
5. Construction of community sanitary latrines
6. Construction of houses for scheduled castes/scheduled tribes
and freed bonded labourers
7. Construction of rural roads.
8. Land development and reclamation of waste lands or degraded
lands.
9. Construction of community centres, panchayat ghars, Mahila
Mandals, Market yards, dispensaries, anganwadis, balwadis etc.

10. Construction of school buildings, etc.

5.13. Million Wells Scheme (MWS)

The Million Wells Scheme was launched as a sub scheme of

NREP/RLEGP during 1988-89 to provide open irrigation wells, free of
cost, to poor small and marginal farmers belonging to SCs/STs and
freed bonded labourers.
Since the beginning of the programme in 1988-89, a total 10.0 lakh wells
were constructed with an expenditure of ` 4,021 crores by 1996-97.
Additional 1.9 lakh wells were constructed during 1997-98 and 1998-99
at a cost of ` 937 crores.
5.14. Indira Awaas Yojana (LAY)

Indira Awaas Yojana was aimed at providing houses, free of cost, to the
members of the SC/ST. freed bonded labourers. From 1993-94, the
scheme was extended to other poor categories (besides SC/ST) as well.
The permissible expenditure for each house under IAY which was fixed
at ` 14,000 was enhanced to ` 20,000 with effect from Ist August 1996 in
view of the rise in the cost of building materials.
Under Jawahar Rozgar Yojana, during 1989-90 to March 2001, a total of
67.5 lakh houses were constructed with a total expenditure of ` 11,324
crores. Average cost of construction of a house was` 16,776.

76
5.15. Third Stream — Innovative and Special Employment Projects

Under the third stream of JRY, special and innovative projects which aim
at prevention of migration of labour, enhancing women‘s employment,
special programmes through voluntary organisations aiming at drought
proofing as well as watershed development/wasteland development
resulting in sustained employment were undertaken. Besides this.
Operation Black Board was undertaken to provide assistance for
construction of class rooms and school buildings. During the 5 year
period (1989-90 to 1993-94), as against the target of 4,332 million
mandays, the States generated employment of the order of 4,283 million
mandays, nearly 97 per cent of the target. The total expenditure incurred
was ` 14.010 crores. This implies that ` 32.7 per manday were spent for
the purpose. This was a very encouraging achievement.
5.16. Employment Assurance Scheme (EAS)
On the model of the Employment Guarantee Scheme of Maharashtra,
the Government introduced Employment Assurance Scheme (EAS) with
effect from 2nd October 1993 in rural areas in 1,778 blocks of 261
districts. The scheme aimed at providing assured employment of 100
days of unskilled manual work to the rural poor who are in need of
employment and seeking it. The assurance of 100 days extends to all
men and women over 18 years and below 60 years of age. A maximum
of two adults per family were to be provided employment under the
scheme.
The average employment provided per person was 41.3 days in a year,
as against the target of 100 days of employment. To make the scheme
more enduring to enable beneficieries to cross the poverty line, it would
be more desirable to reach the target of 100 days of employment per
year.
5.17. Evaluation of Jawahar Rozgar Yojana (JRY)

During 1992, the Government of India undertook concurrent evaluation

of JRY through reputed research institutions covering all districts in the
country. More concerns of the concurrent evaluation were:
Areas of Concern pointed out by the Report are :

(a) In majority of cases, panchayat heads were not given any

training for undertaking JRY works.
(b) The workers who belonged to the category of ‗ineligibles‘ also
took advantage of the programme.

77
To sum up, Jawahar Rozgar Yojana made some headway in providing
employment but the target of providing 90-100 days of employment for
every registered person is a distant goal judged by the achievement
made so far. The total absence of voluntary organisations in its
implementation was a serious weakness of JRY. To improve the quality
of construction of houses, more liberal amount per house should be
provided, failing which the poor quality houses would after a few years
need heavy repairs.
Under the programme, all works that can result in the creation of durable
assets are taken up. Under the scheme, during 2000-01, with a Central
allocation of ` 1,650 crores, 88.5 million mandays of employment was
generated.
Swaran Jayanti Gram Swarozgar Yojana (SGSY) was introduced in April
1999 as a result of restructuring and combining the Integrated Rural
Development Programme (IRDP) and Million Wells Scheme (MWS) into
a single self-employment programme. It aimed at promoting micro-
enterprises and helping the rural poor into self-help groups. It was
implemented as a Centrally Sponsored Scheme on cost sharing ratio of
75 : 25 between the Centre and the States.
Swaran Jayanti Shahari Rozgar Yojana (SJSRY) : The Urban Self-
employment Programme and Urban Wage-Employment Programmes of
the Swaran Jayanti Shahari Yojana, which substituted in December
1997 various programmes operated earlier for poverty alleviation.
SJSRY was funded on 75 : 25 basis between the Centre and the States.
During the 3-year period (1997-98 and 1999-2000), a total of ` 353
crores were spent of SJSRY generating 21.8 million mandays of
employment.
5.18. Employment Policy in the Ninth Plan

Labour Force Growth and Employment Requirements

Job opportunities will need to be created for 53 million persons during
1997-2002 as a consequence of labour force increase, for 58 million
during 2002-07 and thereafter for 55 million during 2007-12
Table 1 : Combined Incidence of Unemployment and Under-employment

Activity Status Proportion of

labour force Remarks

1. Labour force 100.00 Working or

seeking work

78
 on usual
status basis.

2. Employed 89.55 Usual status

employed
staying in
workforce
when
classified by
their weekly
status.

3. Unemployed 2.02 Incidence of

open
unemployme
nt on usual
status basis.

4. Under-employed 8.43 Usual status

employed
going out of
work when
classified by
their weekly
status.

5. Unemployed & 10.45 Open

unemployme
underemployed
nt on usual
status and
the incidence
of loss of
work by the
usually
employed
when
classified by
their weekly
status.

79
Source : Compiled from Planning Commission, Ninth Five Year Plan
(1997-2002),
Vol. I, February 1999.
5.19. Strategy of Employment Generation in the Ninth Plan

The basic problem, which keeps people in a state of poverty, is the poor
quality of employment in terms of inadequate level of income for
workers. The educational level of the workers reveals that 70 per cent of
the workforce is either illiterate or educated below the primary level. In
industries other than agriculture, where skill development for higher
productivity necessitates a reasonable level of educational standard, 52
per cent of workforce was below the primary level of education, 26 per
cent being illiterate. (Refer table 2). The Ninth Plan, therefore, as a part
of its strategy intended to focus on the growth of sectors which have
high employment absorption capacity of a relatively less educated labour
force. It mentioned, ―The focus on agriculture, trade and transport and
construction reflect this imperative.‖
It is really a sad commentary on our planning process that even after five
decades of planned development, nearly 84 per cent of the workforce
engaged in agriculture is either illiterate or with an educational level
below primary. It is, therefore, vitally necessary that education and skill
development programmes which are essential features of empowerment
be strengthened.
Table 2 : Percentage Distribution of Labour Force by Level of
General Education (1993-94)

Illiterate Literate Middle Total Share in workforce

upto and
primary above

Agriculture 60.8 22.8 16.4 100.0 56.6

Other than

Agriculture 25.8 26.0 48.2 100.0 43.4

All 45.6 24.2 30.2 100.0 100.0

industries

80
Note : Ususal status principal and subsidiary workers
Source : Compiled from NSS 50th Round Data on Employment and
Unemployment.
As a part of enlarging employment and increasing the quality of
employment, the Ninth Plan emphasized, ―It is necessary to increase
public investment in agriculture especially for strengthening irrigation
and other rural infrastructure in backward areas so that sustained
agricultural growth, and, therefore, acceleration of employment growth is
facilitated.‖ Besides this, the Ninth Plan intended to emphasise
horticulture - an employment intensive sector.
The Ninth Plan underlined the fact that Rural Non-farm Sector has
increased its share of productive employment from about 15 % in 1978
to 22 % in 1987-88 and further to 23 % in 1993-94. This sector has
registered an employment growth rate of 5 per cent between 1987-88
and 1993-94, which is very heartening. This trend should be
strengthened. This necessitates a decentralized pattern of
industrialisation so that rural areas can undertake small business and
manufacturing on an increasing scale.
Let us Sum up
It may be mentioned that the Ninth Plan does not make employment as
a central objective of the policy, though it speaks of generating it as a
corollary of the growth process. The Macro Dimensions of the plan are
couched in the traditional paradigm of saving, investment, GDP growth
rates. In this connection, it would be relevant to heed the advice given by
the Human Development Report (1996) which states that a clear political
commitment to full employment is the essential condition for
development. The Report mentions : ―Where employment creation has
been most successful, it has been the result of a deliberate strategy.
Rather than assuming that employment would materialise automatically,
political leaders have identified it as a central policy objective.‖ It further
emphasises : ―Employment needs to be restored to its place among the
top policy concerns of economic management. The macro-economic
framework agreed to between governments and the Bretton Woods
Institutions need to focus on employment — not just inflation, GDP
growth, short and medium term reforms and shoit-term fiscal and
budgetary targets. They need to set employment targets, which are
essential to human development and to sustained future growth.‖

81
Check Your Progress

1. -----------------diagnosed unemployment in advanced economies to be

the result of a deficiency of effective demand.
2. cyclical unemployment or frictional unemployment in a
developing economy like India is the prevalence of chronic --------------or
----------------
3. PDS means distribution of essential commodities to a large
number of people through the network of fair price shops on a recurring
basis. The commodities distributed under PDS are:
I. Wheat II. Rice
III. Sugar IV. Pulse
V. Kerosene
Select the correct option
(a) I, II and IV (b) I, II, III and IV
(c) I, II, III, and V (d) all of the above

4. The central nodal agency for implementing the price support

operations for commercial crops is
(a) NAFED (b) NABARD
(c) TRIFED (d) FCI
GLOSSARY

ANSWERS TO CHECK YOUR PROGRESS

1. Lord Keynes

2. Under-employment or disguised unemployment

3. All of the above.
4. NAFED
REFERENCES AND SUGGESTED READINGS

 The Indian Economy; S.K. Ray; Prentic, Hall of India Private

Limited New Delhi - 110001.

 Indian Economy; Gaurav Datt and Aswani Mahajan; S. Chand

and Company LTD. Ram Nagar, New Delhi-110055.

82
MODEL QUESTIONS

1. Describe any two Rural Poverty alleviation programmes of India.

2. Write in details the government policies for employment.

83
UNIT - 6

INDIAN ECONOMIC POLICIES- PRE AND POST

REFORMS
STRUCTURE

Overview
Learning Objectives
6.1. Indian Economy Policies — Pre and Post Reforms an
overview
6.2. Liberalisation of the Economy
6.3. Role of the Public Sector
6.3.1 Redefining the Role of the Public Sector
6.4. Need for Economic Policy in India
6.5. Aims of Economic Policy in India
6.6. Instruments of Economic Policy in India
6.7. Process of Economic Policy Formulation
6.7.1. Planning Commission of India
6.8. Economic Reforms
6.8.1. GDP Growth, Employment and Poverty
6.8.2. Economic Reforms and Reduction of Poverty

6.8.3. GDP Growth, Employment Growth and Poverty

6.8.4. Economic Reforms and Industrial Growth
6.8.5. Performance of Public Sector Enterprises
6.8.6. Economic Reforms, India’s Foreign Trade and Balance
of Payments
6.8.7. Economic Reforms and Foreign Investment

Inflows
6.8.8. Economic Reforms and Infrastructure Growth
6.9 Economic Reforms and Reduction of Regional

Disparities
6.9.1. Economic Reforms and Human Development

84
Let us sum up
Glossary
Answers to check your progress
Model Questions
Suggested Readings
OVERVIEW

The economic reforms in India were ushered in 1991 before which it was
a highly regulated economy. At that time, a number of sanctions had to
be acquired before starting a unit of production in any industry which
may take over three years. It gave way to corruption in which the principal
beneficiary was the bureaucracy. Earlier, the country relied heavily on the
public sector which was considered as the engine of development.
However, over a period of four decades, the private sector did acquire
sufficient resources to undertake heavy investment and also wanted to
enter areas hitherto reserved for the public sector. There was
disenchantment with the functioning of the public sector which was
plagued by inefficiencies and high cost of operation. Moreover, soon
after independence, to help the growth of industry, the infant industry
argument was used to protect Indian industry in hitherto unknown and
newly emerging areas by using various trade barriers. This resulted in
the growth of sheltered markets for Indian businessmen. Therefore, every
time, the Government thought of reducing trade barriers, the damage to
national industrial interest‘s argument was used to stall them. Finally, it
was in 1991 that the Government under pressure from World Bank/IMF
was forced to reduce trade barriers. The objective was to expose Indian
industry to face world competition. The main aim of economic reforms
was to enter an era of globalisation where there was free flow of goods
and services, free flow of technology, free flow of capital, and free
movement of human beings. This means economic reforms needed
integrating the Indian economy with world economy. Therefore, the
emphasis in economic reforms was shifted to export-led growth strategy,
instead of depending on import-substitution strategy of growth. In this
way, economic reforms constitute three fundamental policy changes,
namely, Liberalisation, Privatisation and Globalisation (LPG) model of
development in India.

85
LEARNING OBJECTIVES
After reading this unit, the learner will be able to understand

1. The trends of Indian economic policies pre and post reforms

2. Role of public sector in Indian economy.
6.1 Indian Economy Policies — Pre and Post Reforms

The Industrial Policy, 1991 provided the rationale of economic reforms.

The major objectives of the policy are given below :
 To free the Indian industrial economy from the
unnecessary bureaucratic procedures;
 To liberalise the Indian economy in order to integrate
it with the world economy;
 To free the domestic entrepreneur from the
restrictions of Monopolies and Restrictive Trade
Practices (MRTP) Act and attract direct foreign
investment; and Disinvestment of public sector
enterprises which were incurring losses.
6.2. Liberalisation of the Economy
Removal of Industrial Licensing : Under liberalisation, all industrial
licensing was abolished. However, 18 industries sector were to continue
under the reservation list which was related to security and strategic
concerns, social reasons, hazardous chemicals and over-riding
environmental reasons and items of elitist consumption industries
reserved for the small scale. Now, only five industries need industrial
licensing.
Privatisation of the Economy : There are two ways to view
privatisation. Broadly, it means the enlargement of the scope of the
private sector in the growth of the economy. However, in a narrow
sense, it means the induction of private ownership in a public sector
undertaking. After 1991, the private sector is considered as the engine
of growth. The new environment has assigned an increasing role for the
private sector and restricted role of public sector. The scope of the
public sector will now be narrowed down to providing infrastructure
such railways, electricity, roads and in providing social infrastructure in
health and education. Privatisation in economic sphere may include the
following :

86
 Total Denationalisation : It means complete transfer of
ownership of a public enterprise to private hands.
Joint Venture : It is the partial induction of private ownership
from 25 to 50% or even more in a public sector enterprise. There
are three kinds of proposals as given below :
 The private sector to have 26% ownership and
workers also to be included to the extent of 5%
equity to be transferred to them.
 51% equity and sells with the Government and 49%
equity to the private sector.
 Private sector to be transferred 74% of the equity,
while the Government to retain 26% with
Government veto power.
The main objective of the transfer of ownership is that it will enable the
joint venture to improve productivity of assets and convert them into
profitable concerns. In the first variant, doubts have been raised as if it
will be able to achieve the desired results since the Government
continues its domination with 74% ownership. In the second variant,
there is substantial transfer of ownership (49%) of the share to the
private sector. Here, the private sector, being a big partner, is likely to
acquire a significant role in the decision-making process. In the third
variant, the basic structure of enterprise gets transformed and transfers
74% ownership to the private sector which means that decision-making
power in all policy matters is transferred to the private sector. At the
same time, the Government has the veto power but it cannot use it
frequently. It is the private sector which will occupy a dominant position
in the management and operation of the enterprise under the third
variant.
(a) Workers’ Cooperative : The transfer of ownership of a loss-making
concern to the workers is yet another form of privatisation. The
reason for the proposal is that workers besides receiving wages for
work, would also be entitled to a share in ownership dividend. It is
assumed that since workers‘ personal interest is linked to the interest
of the enterprise, the workers are likely to work hard to increase
productivity so that they can earn more. For example, in Kamani
Tubes, Central Jute and Mewar Textiles, Hoist O‘ Mech and Kolkata
Chemicals etc these schemes were introduced. However, this form of
privatisation did not assume a significant role in reforms.

87
(b) Token Privatisation : It is also referred to as ‗deficit
privatisation‘ which means the sale of 5% or 10% shares of a profit-
making public sector enterprise in the market with the objective of
obtaining revenue to reduce budget deficit. Similarly, it has also been
called ‗disinvestment‘ as Finance Ministers used to set targets for
disinvestment during a year.
Among the above, the most acceptable form of privatisation is the joint
venture in which the share of the private sector is kept at either 49% or
74%. However, other supporting measures such as linking wages to
productivity, changing promotion policy and changing the organisation
culture of the enterprise are significant factors in creating a competitive
environment.
Globalisation to Integrate the Indian Economy with the World
Economy : The process of integrating the various economies of the
world without creating any hindrances in the flow of goods and services,
technology, capital and even labour or human capital is called
gloalisation. Globalisation has many meanings depending on the
context and on the person who is talking about. Though the precise
definition of globalisation is still unavailable a few definitions are worth
viewing, Guy Brainbant : says that the process of globalisation not only
includes opening up of world trade, development of advanced means
of communication, internationalisation of financial markets, growing
importance of MNCs, population migrations and more generally
increased mobility of persons, goods, capital, data and ideas but also
infections, diseases and pollution. The term globalisation refers to the
integration of economies of the world through uninhibited trade and
financial flows, as also through mutual exchange of technology and
knowledge. Ideally, it also contains free inter-country movement of
labour. In context to India, this implies opening up the economy to
foreign direct investment by providing facilities to foreign companies to
invest in different fields of economic activity in India, removing
constraints and obstacles to the entry of MNCs in India, allowing Indian
companies to enter into foreign collaborations and also encouraging
them to set up joint ventures abroad; carrying out massive import
Liberalisation programmes by switching over from quantitative
restrictions to tariffs and import duties, therefore globalisation has been
identified with the policy reforms of 1991 in India. In fact, globalisation
is an extension of the process of liberalisation in the international
domain.

88
 6.3. Role of the Public Sector
6.3.1 Redefining the Role of the Public Sector : In order find a
solution to the problems of the public sector, the Government adopted
a new approach towards it. We can see the main elements of the new
approach to be the following :
 The Government decided to progressively reduced budgetary
support to public enterprises;
 Market discipline for PSUs, competition from the private sector,
and disinvestment of part of the equity in selected enterprises;
 To avoid areas where social considerations were not paramount
or to invite the private sector where it would be more efficient
than PSUs;
 Greater managerial autonomy to enterprises in areas where
continued public sector involvement was found appropriate;
 Long time sick public enterprises not be allowed to incur
heavy losses to the exchequer. The following measures
were taken in the light of the new approach :
 Chronically sick PSUs and unlikely to be redeemed referred to the
Board for Industrial and Financial Reconstruction (BIFR) for
rehabilitation or restructuring.
 Industries reserved for the public sector was reduced from 17 to 8.
 Disinvestment of upto 20% of Government equity in selected
public enterprises.
 Monitoring was strengthened with primary emphasis on
profitability and rate of return to the enterprise.
6.4. Need for Economic Policy in India

In order to understand the worth of economic policies in India, we

should understand its need in India. This would help us to develop a
perspective about economic policies and plans of the Government. It
may be noted that market system is not perfect, however, and in some
situations, our economic well-being can be raised by regulating it or even
by side-stepping it altogether. Thus, failure of market is the most
important reason that we make economic policy. The competitive
markets generate a Pareto optimal solution and an economy that
reaches a Pareto optimal solution is believed to be efficient. If one or
more of the assumptions of Pareto optimal solution does not hold good,
the market system does not give rise to an efficient outcome and the

89
condition is called market failures. Some of the reasons for market
failures are under-provision of public goods, choices through time,
presence of externalities, existence of common property resources,
imperfect competition, asymmetric information, etc. which need some
kind of Government intervention. Such intervention is in the form of
economic policies and programmes. Moreover, under Pareto optimal
solution the distribution may not be equitable one. Thus, state can give
a direction to the resource allocation in more efficient manner in the
larger public interest through participation in the production activities.
Apart from this, the Government can try to shift the economy from one
Pareto optimal solution to another by redistributing purchasing power
and then allowing people to trade in competitive markets. In India, the
framers of the Constitution provided certain Directive Principles to solve
the social and economic backwardness of the country. The directive
principles says that the state shall ensure to all its citizens the right to an
adequate means of livelihood; to ensure a fair distribution of the
material resources of the country for the common good; and to
distribute the wealth in such a way that the wealth is not concentrated
in the hands of a few people. This also calls for an economic policy.
6.5. Aims of Economic Policy in India

The economic policy in a developing country like India aims to

accelerate the process of economic development. This ensures swift
economic development. The concept of economic development is
distinct from the concept of economic growth. The objectives of
economic development are as follows:
 Full Employment : The economic growth of a country is
directly related to the goal of full employment since it
yields the individual security, which, in turn, promotes
progress, contributes to human dignity and weakens
non-functional discrimination in the population.
 Better Distribution of Income : Inequalities in income
lead to misallocation and misutilisation of resources. We
market mechanism promotes inequalities which lead to
a serious breach of social welfare. Thus, economic
policy may provide better distribution of income and
wealth in country.
 Stability of Prices and Rates of Foreign Exchange :
The rate of foreign exchange keeps fluctuating and affects
international trade. This causes uncertainty in the
economic life for which an economic policy is needed as

90
 a powerful instrument to ensure stability in the country.
 Human Development and Decent Work : Education
and illiteracy rate, life expectancy, the level of nutrition,
consumption of energy per head etc. are involved in the
measurement human development. This is an indicator
of improvement in the quality of life and is considered an
important objective of economic development.
Consequently, decent work has emerged another goal of
economic development. Work and employment itself,
rights at work, security, and representation and dialogue
are the four dimensions of decent work.
 Maintenance of Fair Competition : Effective anti-
monopoly policy brings competitive conditions which are
essential for welfare maximisation.
 Avoidance of Cyclical Fluctuations : Free market
economies are characterised by business cycles or
trade cycles which an economic policy must overcome.
 Rapid Economic Growth : The main aim of economic
policy in a developing economy is to ensure rapid
economic growth of the country.
6.6 Instruments of Economic Policy in India

The instruments of economic policy vary according to the types of

economic policies. Moreover, there are two types of economic policies
: macro and micro-economic policies.
1. Macro-economic Policies : The big aggregative macro variables,
such as employment, national output, general price level,
investment, rate of exchange, and saving are dealt in the macro-
economic policies.
2. Micro-economic Policies : These are sectoral policies which
direct and contribute to the growth in the individual sectors of the
economy.
1. Macro-economic Policies : These policies include the whole
spectrum of economic activity where the state has to employ
different weapons to achieve the targeted goals. However, these
different weapons cannot be seen in isolation.
The main instruments of macro-economic policy are given below :
(i) Fiscal Policy : It is among the main instruments and is also

91
 called the budgetary policy. It operates through the budgetary
operations wherein public revenue (taxes) and public
expenditure form the core constituents of budget. In addition to
the taxes of different type Governments can and do raise
large sums of money by way of borrowings. Subsidies,
economic and social sector, etc. are the main items on the
expenditure side. The items whether on the revenue side and
the expenditure side have the potential to influence the
course of economic activity.
(ii) Monetary Policy : The volume and price of money in an
economy is dealt by the monetary policy.
Both excess and inadequate supply money in the economy is
bad. An inadequate quantity of money may fail to provide the
required liquidity for the growing volume of transactions and an
excessive supply of money may prove inflationary.
(iii) Commercial Policy : Government‘s attitude towards the
external sector of the economy is defined by the commercial
policy. It is the policy towards investment by foreign capital in
the host country, policy towards inflows and outflows of
foreign exchange, goods and services. There may be a total
open-door policy or restrictive or a mild protection in the
economy.
2. Micro-economic Policies : The micro-economic policies refer
to individual sectors like agriculture, industry, and services of
different types. Thus, the state may permit and promote certain
lines of activity in agriculture, industry and services. At same time,
the state may also prohibit and discourage certain lines of action.
The micro-economic policies may have instruments such as
export control, import control, industrial licensing, quota-permit
system, competition or anti-monopoly policy, policy of buffer
stocks, procurement policy and policy of minimum support prices
among others.
6.7 Process of Economic Policy Formulation

People of different inclination and interest are involved in the process of

formulation of economic policy in India. First, legislatures as political
institutions are mainly responsible for policy-making. In the India, the
political decision-making is supreme. The Government constitutes a
committee or a task-force to generate policy options, makes ‗necessary
political changes‘ in those recommendations, and, then, announces its

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decision at appropriate forums either in the form of an executive order or
a legislative resolution. The character of political system plays a crucial
role in identifying and prioritising problems. Gradually, an environment of
‗more consultative and responsive‘ process of policy formulation has
evolve in India. Today, political parties are speaking about creating
‗village business hubs‘. The role of mass-media and non-governmental
organisations advocating new policy options got acceptance in policy-
making process. The National Advisory Council (NAC) is an example of
widening of consultative process. It consists of non-governmental activists
and headed by chairperson of the ruling coalition. However, the task of
detailing the policy documents still lies with the bodies consisting of
specialists and bureaucrats within administration some of which are
given below :
6.7.1 Planning Commission of India : The Planning Commission is
an institution in the Government of India, which formulates India‘s
Five-Year Plans, among other functions. After India gained
independence, a formal model of planning was adopted, and the
planning commission, reporting directly to the Prime Minister of India
was established. Accordingly, the Planning Commission was set up on
15 March 1950, with Prime Minister Jawaharlal Nehru as the
Chairman. Planning Commission though is a non statutory as well
extra constitutional body, i.e. has been brought by an executive order.
The Commission has the responsibility of making assessment of all
resources of the country, augmenting deficient resources, formulating
plans for the most effective and balanced utilisation of resources and
determining priorities for the country.
6.12. Implication OF Economic Reforms

Liberalisation, privatisation and globalisation are means to accelerate

growth process. The aims of economic development have been defined
in the First and the Second Five-year Plan itself. The major aims are as
follows :
 GDP growth – 7-8% per annum;
 Increasing the employment and striving for full
employment;
 Reduction of poverty;
 Promotion of equity or distributive justice;

 Reduction of regional disparities; and

 Human development in terms of health and education to

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 be improved.
The actual growth rate achieved during the reform period, its effect on
balance of trade and balance of payments, industrial growth, foreign
investment, economic and social infrastructure, employment and
poverty reduction, labour, agriculture, and its effect on in reducing
regional disparities between states have been discussed.
6.8.1. GDP Growth, Employment and Poverty : The reform process,
say the advocates of reform, has the potential of accelerating economic
growth. However, if we compare the annual average growth rate during
the pre-reform period (1980-81 to 1990-91) which was of the order of
5.6% per annum, then the post-reform 12-year period (1990-91 to
2002-03) also suggests an average growth rate of 5.5%. Thus, the
claim of the advocates of reforms is not borne out by facts. It means the
reform process has yet to establish its distinct superiority over the pre-
reform period in the country.
6.8.2. Economic Reforms and Reduction of Poverty: According to Dr.
S.P. Gupta, former member, Planning Commission, the poverty
reduction over 1983 to 1990-91 was around 3.1% per annum, but it
reversed to 1% in the 1990s (1990-91 and 1997). However, the GDP
growth in India between 1983 to 1990-91 was around 5.6 % and
between 1990-91 and 1997, this is expected to go beyond 5.7%. In this
way, Dr. Gupta, showed the pro-elitist bias of economic reforms. Dr.
Gaurav Datt of the World Bank has also drawn similar conclusions as
given below:
1. In the urban sector, index of poverty declined at the annual
average rate of 2.2% during 1973-74 and 1990-91 and the same
trend is continued in the post-reform period (1990-91 to 1996-97).

2. In the rural sector, headcount index of poverty declined at the

annual rate of 2.7% for the period 1973-74 and 1990-91 but the
rate of decline is not significantly different from zero since then.

3. In both rural and urban poverty rates, there was a marked decline
in 1973-74 with no such comparison later.
4. The march of poverty reduction in the process of growth continues
in the urban sector but rural poverty was choked off by lack of rural
growth in the country.
According to Dr. Gaurav Datt, stagnation in rural growth is the basic
cause of slowdown in poverty reduction.

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6.8.3. GDP Growth, Employment Growth and Poverty : Although
GDP growth during the 1990s (especially after 1993-94) was quite high,
it did not result in a corresponding decline in poverty. This was because
of slow down of employment growth. The total employment increased
from 3,026 lakhs in 1983 to about 3,568 lakhs in 1990-91 and then
rose further to 3,829 lakhs in 1997-98. The rate of growth of
employment works out to be 2.39% per annum during 1983 and 1990-
91. So far as employment is concerned, a very disappointing situation
arose in the postreform period (1990-91 to 1997-98). During this period,
the growth rate of employment sharply declined to a mere 1.0% per
annum. The reform process concentrated at the corporate yet the
growth rate of employment in organised sector was simply 0.6% which
was just one-third of the growth of employment witnessed in the pre-
reform period. In the unorganised sector, the growth rate of
employment which was of the order of 2.41 per cent during the pre-
reform period (1983 to 1990-91), also declined to 1.1 per cent in the
post-reform period. Thus, the trickle down effects of growth did not
benefit the poor. According to Dr S.P. Gupta, high growth in
employment in India has almost always been associated with some
reduction in poverty. In the 1990s, a low growth of employment is seen
to be associated with an increase in poverty in the country.
6.8.4. Economic Reforms and Industrial Growth : Among the
reforms, industrial licensing was abolished in all but 15 industries. As a
result, the reform process was able to dismantle the system of industrial
licensing in order to accelerate industrial production growth. However,
we don‘t see any sharp acceleration of industrial production. The main
reason for decrease in the growth of Index of Industrial Production (IIP)
was a sharp decline in electricity generation from 9.0% during the pre-
reform period to 5.7% in the post-reform period. At the same time, in
mining and quarrying, the index of production slumped from 8.0% to
3.8%. Thus, although the wide-ranging industrial reforms were aimed
at boosting industrial growth, but the ground reality as revealed by the
data only points to the failure of the reform process. Moreover, the
failure was more pronounced in basic and capital goods sectors as also
in consumer durables in the economy.
6.8.5. Performance of Public Sector Enterprises : In the PSUs,
gross profit as a%age of capital employed was 11.61% in 1993-94, it
improved to 15.88 per cent in 1995. This further improved to 17.5% in
2002-

03. This type of trend was noticed in net profit which improved from

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 2.84% in 1993-94 to 7.7% in 2003-04. It shows an improvement in the
performance of Central Government Enterprises. Thus, it is not
considered desirable to undertake disinvestment of CPSUs. It would be
far more rewarding if the Government gave them greater autonomy to
undertake business decisions.
6.8.6. Economic Reforms, India’s Foreign Trade and Balance of
Payments : Boosting exports to improve India‘s balance of trade
position has been one of the major objectives of india‘s economic
reforms.

Thus, during the five-year period (1990-91 to 1995-96), exports

increased from $18,477 million in 1990-91 to $32,311 million in 1995-
96, indicating a growth rate of 11.8%. Similarly, imports grew from
$27,194 million in 1990-91 to $43,670 million in 1995-96, indicating a
growth rate of 9.3%. It may noted that balance of payments was
adverse to the extent of an annual average of $3,028 million and the
situation worsened during 1996-97 and 2000-01. at the same time, trade
balance was unfavourable to the extent of $15,156 million but India was
able to get a favourable net invisibles balance of $10,667 million. During
the period, the annual growth of exports was of the order of 6.3 per
cent. However, the situation took a turn during the three-year period
(2001-02 to 2003-04) and annual average growth of exports was 12.9%
and that of imports was 10.5%. India had a positive balance on current
account of the annual average of $5,896 million. A liberal import policy,
removal of all quantitative restrictions and reduction of import tariffs has
resulted, in a deepening of adverse trade deficit. It means that during
the 13-year period of economic reforms, India was able to increase her
exports from $18.26 billion in 1991-92 to $79.59 billion in 2004-05, but
as against them, imports had shot up from $21.06 billion in 1991-92 to
$106.12 billion in 2004-05. Obviously, foreigners have been able to
penetrate the Indian market much more than India has been able to
extend her reach to foreign markets. But, India has gained on account
of net invisibles and the positive balance of net invisibles has continued
its upward trend. At present, there is a sharp increase in net software
exports rising to $11.75 billion in 2003-04.
6.8.7. Economic Reforms and Foreign Investment Inflows : Foreign
investment helps to increase capital formation of the economy without
creating foreign debt. Thus, raising it was a major objective of
economic reforms. Foreign investment flows take two forms -foreign
direct investment and portfolio investment. During the 13-year period
(1991-92 to 2003-04), out of a total foreign investment of $70.98 billion,

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foreign direct investment accounted for $35.35 billion (49.8%) and
portfolio investment was $35.63 billion (51.2%). However, China has
been able to attract a much higher level of foreign investment than
India. Moreover, the gap between actual flows and approvals is another
problem in India. There is bound to be a gap between actual flows and
approvals because it does take time to actualise a promise, but the gap
is too wide in the case of India. Therefore, it must be bridged and taken
care of.
6.8.8. Economic Reforms and Infrastructure Growth : The base year
of infrastructure data for post-reform period (1993-94 to 2003-04) is
1993-94. Thus, the growth rates are not strictly comparable with the pre-
reform period. In case of saleable steel and cement, growth rates in the
post-reform period were higher than in the pre-reform period. Similarly,
for steel, growth rate during 1993-94 to 2002-03 was 9.5% as against
only 4.9% in the 1980s. Moreover, for cement, growth rate in the post-
reform period was 8.2% as against 4.0% in the prereform period. In the
post-reform period, the withdrawal of state control in pricing carried out
in the 1980s was responsible for the uptrend. At the same time, we find
that other infrastructure industries like electricity, coal and petroleum
showed lower growth rates in the post- reform period than in the pre-
reform period. Similarly, the sharpest decline was noticed in petroleum
from 12.2% in the eighties to merely 2.2% in the post-reform period. It
may be noted that the much trumpeted claim that foreign private
investment could boost infrastructure growth could not be realized.
6.9 Economic Reforms and Reduction of Regional Disparities :
The objective of development must include reduction of regional
disparities. As such, government has been supporting the backward
states with higher locations. The reform is now emphasising the use of
market forces to attract Investments and it has been observed that the
relatively developed regions are able to attract more resources. Thus,
the issue of reducing regional disparities is sidelined. Looking at the
data, we find that NSDP in forward states indicated a growth rate 6.0%
per annum during the period 1990-91 to 2000-01, but as against them,
it grew in backward states at merely 1.4%. Thus, the period of economic
reforms has resulted in increasing regional disparities. It was found that
approval of investment proposals and grant of financial assistance
helped the forward states to further accelerate growth.
6.9.1 Economic Reforms and Human Development : Economic
reforms should step up investment in education and health
infrastructure for the progress of human development. There are

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examples of Kerala and Tamil Nadu which have achieved higher levels of
human development even with relatively lower levels of economic
development, yet, by and large, better levels of per capita NSDP are
associated with higher levels of human development in terms of
education and health. It may be noted that most of the backward
states have poor record in health indicators like infant mortality, birth
and death rates. However, among the forward states, Haryana
indicates a poor record in terms of infant mortality and birth rates,
though it enjoys a third rank in per capita NSDP. Moreover, among the
backward states Bihar, Uttar Pradesh and Rajasthan have very poor
record in literacy, particularly female literacy. At the same time, the
forward states—Haryana, Gujarat and Andhra Pradesh have a very
poor record in female literacy per se.
LET US SUM UP
Indian economic policy after independence was influenced by the
colonial experience (which was exploitative in nature) and with a strong
emphasis on import substitution industrialization under state
monitoring, state intervention at the micro level in all businesses
especially in labour and financial markets, a large public sector,
business regulation, and central planning. Five-Year Plans of
India resembled central planning. Under the Industrial Development
Regulation Act of 1951, steel, mining, machine tools, water,
telecommunications, insurance, and electrical plants, among other
industries, were effectively nationalized.
6.13. Check Your Progress
1. ----------------means complete transfer of ownership of a public
enterprise to private hands.

2. What is the main objective of transfer of ownership?

-----------------is also referred to as ‗deficit privatisation‘ which
means the sale of 5% or 10% shares of a profit-making public
sector enterprise in the market with the objective of obtaining
revenue to reduce budget deficit.
3. --------------operates through the budgetary operations wherein
public revenue (taxes) and public expenditure form the core
constituents of budget.

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 GLOSSARY

1. Globalisation - growing interdependence of the world's

economies, cultures, and populations
2. Liberalisation - a relaxation of government restrictions in
the areas of social, political and
economic policies.
3. Privitisation - the process by which a piece of property
or business goes from being owned by
the government to being privately
owned.
4. Public Sector - portion of the economy composed of all

levels of government and government-

controlled enterprises. It does not include
private companies, voluntary

organizations, and households

5. Foreign Exchange - Foreign exchange, or forex, is the
conversion of one country's currency into
another
ANSWERS TO CHECK YOUR PROGRESS

1. Total Denationalisation

2. The main objective of the transfer of ownership is that it will enable

the joint venture to improve productivity of assets and convert
them into profitable concerns increase if there is anticipated
inflation and decrease if there is unanticipated inflation
3. Token Privatisation .
4. Fiscal Policy
REFERENCES AND SUGGESTED READINGS

1. Indian Political System – U.R. Ghai.

2. Indian Political System – N. Chhabra

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MODEL QUESTIONS.

1. Define Liberalisation and explain it in the context of Indian

Economy.
2. What is the role of public sector in determining the economy?
3. Explain the need for economic policy in India.

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 Unit - 7

COMMITTEES OF INDIAN PARLIAMENT

STRUCTURE

Overview
Learning Objectives
7.1. Committees of the Union Parliament

7.2. Organization of Parliamentary Committees

7.3. Functions of Various Committees of Lok Sabha
7.4. Functions of Statutory Committee

7.5. Financial Committees

7.6. Joint Committees
7.7. Law Making Procedure
7.8. General Features of Law-making by the Union
Parliament
7.9. Procedure of Passing an Ordinary Bill
7.10. Procedure of Passing the Budget
7.10.1. Following are the stages in passing a
Budget, In India, it is presented in two parts
Let us sum up
Glossary
Answers to check your progress

Model Questions
Suggested Readings

OVERVIEW

Parliament is known by its committee system. A modern state is not a

police state. It is a welfare state and due to the change in its merit and
functions, there is a great extension in the works of the Parliament and
consequently there is a heavy work load on it. Members of parliament
due to shortage of time can‘t complete work by debating on each Bill.
Besides, each Bill‘s size has grown big due to the growing dynamic

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industrial world and collective needs. For resolving each issue,
parliament takes help of its modern committees. In fact, each house of
parliament constitutes committees which help them in order to enact
laws and take important decisions. Collectively, these committees are
constituted by the Committee System of parliament. Committee system
is playing vital role in the efficient discharging of duties in Indian
parliamentary and have become an integral part of it. As per Thomas
Reed,‖ Committees are the Eyes, Ears and Hands of Legislature and
many times it works as Brain of the parliament too‖. Many scholars
while attaching great importance to these committees went on to say
that, these committees are Mini Legislative bodies‖. Morris Jones
opines,‖ Legislative is known by the committee it keeps‖.
LEARNING OBJECTIVES
After studying this unit, learners will be able to:
 Tell about the Committees of Union Parliament.

 Know about the names of various Committees of

Lok Sabha.
 Explain about Financial and Joint committees.

 Understand the procedure to pass the budget.

7.1 Committees of the Union Parliament

There is no mention pertaining to constitution of such Committees.

Article 118 in general says that, both houses of parliament can in order
to effectively discharge duties can constitute committees. To conclude,
committees of both houses have been done on the basis of rules of
functioning by parliament.
We can classify these Committees in 5 parts as following:

1. General Committee: these comprise of those committees which are

related with the functioning of the parliament: (i) Rule committee (ii)
Business Advisory committee (iii) Privilege committee (iv) committee on
the absenteeism of members from the session of house (v) Committee
on Government Assurance (vi) Committee on Petitions (vii)
General purpose committee.
2. Legislative Committee: these comprise of those committees which are
related with process of legislation: (i) committee on individual Members‘
Bill and proposal (ii) Deputy Legislative Committee or Committee on
Delegated Organization (iii) Enforcement Committee (iv) Special
committee on special Common bill.

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3. Financial Committee: these comprise of those committees which take
care of Financial matters: (i)Projection committee (ii) Public Accounts
Committee (iii) Committee on Public Sector Enterprise.
4. Joint Committee: these comprise of those committees which take care
of joint Action or to work for both house and constituted by both house:
(i) Joint committee on Member of parliament‘s salary and allowances (ii)
committee on welfare of Scheduled Caste and Scheduled Tribe (iii)
committee on the post of profits.
5. Miscellaneous committee: apart from above 4 categories, there some
more committees like: (i) House Committee (ii) Library Committee.
7.2 Organization of Parliamentary Committees

Let‘s look at any one of house‘s committee to analyze organization of

different types of committees and let‘s have a look at Lok Sabha
committees:
1. Nomination By Speaker: Lok Sabha committees are constituted from
among the members by speaker. While nominating members for
different committees, speaker ensures that each political party gets
equal representation. Speaker itself is the member and chairman of
some of the committees. Speaker appoints chairman of different
committees from among the members. Deputy Speaker is made
Chairman of that committee of which he is already a member. Members
of joint committees are done by Chairman of both houses collectively.
2. Election on the Basis of Resolution Passed by the House: Financial
committees are elected by the house. Members are elected on the basis
of Representative Ratio of Single Transferrable Voting System.
3. Size of Committees: There is no fixed rule about the size of the
committees and each one is different from the size of other. Normally
each committee comprises of 15-30 members. Mostly a committee has
15 members. Enforcement committee has strength between 20-30.
Projection committee has 20 and Public Accounts Committee has 22
members.
4. Working of Committees: Each committee has fixed obligations. Some
work when parliament session is in place and some keep working even
when session is not in place. A committee can have its meeting any
time. Majorly, decisions are taken by consensus or by chairman of
committee. Normally, such meetings take place within the boundaries of
the parliament only, but with the approval of the Speaker, they can be
organized outside as well.

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Required Quorum is 1/3 of the members. Committees take maximum
decisions by consensus only. In case of a Tie on any particular issue,
Chairman of the Committee uses its Cast Vote. Committees have the
right to scrutinize the records of the government and can ask for
important information from different government departments.
Committees can take helps of Experts for preparing their Reports, but
Experts can only advise and don‘t have the right to vote in the
committees. Committees in order to have detailed introspection and
knowledge, on some important issues, can constitute Sub-Committees.
Committees have to submit their reports within stipulated time frame to
the parliament and that time frame is decided by Speaker. Committees
have to furnish report on all matters which have been handed over to
them and under no circumstance they can deny to do so.
7.3 Functions of Various Committees of Lok Sabha
General Committees: these take care of normal house proceedings:
1. Rules Committee: It comprises of 15 members which are nominated
by speaker and he himself is the Chairman of it. It discusses on Rules
related with house proceedings and gives decision on proposed
amendments and changes. Prior to 1954, Speaker itself used to
exercise this right and while do so, he represented house for suggesting
recommendations of the committee. Now committee recommendations
are presented before the house and are implemented only when house
approves them.
2. Business Advisory Committee: It is a permanent committee which
has been constituted to extend help in running house affairs. It
comprises of 15 members nominated by speaker and he himself is the
chairman of it. Speaker takes suggestions from leader of house, leader
of opposition in house and from the leader of other opposition parties
while nominating members. its main function is to prepare agenda and
timeline for all those bills, issues and suggestions which have to be
presented in the house. This committee decides that which bill has to be
presented on what time and how much time should be given to it for
debate. In other words, this committee fixes the time table of house
functions.
3. Committee on Privileges: Parliament members have got some
privileges and in case of its violation by anyone, those matters are dealt
with by privilege committee. This committee is constituted for 1 year
from among its members of the house. It has 15 members and each
political party gets equal representation in it. In general, leader of the
house and Law Minister are its members. If Deputy Speaker is a

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member, then he becomes its chairman, else speaker appoints the
chairman.
4. Committee on Absence of Members from the House: As per
constitution, if any member is absent without approval for a period of 60
days and above, then his seat can be declared vacant. A committee is
constituted to scrutinize all matters pertaining to absenteeism, reasons
of absenteeism and to recommend the leave for members. This is called
the committee on absence of members from the house and constituted
by the speaker for a period of 1 year and comprises of 15 members.
5. Committee on Government Assurance: Quite often, members while
replying to the house or while addressing the house do commit some
promises or take house in confidence on some matters. House in order
to know if those promises have been kept or not, takes help of this
committee. This committee also looks in to if the assurances given by
the Government have been met with or not. Committee brings it to the
notice of the house, if any members fails to honor his promise or
assurance on any subject. This committee also does not have more than
15 members, which are appointed for 1 year by the speaker. No Minister
can be a member of this committee and in case he becomes a Minister
in future, then he has to resign his membership from this committee.
6. Committee on Petitions: This committee sees that if the petitions
presented to Lok Sabha have been dealt with properly or not. It
scrutinizes all the petitions and sends its report to various departments
with or without its recommendations. This committee also comprises of
15 members which are elected by the speaker from among members of
different political parties. Its duration is also of 1 year.
7. General Purpose Committee: This committee exists since 1954. It
does not deal with any special matter or issue. It comprises of 20
members. Speaker, Deputy Speaker, Members of Chairman panel and
members of different recognized political parties are its members. Rest
of the members are appointed by the speaker who is also the chairman
of the committee. This committee discusses on any matter pertaining to
the house.
7.4 Functions of Statutory Committee

1. Enforcement/Select Committee: These are important committees

which are constituted to discuss on different Common Government Bills,
which are presented before the house for legislation. But these
committees are not permanent. After completing their tenure, they get
dissolved. When Lok Sabha decides that any particular bill has to be

105
sent to a special committee, then speaker nominates one such
committee. Chairman and other members of the committee are
appointed by the speaker from among different members of different
political parties. Committee can take help of experts at its will, in order to
have a thorough analysis pertaining to any bill. Those who are not the
members of this committee can also appear before the committee and
present their recommendations or suggestions. Besides, they can send
their suggestions in writing as an alternate route. Normally for detailed
analysis of any significant bill of public importance, both houses
collectively constitute such committees. Lok Sabha and Rajya Sabha
nominate members in the ratio of 2:1 for a Joint Enforcement
Committee.
2.Committee on Private Member‘s Bills and Resolutions: Prior to 1953,
bills presented by private members or normal members of the house(
those who are not ministers) were decided by a Lottery system. Only
those were debated who used to win Lotteries . Due to this practice,
many Bills and proposals of importance and significance could not be
presented in the house and bills with little importance were able to be
presented. To resolve this issue, a Committee was constituted for
considering all the bills of Private/ non government members . this
committee now takes care of and decides on all the bills and proposals
of Private Members. While doing so, it takes in to consideration the
importance of the bill and its necessity. This committee classifies bills
into 2 parts– (i) those bills with greater significance (ii)those bills with
less significance. Committee analyses on all bills and suggests to the
house that which bills should be taken up and discussed and debated.
This committee comprises of 15 members and Deputy Speaker of Lok
Sabha is its Chairman. Other members of the committee are elected by
the speaker for a period of 1 year.
3. Committe on Delegated Organization or Deputy Legislative
Committee: due to shortage of time and skilled knowledge, modern
parliament passes a draft of the bill and hands it over to the Executive
with authority to prepare and legislate it. Many times it happens that
Legislative directly delegates its power of law making to the Executive.
Under this system, Executive do the Legislation on the basis of powers
given by the parliament. This system is referred to as ―System of
Delegation or Subordinate System‖. Though this system has a loophole
of it being misused by the Executive, hence parliament always likes to
have a control over Laws or Legislation made by the Executive and for
this very purpose, it appoints a committee on Delegated Organization of
Subordinate committee. This committee is entrusted with the task of

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Legislations enacted by Executive. In past, this exercise has been done
by Indian Parliament. It comprises of 15 members, which are appointed
by Speaker for a period of 1 year.
7.5 Financial Committees

1. Estimation/projection Committee: Chairman of the estimation

committee is done by the speaker from among its elected members.
Deputy Speaker becomes the Chairman of this committee if he is
elected as a member of this committee. Chairman of the committee
performs all functions as performed by other chairmen of other
committees. Besides, he has to perform some special functions as well.
For example, he decides on the nature and scope of investigation on
financial activities of the government also.
They are elected by Representative Ratio and Single Transferrable
Voting system. This is how, representation of different political parties is
ensured with Ratio based representation.

Functions of Estimation Committee: As per rule no. 310 of Lok Sabha,

its main function is to analyze those estimates of the government which
they have projected through Estimate Budget before house. Following
are the 4 major tasks assigned to this committee:
 In conformity with stated policy, to present report on the
composition, efficacy or administration of Financial Improvement
suggestions, so that estimate can be presented effectively.
 To advise on alternative policy on bringing in efficacy and cost
cutting in administration.

 To check if the description about money estimates are in line with

policy.
 To suggest the policy under which these bills have to be
presented before the parliament.
This is how, Estimation Committee not only Scrutinizes Annual
Estimates of the government but it also suggests on bringing in efficacy
and smoothness in the general administration. Since the time of its
inception, Estimation Committee has given hundreds of reports to
various government departments and agencies. To discharge its duty
effectively, committee divides itself in to Micro committees or Groups
and each group is given several estimates relate with different
departments to investigate. Their work starts after Budget is presented,
but their work does not stop even after Budget is presented. They
continue their work all through the year. It selects any Agency or

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Department for investigating the Estimates. It compares last year
Estimates with the actual expenditures done and with New Year‘s
Estimates. It works as a special apparatus of control over Legislative
body.
2. Public Accounts Committee: It is actually the Twin Sister of Estimate
committee. If estimate committee is related with the investigation of
estimates, then public accounts committee is related with the style and
results of expenditures done by different government departments. It
comprises of 22 members out of which 7 are from Rajya Sabha and 15
from Lok Sabha. Members are elected on the basis of Ratio
Representation for a period of 1 year and no Minister can be a member
of this committee.
Committee‘s main function is to investigate all financial transaction
carried out by the government and certify it. It also investigates
Appropriation Accounts and the report of Comptroller and Auditor
General. The committee decides on the following:
1. If expenses posted in the accounts were legally available and actually
were justifiably used for the purpose for which it has been drawn or
spent?
2. If the permission to spend it was granted by the ruling government?
3. If the pre-appropriation provision is in line with the process made by
eligible officers?
Its duty is to also investigate Balance sheets and Profit and Loss
Accounts of Public Sector Undertakings, Construction Unit,
Autonomous/Semi Autonomous Bodies along with checking entries of
credit and debit.
If in any financial year, there is more than parliament‘s permitted
expenditure done on any particular matter, then it thoroughly
investigates each fact and angle due to which such extra expenditure
has been done. It also decides whether concerned department while
spending such money was careful and justified. It can bring Errors to the
forefront and recommend parliament to take necessary actions.
In contrast to Estimate Committee, Public Accounts committee has a
Trained Agency and the services of Comptroller and Auditor General,
which investigates each account and audits. Committee has the right to
obtain information from departments which have incurred such
expenditures. It would be exaggeration to say that Public Accounts
Committee is the most powerful and active committee. Its proceedings

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as that of a Quasi-Judicial Body. It is free party politics and works
neutrally as committee of Justices. Recommendations and decisions
made by it has a far reaching effect on all future expenditures of
Government this committee keeps the Government Machinery on its
toes for better and efficient financial Management. This committee
enable parliament to keep consistent and effective control on
Administrative Bodies.
At times, it has been alleged that Public Accounts Committee‘s work is
to do Post Mortem. It unveils those financial irregularities which have
been committed in the past and so taking punitive actions those officials
is very tough, if not impossible. Even with this demerit, we can‘t deny
that Public Accounts Committee is a very important apparatus, which
control National wealth. Its main strength depends on its ability to
prepare grounds for taking action on any irregularity committed by any
government department.
The Committee on Public Undertaking: This committee was made in
1964 and comprises of 15 members out of which 10 represent Lok
Sabha and 5 Rajya Sabha. It performs following functions:

 To investigate Reports and Accounts of Public Sector

Undertaking
 To investigate and suggest on that report of CAG, which pertains
to any Public Sector Enterprise.
 To analyze Autonomy and Eff iciency of Public Sector Enterprise
that, if their performance is in line with excellent commercial
principles and far sighted commercial behavior. It also performs
those functions which are normally done by Estimate Committee
and Public Account committee. It performs all those functions as
handed over by the Speaker.
7.6 Joint Committees

1.Joint Committee on Salary and Allowances of Members: It was formed

in 1954. It is Joint Committee comprising of members of both houses of
parliament. It deals with Salary, Conveyance allowance, Daily
allowance, Residence, Medical Facility and Postal Facility of Members. It
comprises of 15 members out of which 10 represent Lok Sabha and 5
Rajya Sabha. Members from Lok Sabha are nominated by Speaker and
from Rajya Sabha by Chairman. It is headed by Minister of
Parliamentary Affairs.

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2. Joint Committee on Offi ce of Profi t: It is a permanent committee
comprising of 15 members out of which 10 represent Lok Sabha and 5
Rajya Sabha. It was formed in 1959. This committee consistently
investigates and evaluates provisions of Parliamentary Act, 1959 and
suggests on amendment related to it.
3. Joint Committee on Welfare of Scheduled Caste and Scheduled
Tribe: This is also Joint committee comprising of members of both
houses of parliament. It investigates report of Scheduled Caste and
Tribe Commission and informs parliament on the steps taken by the
government on the welfare and betterment of people representing
SC/ST category.
Changes in the Working of Committee System of Union Parliament: To
perform statutory functions more effectively, since April 1. 1993 so many
permanent committees have been formed and as of now, there exist a
total of 17 such committees. Each committee comprises of 45 members,
out of which 30 represent Lok Sabha and 15 Rajya Sabha. Speaker
appoints Chairman for 11 such committees while rest 6 is done by Rajya
Sabha‘s chairman. Tenure of such committees is of 1 year. These
committees considers on Grant demanded by various Ministries. It
considers different Ministries and its annual reports and steps taken to
enact laws related with long term National Policy. They have the right to
obtain suggestions of experts/ famous personality on different bills and
subjects.
Thus union parliament functions with the help of totally organized,
efficient and active committees.
7.7 Law Making Procedure

Power of Legislation has been recognized as the major function of every

parliament across the world. For legislation, parliament adopts special
approach. All those documents presented in parliament for making law,
are knows and ―Draft Acts or Bill‖. A bill is presented in Lok Sabha and is
debated in several stages and is sent to President for approval after is
passed by the parliament or else it rejected in case of it not being
passed. Union Parliament has the right to legislate on Union and
Concurrent Subjects and it also has right to make laws on Residual
Subjects. Parliament can exercise its special situation right of making
Law on State Subjects also. But for each of these things, parliament has
to adopt special process.

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For process related with passing of different bills, there takes place a
debate under article 107-111 under the constitution. Before considering
them, let‘s discuss various Bills as presented in parliament:
Kinds of Bills: there are following types of Bills:

1. Public Bill: these bills have special universal applicability and

they relate to all or major part of the population.
2. Private Bill: these pertain to special section of the society or with
some private companies.
3. Government Bill: any bill presented by Cabinet member is called
government bill.
4. Private Member Bill: any bill which is presented by member who
is not minister.
5. Money Bill: a money bill is concerned with applying taxes,
reducing or revoking taxes or with income or expenditure.
7.8 General Features of Law-making by the Union Parliament

1. Union Parliament can make laws for Union and Concurrent Subjects
and it can make laws for Residual Subjects as well. Under special
conditions, it can make laws on state subjects also.
2. Union Parliament is not Sovereign Parliament—
(a) Union Parliament exercises only those powers for Legislation, for
which it has been authorized by the parliament.
(b) Bills passed by parliament become Law only after being signed by
the President.
(c) Parliamentary Legislations can be enforceable in Supreme Court,
which has the right to revoke it, if it is found to be unconstitutional.
(d) Central Parliament is a Union Legislature and powers to make laws
are vested with Union Parliament on one hand and with State Legislative
on the other.

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3. A Bill has to pass through several Stages before being passed.
4. Each Bill is evaluated by an Able Committee before it is finally being
passed.
5. In case of normal enactments, both Lok Sabha and Rajya Sabha have
equal rights, but in case of a deadlock on any Bill and subsequent Joint
Session makes Lok Sabha more powerful than Rajya Sabha.
6. Regards Money Bill, Lok Sabha is more powerful it can be presented
only in Lok Sabha. It can be only presented by a Minister. In case of a
dispute on whether any bill is money bill or not, then it is decide by
Speaker of Lok Sabha its decision is final and binding. Money Bill is
passed by the Lok Sabha even though it is sent to Rajya Sabha, but it
has limited powers in this regard. It can only delay the bill for maximum
14 days period or send it back to Lok Sabha with suggestions. But Lok
Sabha has the discretion of accepting or rejecting the suggestion. If
Rajya Sabha does not pass the bill within 14 days then, it is considered
to be pass and becomes Law. Therefore, Rajya Sabha only plays the
role of delaying the Money bill and nothing else.
7. Rejection of any Bill is considered to be as, No Confidence Motion
against Cabinet, but in case of Bill failing in Rajya Sabha, there is no
such effect on Cabinet.
8. The way in Britain, Law making functions is discharged by King-in-
Parliament, similarly in India it is done by President-in-Parliament.
7.9 Procedure of Passing an Ordinary Bill
A Bill has to pass through following stages before becoming actual
Law:
1. Stage One: Introduction and First Reading of Bill: A normal bill
can be presented in either of the houses, but it is observed that
around 90% of the bills are presented in Lok Sabha only. A Private
Member has to give 30 days prior notice to the Speaker before
presenting any Bill. The said notice must also contain copy of Bill, its
Objective and details of probable expenditures. Date of presentation of
Bill is fixed after discussions with Bill presented member. On the fixed
date, member seeks permission to present Bill from Speaker while
standing on his Seat. Then the concerned member reads the Heading
of the Bill and presents Bill copy in the house. If the members support
the bill, then it is understood that Bill has been passed in the first stage.
In case, it fails to get support, then it is quashed at the very first stage

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only. Speaker orders to publish the Bill, if is supported and passed by
the house.
As regards Government Bills, they are presented by any member of the
council of ministers. There is no need to take permission from the house
in this regard. Publishing of Bill in the Gazette is enough and understood
as the first reading. If need be, Minister can take permission and present
the bill in the house
2. Stage Two: Debate and Second Reading: Normally there is sufficient
gap between stage one and two in order to print and distribute the copy
of the bill amongst members. This enables members to study and
prepare their suggestions about the bill. On the fixed date, concerned
member stands on his seat and asks permission for second reading.
After getting permission from Speaker of Lok Sabha, Bill presenter
proposed any one of the following:
 Whether Bill should be immediately discussed.

 Whether Bill should be sent to a committee.

 Whether Bill should be sent to a Joint Committee comprising of
both houses.

 Whether Bill should be distributed amongst public for plebiscite.

Accepting any of the above proposals depends on the necessity and
importance of the bill and then debates starts on the bill. Presenter of the
bill behaves like a Pilot and apprises the house of the objective and
principles of the bill. Members of Opposition are given ample opportunity
to present their views on the same. It is sent to a Committee if Bill gets
passed at this stage and is considered as Quashed, if it not passed. If
Government bill is not passed at this Stage, then it is considered at
Defeat of government If decision is taken for a Plebiscite, then after
fulfilling required criteria, bill is sent to a committee. If house decides to
consider the Bill immediately, then Debate starts at once.
3. Committee Stage: Member presenting the Bill is nominated to the
Committee, to which this Bill is sent at this particular stage. This
committee also has members of opposition. Normally those members
are appointed who have knowledge on the subject. It comprises of 25-30
members. All the clauses of the Bill are debated thoroughly. In case if
committee thinks fit to call people who are supposed to be affected by
such bills, then it can call a person who might not be a member to the
committee, but keeps decent knowledge on the subject. House
proceedings are confidential and hence members of all political parties

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are free to present their views. There is no sign of hesitation by
government members in accepting suggestions of opposition members.
At this stage, bill is thoroughly and objectively analyzed. Each and every
clause of bill is discussed and debated. Committee can recommend any
one of the following:
Whether Bill should be amended as per suggestions.
(i) Whether Bill should be Quashed.
(ii) Whether Bill should be passed without any amendment.
Committee prepares report on the Bill and sends to the House.
Committee has to return Original Bill to the house under any
circumstances, irrespective of its report, as committee does not have the
right to give concluding shape to the bill. In America things are different
and committee there are very powerful and they can quash the bill
without giving any report to the house. In India, committee has to give its
report to the house, whether it support or opposes the bill.
4. Report Stage: When Bill comes to the house with the Report of the
Committee, this is known as Report Stage. On fixed data, Presenter of
the bill requests the house to analyze the bill again on the basis of report
given. Copy of the bill is distribute amongst members along with
recommendations and amendments as suggested by committee. Each
angle of the bill is debated and discussed. Suggested amendments are
also discussed and debated and voting is done on each clause or group
voting can also be done on clauses. Speaker can fix the deadline of
discussion and debate. This is how entire bill is discussed and finally is
passed. This is the decisive stage for a bill. If it crosses this stage, then it
is considered as pass finally, as in third and last stage, no bill can be
quashed.
5. Third Reading Stage: This is the final stage of passing of a bill. 3rd
Reading stage Date is fixed after Report stage. In this stage, not all
clauses of the bills are discussed. Bill in read in detail and passed. Only
suggestions on the amendments related with the language of the bill are
considered. Debate is normally confines up to the approval or rejection
of the bill. This stage is a formality and normally Bills don‘t get quashed
at this stage. Voting is exercised on the bill and in case, it gets majority
support, it is sent to other house.

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6. Bill in Other House: A Bill has to again pass through similar stages
in the other house also, which it passed through first house. Other house
can do the following:
a. Can pass the Bill without any amendment.
b. Returns Bill with amendments to the first house.
c. Can reject the Bill.
If other house does not act upon the Bill for a period of 6 months, then it
is considered to be quashed by other house. If the other house quashes
the bill or returns it with amendments, then there is a conflict situation
between both houses and in case of conflict carrying forward till 6th
month, then President can call upon Joint Session of both the houses. It
is sent to President for approval if it passed with majority in the Joint
session, but in case of it not getting the majority, then the bill is
considered to be quashed. In Joint Session, due to its sheer size, Lok
Sabha is in a better and commanding position than Rajya Sabha.
7. Approval of President: After parliament passes the bill, it is sent to
the President for his signature and approval. If President approves it,
then it becomes law and gets registered in the books of law. President
can return the bill to the parliament with or without recommendations.
But parliament is not bound to abide by the recommendations of the
President. If parliament passes the bill with or without recommendations,
then President is bound to give its approval. Normally, President seldom
takes the step of returning the bill. Each bill passed by parliament has
majority and support of Council of Ministers. President acts on the
suggestions of the cabinet only cabinet can never try to mislead
President against the wishes of the parliament. Hence, Cabinet always
advises President to approve Bills those are cleared by parliament.

Nutshell, a bill has to pass through several stages in both houses of

parliament and it becomes legislation only after President approves it.
7.10. Procedure of Passing the Budget

Description of next financial year‘s Income and Expenditure of Union is

referred to as ―Annual Financial Statement or Budget‖. Government has
to get Budget approved by the parliament before the commencement of
next financial year because without the approval of the parliament, no
Money can be withdrawn from Exchequer nor can government spend
any money. In India financial year starts from April 1 and finishes on
March 31. Annual Budget has to be passed before April 1 each year. As
per Article 112(1), President shall each year, present before the

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parliament, Annual Income and Expense Projection of Government of
India concerning to the current financial year. The article clears the fact
that it is President‘s duty to present the Budget before parliament. But in
practice, this is the right of Union Cabinet, which prepares, presents,
gets it passed and after that, Cabinet spends it and arranges to muster
Incomes as per Budgetary provisions. While giving details on Income
and Expenditure, Financial policies for the next financial year are also
fixed.
7.10.1. Following are the stages in passing a Budget. In India, it is
presented in two parts:
1. Railway Budget: Income and Expenditure of Railways is presented
through this budget and it is presented by Railway Minister. It is
presented some days before actual Budget is presented.
2. General Budget: Income and Expenditure of all other departments
except Railways, is presented by this Budget. It is presented by the
Finance Minster in Lok Sabha. Procedure for passing both Railway and
General Budget is same as following:
(a) Preparation of Budget: Preparing the Budget is a very exhaustive
and complexed work as it is the basis of entire Nation‘s Economy for
next financial year. Need, Objective and development of Financial and
Industrial Technical development depends on the financial policies of the
government which is fixed in the budget. It charts out the process of
financial policy, short term special financial policy, Tax proposal and
other economic steps, according to which social and economical
development process of the nation has to run. General budget is
prepared by Finance Minister and Railway Budget is prepare by the
Railways Minister, but in both the cases, Cabinet decides on policies
comprehensively. Expense Ratios are decided and all different ratios
pertaining to different departments have to reach Finance Minister
minimum 4-6 months before the Budget is presented. Basis these
Ratios, finance minister puts his estimate on next year‘s Income and
Expenditure. After this, Finance Minister takes decision on applying
Taxes by different means to generate Income and thus prepares Tax
Proposal, thereby decided on new tax application and renewal of old
taxes. Finally after preparing it, Finance Minister presents it in the
Cabinet and thus it is ready to be presented.

(b) Main Parts of General Budget: In India there are mainly two parts of
budget as following:

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(i) Statement of Income: it contains Income record of last financial year
of Central government (all departments).
(ii) Statement of Expenditure: it contains Expenditure record of last
financial year of Central government (all departments).
(iii) Estimated Income and Expenditure for Central government for
forthcoming financial year.
(iv) Proposals on changes in existing Tax structure and introduction of
new taxes.
(v) Statement on Central Government Financial Policy for forthcoming
financial year. Government expenditure can be divided in to Two
following parts:-
(a) Expenses incurred out of Consolidated Fund of India (Charged
Expenditure).
(b) General or Non Charged Expenditure
(a) Expenses charged on the Consolidated Fund of India: As per
article 113, parliament members can debate on the different expenses
charged on consolidated fund on India, but can‘t use their right to vote
on them. These are passed by the parliament, which have to be spent
by the Government only under any circumstances. Following are the
expenses under this category:
1. President Salary and other Allowance Expenses.

2. Expenses incurred on Head of both the houses.

3. Expenses incurred on Salary and other Allowance of
Judges of Supreme Court and High Court.

4. Expenses incurred on Salary and other Allowance of

Comptroller and Auditor General.
5. Expenses incurred on Pension of Judges of Union
Parliament.
6. Expenses incurred on Salary and other Allowance of Vice
President.

(b) Non-Charged Expenses: all other expenses incurred other than

above mentioned expenses come under Non Charged Expenses and
they are presented before parliament in form of ratio of their Grants.
These can be accepted, refused or decreased by the parliament.
Parliament can‘t increase them.

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1. Budget Presentation and Introduction Speech: As per Article 112,
President arranges to present the Budget as prepared by the Finance
Minister in parliament. Normally budget is presented in the last week of
February, so that before passing it, parliament has at least one month
time to discuss it. Budget has to be passed before March 31 of every
year. Budget is presented in Lok Sabha at fixed date and time. While
presenting Budget, Finance Minister gives speech over it mentioning
main parts and specialty of budget. As it is a finance bill, it is always
presented in Lok Sabha.
2. Budget Speech: Copies of Budget are distributed among the
parliamentarians so that they can be able study details of budget. At the
same time, for the benefit of public, it is broadcast on TV and Radio.
Ground gets set from Introduction of Budget to debate and MPs get
ready for debating the budget.
3.General Discussion on Budget: After 3-4 days of presenting budget,
debate happens on its main features, wherein Finance Minister tries to
justify the policies of Government at this stage, debate happens on the
Charged Expenses also. Members of political parties use this occasion
to criticize economic policies of the government but that debate is
political and has least relation with Economic Evaluation or
Reconsideration. In the words of Morris Jones,‖ it is such an opportunity
where each member is able to express his though process and
government gets to know that this special proposal will go on next level
at what shape.
4. Consideration of Budget Proposals by Standing Committees:
There have been effected many changes in the Committee System in
April, 1993. 17 permanent committees have been made and since
1994 they have been discharging their duties effectively. After
presentation, budget goes to these committees. These committees give
their report after thoroughly checking budget proposals, which becomes
the basis of debate thereafter.
5.Voting on Demand of Grants: After general discussion, discussion
takes place on the demands of various government departments. At this
stage individually expenditure for the coming financial year by
government departments regarding the demands of the discussion are
the subject. Govternment can accept, reject or reduce any demand
amount, but can‘t hike it. Though each department grant demand is
discussed separately, but in practice, only major department grant
demand is dealt with separately. Due to shortage of time, other
department‘s grant demand is left for the joint discussion by the

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parliament. Each demand is presented by concerned Minister after
taking approval of the President. Speaker decides on the time limit of
debate and after that, voting is conducted on the grant demands. If any
Grant demand is rejected or reduced, then it is considered as the defeat
of council of ministers and they have to resign. This proceeding tests
government majority strength in the parliament and thus government has
to be very careful and be ready for any consequences.
6. Introduction and Passing of Appropriation Bill: After the
discussion on the grants demand, Appropriation Bill is created by
combining all those passed demands and expenses to be incurred out of
consolidated fund of India. This bill is presented in Lok Sabha and has to
go through all the stages, which any bill has to go through. After passing
Lok Sabha sends it to Rajya Sabha, which can pass it or return it with
or without recommendations within 14 days. Lok Sabha is not bound to
abide by the recommendations, if any. Therefore, Rajya Sabha can only
delay the bill for 14 days. After this, it is considered to be passed by both
houses and sent to President to signature. It implies the approval of
Grant Demand of different government departments.
7. Passing of Finance Bill: All Tax proposal mentioned in the Budget is
referred to as Finance Bill and presented after appropriation bill is
passed. It has to go through the process, which is required for a Money
Bill to be passed. Opposition can suggest amendment relating to
reduction in taxes, which can be accepted or rejected by the government
If in parliament, such an amendment is passed without the consent of
Cabinet, then it is considered to be as No Confidence Proposal against
Government and it has to resign. But a Government with majority does
not have trouble passing the bill normally. After it is passed by Lok
Sabha, it is sent to Rajya Sabha, which can only delay it for 14 days. It
can return it with or without recommendations to Lok Sabha, but it Lok
Sabha discretion to accept or reject the recommendations. After the
expiry of 14 Days from the date bill is sent to Rajya Sabha, it is
considered to be passed by both the houses and sent to President for
his approval. After President signs over it, it becomes a law. President
does not have the right to return it to Lok Sabha for reconsideration or
reapproval. After Finance bill is passed, actually the process of passing
Budget gets completed.
8. Vote on Account: In case Government is finding it tough to pass
budget before April 1, then Government can take approval for necessary
expenditures on Interim basis. This process is called taking Vote on

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Account from parliament by the Government normally, such request is
accepted by the parliament always.
9.Supplementary Budget: If 3-4 months after passing Budget, finance
minster is of the view that approved expenses are more than the
estimate or the income is less than the estimate, then in Sep-Oct or
January he presents revised budget knows as Supplementary Budget or
Grant asked by the Government
10.Contingency Fund of India: As per Article 267(1), parliament can
create a fund called contingency for emergency purposes by passing a
law. This is under the control of the President. Money spent from this
account has to be approved by both the houses of parliament.
Therefore, passing Budget is an organized and complexed process. This
is a time bound process. There are provisions to control difficulties in
passing the bill, which can delay its passing. Process of passing
Budget infers that Lok Sabha is in a better and powerful position than
Rajya Sabha. In context of Financial bill, Lok Sabha only plays major
part, while Rajya Sabha can only plays the role of delaying it. In
cases, where majority is different in Lok Sabha and Rajya Sabha(
majority of one party in LS and of another in RS), then Rajya
Sabha can have an active role to play. Such incident happened in 1977-
79 and 1989-95. If there is any difficulty due to political instability or any
other crisis, then President can promulgate special order and ask
parliament to pass the bill, which happened in March, 1998.
LET US SUM UP

Preparing and getting the budget passed in parliament is absolutely

complexed and lengthy process, which forces the Cabinet to be careful
and effective while going through this process. Budget session of
parliament is actually pressure time for the Government any error or
negligence can be a reason for Government Fall and it can give a
severe jolt to national economy. Due to the emergence of Coalition
Government in India, process of passing Budget has become even
tougher and complexed. But Indian
Check Your Progress

Fill in the Blanks:

1. Enforcement Committees is ------- committee.
2. As per rule no. -------of Lok Sabha, the main function is to
analyze those estimates of the government which they have
projected through Estimate Budget before house.

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 3. All those documents presented in parliament for making law, are
known as --------
4. Bills passed by parliament become Law only after being signed
by the -------------
5. Parliamentary Legislations can be enforceable in--------- which
has the right to revoke it, if it is found to be unconstitutional
GLOSSARY

Legislative - having the power to make laws

Miscellaneous - Consisting Of Diverse Things or
Members : Heterogeneous
Resolution - an official decision that is made after
a group or organization has voted
Quorum - the minimum number of members of an
assembly that must be present at any of its
meetings to make the proceedings of that

meeting valid.
Conformity - behavior in accordance with socially accepted
conventions

ANSWERS TO CHECK YOUR PROGRESS

1.Select Committee

2. 310
3.―Draft Acts or Bill
4. President.

5.Supreme Court
REFERENCES AND SUGGESTED READINGS

1. Indian Administration and Politics – P. Rastogi.

2. Indian Political System – N. Chhabra

121
MODEL QUESTION

1. Describe any two committees of union an parliament and discuss

their functions.
2. What is the procedure for passing the budget in parliament and
explain it‘s stages.

122
UNIT - 8

COUNCIL OF MINISTERS AND PRIME MINISTERS

STRUCTURE

Overview
Learning Objectives
8.1. Introduction

8.2. Objectives
8.3. Structure and Tenure of Council of Ministers
8.4. Distinction between Cabinet and Council of Ministers

8.5. Powers and Functions of Cabinet

8.6. Prime Minister of India: Qualifications, Appointment,
Functions and Powers

8.7. Powers and Functions of Prime Minister

8.8. Single Judicial System in India
8.9. Supreme Court: Formation, Powers and Functions

8.10. Limitations on Original Jurisdiction

8.11. State High Court
8.12. Appointment of the Judges
8.12.1. Independence of High Court Judges
8.13. Constitutional Basis of Judicial Review in India
Let us sum up

Glossary
Answers to check your progress
Model Questions

Suggested Readings

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OVERVIEW

Constitution has parliamentary system and for this it has divided

Executive into two parts: (1) Namesake or Statutory Executive (2)
Actual Executive.
President of India is the namesake executive and Council of Ministers
under the leadership of Prime Minister is actual executive. Actual
executive is mentioned in article 74 as, ‗To help and assist, there shall
be Council of Ministers led by the Prime Minister and President shall
work as per the advice of them‘. President is bound to abide by the
suggestions of the Council of Ministers. He can only ask them to
reconsider their recommendations, but can‘t refuse if it sent again.
Therefore, Council of ministers is the actual executive of India.
LEARNING OBJECTIVES
After studying this unit, students will be able to:
 Understand the Functions, Powers and Composition of
Council of Ministers and Difference from Cabinet.
 Know the Eligibility, Tenure, Powers and Position of Prime
Minister of India.

 Know the difference between Powers and Position of

Indian and British Prime Minister.
 Compare between Powers and Position of Indian Prime
Minister and American President.
8.1. Structure and Tenure of Council of Ministers

It has been mentioned in Article 74(9). After 44th amendment it looks

like this, ―to assist and suggest the president in its functions. There shall
be a Council of Ministers led by the prime minister. President shall abide
by it to discharge its duties. President can ask for reconsideration of its
suggestions and if again council of ministers send it back to the
president, then he is bound to accept it‖.
There are 6 fundamental rules mentioned in article75 about the
formation of Union Council of Ministers which are as following:
1. Prime Minister shall be appointed by the president and rest others
shall be appointed by President on the recommendation of Prime

Minister.
2. Ministers shall be on their post during the pleasure of the president.

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3. Council of ministers shall be collectively responsible to Lok Sabha.
4. Before taking charge, president shall do the pledging ceremony of
confidentiality and post as mentioned in Third Schedule.
5. Any Minister who is not a member of either house of parliament, has
to become member of either house within 6 months, else he shall
cease to be a Minister.
6. Salary and Allowance of members shall be such as fixed by
parliament from time to time or shall be such as mentioned in Second
Schedule, if not fixed by parliament.
We should take above mentioned clauses in the light of other sub
clauses of constitution, constitutional provisions and verdicts of Supreme
Court.
(a) As per article 75(1), President appoints prime minister, but he can
seldom use his discretion, as prime minister has to be Leader of majority
party or coalition group in Lok Sabha. As per article 75(3), Council of
Ministers is collectively responsible to Lok Sabha. This also implies the
same, the prime minister has to be having majority in Lok Sabha.
(b) Member of Rajya Sabha can also be elected as Prime minister,
provided he has majority support of Lok Sabha and that majority elects
him as leader.
(c) In general, President undoubtedly has no confusion on electing prime
minister, but in special situations, he can have the right to use his
discretion while electing prime minister. In case of no one having
majority in Lok Sabha, then President can invite Leader of any party to
form Council of Minister, provided he is confident of him forming the
Council. But in these circumstances also normally he hardly gets a
chance due to parties making Coalition and then electing their Leader
amongst them and thus they get majority in Lok Sabha. President of the
self - get the second chance to exercise discretion, when the majority of
the consumer Prime Self sacrifice - not seen the letter. In this case the
President an influential person Ministers - Council may be invited for
construction.
(d) Other Ministers of Council are elected by President on the
recommendations of prime minister. Without the consent of prime
minister, president cant make any minister.

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(e) Ministers are members of parliament and are collectively responsible
to Lok Sabha. It clearly establishes the fact that Ministers are
responsible to the parliament, whatever they do in the name of
President. They can‘t take cushion of the name of the President for any
of their illegal or unconstitutional acts.
Size and Composition of Council of Ministers: There is no hard and
fast rule pertaining to composition and size of the council. It solely
depends on the prime minister, who to be elected. Now there is a rule
that numbers of ministers shall not exceed 15% of total Lok Sabha
members. Normally it has 50-80 Ministers who can be divided in to
following categories:
(a) Cabinet Minister: They are normally between 15-20 in number.
Collectively they are called Cabinet which is a powerful part of Council of
ministers involved in Policy and Decision making. Important Leaders of
Ruling party are part of it, who are close to the prime minister. They
possess vital department in the government.
(b) State Minister: These are another level of ministers and don‘t form
part of Cabinet. State Minister either takes care of any small department
or he is attached to any Cabinet Minister. Ministers like Home, Defence,
Foreign Affairs, Agriculture, and Human Resources have 2-3 State
Ministers whereas Civil Aviation, Information and Broadcasting, Labour,
Railway, Public Welfare, Surface Transport and Clothes are headed by
State Ministers. These ministers take part in Cabinet Meeting only when
prime minister invites them for the same.
(c) Deputy Minister: Those Ministers who are attached with Cabinet or
State Ministers are called Deputy Ministers. They don‘t take charge of
any department as an Independent. He has to assist that Minister, under
whom he is working. Normally he has been entrusted with the task of
preparing answers to the questions which shall be asked in
parliament, pertaining to his department and extending help in getting
government. Bills passed in the parliament.
(d) Parliamentary Secretary: These are neither Ministers nor they have
been given any administrative work. They have a solitary function of
helping Ministers in the parliament. They don‘t take any salary. This is a
post which is instrumental in training future Ministers.
(e) Deputy Prime Minister: Apart from these 4 categories, there has
been a post of Deputy Prime minister in Indian Cabinet System since
1950. In the beginning, Sardar Ballabh Bhai Patel made Morarji Desai
Deputy Prime Minister in J.L. Nehru‘s Leadership. After his resignation in

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1969, this post remained vacant. In 1977, in the cabinet of Morarji Desai,
there were 2 Deputy Prime Ministers- Chaudhary Charan Singh and
Babu Jagjeevan Ram. After this, there were no Deputy PM in the cabinet
of Chaudhary Charan Singh which lasted only for 6 months nor in Indira
Gandhi‘s Cabinet (1980-84). Rajiv Gandhi (Nov 1984-Nov 1989) also did
not have post of Deputy Prime minister. But in V.P. Singh (1989-90) and
Chandrasekhar‗s tenure, Devi Lal was the Deputy Prime Minister.
Constitution does not have provision for the post of Deputy Prime
minister. It only says that,‖ there shall be a Council of Ministers under
the leadership of prime minister‖ and it depends on prime minister or on
the party politics, that a post of Deputy PM should be added or not.
Tenure of Council of Ministers: As per constitution, Ministers shall
continue to work during the pleasure of the president, but this is only
formality. In reality, Council of Ministers continue to work till the time
they have the majority support in Lok Sabha. In case of dissolved or new
Lok Sabha, new Cabinet is formed.
8.2 Distinction between Cabinet and Council of Ministers
Article 74 only mentions about Council of Ministers and there is no
description of Cabinet. Cabinet is and Extra Constitutional Body. This is
part of Council of Ministers comprising of 15-20 High profile Ministers.
They are called Cabinet Ministers who jointly work for policy formation
under prime minister‘s leadership. Decisions taken by Cabinet is always
knows as Decision of Council of Ministers and it is the duty of each
Minister to support those decisions. Those who don‘t agree with the
decisions have to leave their post, as done by Mr. Ram Murti in 1991.
Council of Ministers is actually the Centre of Power in the Indian Political
System. Following are the distinction between Cabinet and Council of
ministers:
1. Cabinet is a part of Council of Ministers. Cabinet is small body
whereas Council of Ministers is big, but Cabinet is powerful and
important part of Council of Ministers.
2. All Ministers collectively form Council of Ministers whereas, Cabinet is
formed by 15-20 High profile Ministers only, who have got Cabinet Rank.

3. Only Cabinet ministers take part in Weekly Cabinet Meetings under

Prime Minister Leadership. Other Ministers can take part only in case
prime minister invites them. Entire Council of Ministers meeting happen
very rarely.
4. Policy Formation is the Job of Cabinet and not of Council of Ministers.

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5. Under article 74, there is provision of Council of Ministers and not of
Cabinet. Style of work of Cabinet depends on traditions of Parliamentary
processes. Technically, Cabinet is an Extra Constitutional body, but it is
undoubtedly the most powerful institution of Indian Polity.
8.3. Powers and Functions of Cabinet
1. Policy Formation: Most mentionable work of Cabinet is to form
Internal and External Policies. As per parliamentary process, Cabinet
has to get its policies approved by the parliament. In case of parliament
rejecting its policies, then Cabinet has to resign. This is the meaning of
majority to Lok Sabha.
2. Executive Related: Though Executive powers are vested with
president, in practice they are used by Cabinet only, which is
responsible to the parliament for these works. Each Minister can be
Head of one or more departments concerned.
3. Legislative Related: Important Bills are presented by Ministers only
in parliament, which are accepted after formal debate and discussions.
By Delegated Legislation also, Cabinet represents parliament in
terms of Law making. Parliament does not have enough time to discuss
each bill at length; hence Council of Ministers only gives final shape to
bill passed by the parliament.
4. Finance Related: National Economic Policy is also decided by the
Cabinet. Finance minister presents the forthcoming financial year‘s
income and expenditure statement (budget) in parliament. Responsibility
of passing budget is on Cabinet only. Cabinet has to resign In case of
parliament rejecting it, but in practice normally parliament accepts the
budget. Other finance bills are also presented in Lok Sabha by ministers
only.
5. Miscellaneous Work: some other works of Cabinet are as following:

a. Appointment of Important Posts: Posts like Governor,

Judges of Supreme Court and High Court, Attorney
General, Head of Defence Forces etc. which though are
under the right of president, but in practice exercised by
the Cabinet only, since president acts on the suggestion
of Cabinet.
b. Pardon of Criminals.
c. To Confer Medals for distinguished Services.

d. Presenting amendment in constitution and approving

them.

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 e. Declaration of War and Peace.
f. Use of emergency powers of President.
Unlimited Powers of Cabinet: under Indian political system, Union or
Council of Ministers is a very powerful part of the government as per
constitution, though Council of Ministers are controlled by the
parliament, yet in practice parliament functions on the commands of the
Council of Ministers only. By default power of its majority in Lok Sabha,
Council of Ministers gets their job done by parliament. Therefore
scholars state,‖ it is only eyewash of the supremeness of parliament and
Cabinet is running an Autocracy taking its Cushion‖. Reason for this
autocracy can be attributed to the majority support of Ruling Party in Lok
Sabha. This autocracy can only be stopped by an aware electorate. No
Cabinet would like the electorate to reject it and subsequently face a
defeat in the elections. In recent past, Judiciary also has become active
to control the monarchy practiced by the Council of Ministers.
8.4. Prime Minister of India: Qualifications, Appointment, Functions
and Powers
Indian Prime Minister also has vital role alike British Prime Minister.
Entire administration responsibility is on him only. About British PM‘s
power once Ramzamoor said, ―He has such great powers which no
other constitutional head in world enjoys, not even American President.
Till the time he enjoys majority, he can perform functions which no
president can do. He can promise on which Bill to be passed and on
which amount shall be approved by the parliament‖. The same holds
true for Indian Prime Minister also. He can take any decision on subjects
like, foreign policy or Home affairs etc. with slightest of mistake, he can
push nation in to a war and have drastic effect on the whole and can
save the Nation also.
Qualifications of the Prime Minister: The Prime Minister is a member of
parliament so it is only natural for MPs to be determined. In addition,
they should have the confidence of the Lok Sabha.
Appointment of Prime Minister: As per constitution, president appoints
Prime minister, but in practice president has limited powers relating to it.
He is bound to invite the Leader of majority party or Coalition, for PM
post. Reason being that Prime Minister and his cabinet must have
support of Lok Sabha. The reason is that it is essential that the Prime
Minister and his Ministers endorsed the board of Lok Sabha and the
leader of the majority party may be recieve. Therefore, the position of
the Prime Minister and the leader of the majority party may be mounted.

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There are some situations in which President can use his discretion like,
none gets the majority in Lok Sabha and Coalition Cabinet is required.
For example, without having majority in Lok Sabha Charan singh was
appointed as PM. During Emergency, President can appoint anyone a
Prime Minister after dissolving Lok Sabha for some period. Prime
Minister is also the Head of Planning Commission. This is not necessary
that Prime minister should be a member of Lok Sabha; he can come
from Rajya Sabha also, which was proved when Indira Gandhi became
Prime Minister.

Prime Minister as Central Point of formation of Council of Ministers Life

and Death: Laski said for British Prime Minister,‖ He is the centre of its
formation, life and death‖. Same holds true for Indian Prime Minister. Dr.
Ambedkar said in Constitution meet ―collective responsibility can only be
promoted by the Prime Minister,‖ members can be in the Cabinet till the
time Prime Minister wishes‖. Hence it is clear that the existence of
Cabinet hinges on his will, qualifications and ability to take his team
along. If Prime Minister resigns, then entire Cabinet has to resign. As per
Remzamoor, ―The Cabinet is short is the Steering Wheel of the State,
but Cabinet controls it‖.
8.4.1 Powers and Functions of Prime Minister

Indian Prime Minister is the key stone of the Cabinet Arch. A like British
Prime Minister; he enjoys such huge powers that he can be said to be
the Centre of Administration Management of the nation.
There is none who has got such powers; following are his powers and
functions:
1. Formation of Council of Ministers: PM has major powers in the
formation of Council of Ministers. Constitutionally also, president
appoints other Ministers at the recommendation of Prime Minister only.
After being elected, this is the first job of PM to elect other Ministers. He
prepares the list of Ministers and sends it to President. He enjoys
complete freedom in forming Council of Ministers. He only decides how
many members shall be there, what shall be the number of ministers of
different types and who all shall be taken in the Council of ministers.
President can not force prime minister to take any person as per his
liking or disliking. Even Prime minister‘ own party can‘t force him to do
so. His decision is final and binding.

But in practice, prime minister has to be very careful while forming

council. He has to ensure that Council should give equal representation
to each State, Religion and Community. Sometimes, some eligible and

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expert administrators are included in the Council. sometimes, he elects
people from youth also, so that they become future administrator after
getting training.
2. Distribution of Portfolio: After forming the council of ministers, prime
minister distributes different department for them. He also decides on
which minister to head which department, who should be Cabinet
minister, who should be State minister and who should be Deputy
minister. He evaluates that who can do justice to any particular portfolio.
While portfolio distribution also, he ensures to satisfy senior members of
his party, considers their political importance and assigns special
importance to different religion, regions and community. But a popular
and powerful Prime Minister acts at his discretion while performing these
duties.
3. Power to Remove Ministers: Theoretically the ministers hold office
at the pleasure of the president, but decision of removal of ministers
takes place on the advice of prime minister. So, ―in practice, it is the
pleasure of the prime minister during which they remain in office.‖
Otherwise, prime Minister can get him dismissed advising to the
president. In fact, this situation never arises. Whenever, a Minister
comes to know that the prime minister does not wish to keep him in
council of Ministers, he himself resigns.
In April, 1992, Central External Affairs Minister Mr. Madhav Singh
Solanki had to resign because, he had given a secret letter to the Swiss
External Affairs Minister, which was related to the Investigation of Bofors
trade and due to which there was an uproar in the Lok Sabha. So, we
can say that the prime minister appoints the ministers, distributes the
portfolios among them and can remove them from the post. Prime
minister is vested with such powers to inculcate a sense of collective
responsibility among Ministers. As Dr. Ambedkar manifested in
constituent assembly, ―the prime minister is the key stone of the arch of
the cabinet and unless and until we create that office and endow that
office with statutory authority to nominate and dismiss a minister there
can be no collective responsibility.‖
4. Leader of the Lok Sabha: Like England, the prime Minister is the
leader of the Lok Sabha. He makes important announcements in the
house regarding government policies and answers the questions. He
initiates debate in Lok Sabha and safeguards ministers from criticism in
the house. He orders and directs his party‘s members through whips,
watches and controls them. He has a special influence over statutory

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functions of the house. He performs the function of the house along with
the speaker and helps him to maintain discipline in the house.
5. Link between the President and the Cabinet: The prime minister
works as a link between the president and the cabinet. He informs the
president about decision taken by the cabinet and puts the president‘s
view before the cabinet. The president can ask him to seek the cabinet‘s
decision about the decision taken by a minister individually. He is the
chief advisor of the president. The president has to abide by the prime
minister‘s advice even if he does not agree with it.
6. Leadership of the Cabinet: The Prime Minister is the leader of the
cabinet. He presides over the meetings of the cabinet. The President
does not participate in the proceeding of the cabinet. The Cabinet
performs all the functions under the leadership of the prime minister. He
calls for the meeting of the cabinet, prepares a list of the issues to be
discussed, conducts debate over several issues and if he deems fit,
organizes voting. Mostly consensus is arrived over any policy, only when
the prime minister agrees. In short, we can say that all the proceedings
of the cabinet take place under supervision of the prime minister.
7. As a Link between different Departments: Being head of the
cabinet he performs another important function like resolving problems,
disputes and differences in such a manner so that administrative
efficiency remains maintained. Cooperation and coordination among
different departments of government is essential for efficient
administration. For this the prime minister works as a link between
different departments. He functions as a mediator and judge to resolve
inter- departmental differences.
8. Chief Advisor of the President: The Prime minister is the Chief
advisor to the president. The president seeks advice of the prime
minister on every issues and acts according to his advice; the president
is obliged to abide by his advice. If the president requires any
information regarding administration, he talks to the prime minister and
gets the information.
9. Leader of the Nation: The Prime Minister is not only the Leader of
the majority party in the parliament but the leader of the Nation too. He
becomes the most important official of the nation due to his highest post.
He enjoys such an honor that no other Minister does. He is the only
representative of the country. Whole country accepts his leadership in
emergency. Even opposition party extends its full cooperation to face
problems of emergency. In other countries, the prime minister is honored
as the leader of the country.

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10. Leader of the Party: The Prime Minister is not only the leader of the
majority party but he is the Supreme Leader of his party also. His whole
party wages with his support. General election, in fact, is the election
of the Prime Minister. The prime minister plays main role in organizing
party properly, preparing policies and programmes of the party and in
election campaigning. No other leader of the party has such an impacts
as that of the speeches given by the Prime minister at the time of
election. Party‘s victory in the general election, in fact, is the victory of
the prime Minister himself.
11. Responsible for ability of Government: The prime minister
ensures that credibility of his party and government remains intact. To
accomplish this responsibility he can make changes in the cabinet. He
can appoint new minister and if he feels so that existence of any specific
minister in the cabinet is not in the interest/confidence of the
government, he can remove such minister. In Laski‘s word,‖ he can
shuffle His pack whenever he so likes.‖ Dr. Ambedkar asserted in the
constituent assembly,‖ the prime minister is the keystone of the arch of
the cabinet and unless and until we create that office and endow that
office with statutory authority to nominate and dismiss a minister there
can be No collective responsibility.‖
12. Head of the government: There is a parliamentary form of
government in India. Where the president is the head of the government
but real head is the prime minister. The prime minister executes the
Executive, Judicial and emergency powers of the president and the
president can advise, encourage and even warn if needed. He frames
domestic and foreign policy. He also declares all the eminent policies on
behalf of the cabinet. Budget is also prepared under his supervision.
Constitutionally the president have the powers to appoint people on
higher posts and to award titles, but in practice the president neither
appoints nor award titles without the Consent of the prime minister.
These prerogatives are enjoyed by the prime minister.
13. Chief Spokesman of Government on Foreign Policy: The prime
minister has special interest in the foreign matters and controls over it.
He plays important role in the formulation of the foreign policy. He
makes important announcements regarding foreign policy. Although the
department of external affairs is under foreign minister, but, foreign
minister does not do important task without advice of the prime minister.
Foreign minister is the trustiest minister of the prime minister. Perhaps,
no minister has deeper relation with the Prime Minister than the foreign
minister.

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14. Power to get the Lok Sabha dissolved: The president use to
dissolve the Lok Sabha on the advice of the prime minister. If the
president thinks that dissolving Lok Sabha is not in the interest if the
country, he can refuse the prime minister‘s advice. In 1970, President
V.V. Giri dissolved the Lok Sabha on the advice of the prime minister. In
18 June 1977, President FAAhmed dissolved the Lok Sabha on the
advice of Prime Minister Mrs. Indira Gandhi. on 22 august 1979,
president Sanjeeva Reddy dissolved the Lok Sabha on the advice of
prime minister Chaudhary Charan singh, for which ,the janta party
criticized the president‘s act. The janta party had to say that the
president should have refused the advice of Prime Minister Chaudhary
Charan Singh and should have invited Jag Jeevan Ram to form the
government.
15. Prime Minister maintains Good Relations with Common Wealth
Countries: India is the member of the commonwealth, so it is the duty of
the prime minister to establish friendly relationship with commonwealth
countries. The prime minister attends the meetings of the
commonwealth. Ex- prime Minister Morarji Desai used to take part in
the meetings of commonwealth. He attended the commonwealth
meeting held in England on 8 June, 1977.
16. Prime Minister and the Defense: Responsibility of nation‘s security
lies with the Prime Minister. So, he has the complete command over
defense department. He takes complete Care of the needed mechanism
for security. Three is intimate relationship between National security and
foreign policy and he plays important role in the function of both the
departments. Victory or defeat of the country is the victory or defeat of
him. For example, victory over Pakistan in 1965 was credited to shri Lal
Bahadur Shastri. The prime minister, with the advice of the cabinet,
decides about the country to have alliance with, what type of arms
should be taken from which country and which country‘s help be sought
from in emergency.
17. Control of the Prime Minister over Economy: The prime minister
has total control over the economy. The prime minister is held
responsible for the failure of economy. From July 1969 to June 1970,
Mrs. Indira Gandhi held the charge of finance department.
18. Chief Spokesman of the Government: The policy and decision of
the cabinet,, before parliament and public, is announced by the prime
Minister. He keeps information of all the departments and if any minister
gets into hot water, he uses to help him to save the cabinet‘s boat from
drowning.

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19. Prime Minister and the Public Opinion: The prime minister has
special relationship with public. Public is influenced by role, functions
and policy of the prime minister and the prime minister is influenced by
support of the public. Government has control over medium of
communication such as radio, television etc.with the help of these
medium he moulds public opinion in his favor. It strengthens him. Nehru
and Indira Gandhi played an important role by moulding public opinion in
their favor.
20. Evaluation of the Work of States by the Prime Minister: The
prime minister has the powers to evaluate the work of the states. In July
1983, Prime Minister Indira Gandhi reviewed the different areas of
Madhya Pradesh.
21. Emergency Powers of the Prime Minister: Under article 352,356
and 360 of the Indian constitution the president exercises these powers
as advised by the prime minister. like, the president had declared
emergency on the advice of the prime minister on october, 1962 at
Chinese invasion, on December 3,1971 at Pakistani invasion and on
26th June, 1975 due to failure of internal system. Likewise, under article
356 president rule is imposed in the states on the advice of the prime
minister. According to 44th amendment, the president can declare
emergency under article 352 only on the written advice of the cabinet to
do so. In April 1977, the acting President B.D. Jati dissolved 9
Legislative assembly on the advice of the prime minister.
22. Power of Making Appointments: The president makes
appointments of the higher officials on the advice and acceptance of
the prime minister. Ambassadors (likely to be sent to other countries),
Governor of the states, Attorney General, Comptroller and Auditor
General, Chairperson and members of Union Public Service
Commission and Election Commission etc. are appointed itself on the
advice of the prime minister. Twelve eminent personalities from the field
of literature, arts, science and social service are itself nominated in the
Rajya Sabha by the president on the advice of the prime minister
Position of the Prime Minister

The post of the prime minister is the very important, dignified and
powerful. He has got key position in the administrative fabric of the
nation. If the council of ministers is the real ruler of the country , he is the
master of the council of minister. He is the creator of the council of
minister, centre to its life and centre death. He is the chief advisor of the
president. He is the principal speaker of the nation in foreign matters. He
is the most popular leader of the country. He vested with such an ample

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and comprehensive powers that perhaps no other constitutional head of
the world has got one. His constitutional position is similar to the
constitutional head of England. Constitutionally, he is the head of the
council of minister and the president appoints other ministers on the
advice of him.
He can be compared to the president of America also. in words of Dr.
Ambedkar, ‖if, in our constitution, any official may be compared with the
president of America then it is the prime minister and not the president of
the union.‖ until, the Indian prime minister has the majority in the Lok
Sabha he can accomplish such a task that not even American president
can do it. He can get any law passed from the parliament, can have
alliance with any country and can spend any fortune in order to perform
his duties.
Administrative reforms commission has reflected the position of the
prime minister as, the constitution provides the prime minister special
position in administrative frame of the government. He is not only head
of the council of ministers, the first among equals but the chief advisor of
the president also. His highest position delegates special responsibility
to him that he must see that this institution(council of ministers) works as
a team.
We are in agreement with Dr. Ambedkar‘s manifestation that if, in our
constitution ,any person may be compared with the president of America
then it is the prime minister and not the president.
Indian prime minister cannot said to be the ―first among equals.‖
definitely he is the best official than other ministers and today he has so
much powers, but it should never be meant that prime ministerial form of
government has been established in India. The prime minister is the
integral part of the parliamentary governance system. He is the owner of
powerful and important post under this system. Indian system can be
named as prime ministerial government only then, when the name of
parliamentary government or cabinet system is changed as prime
ministerial system.
8.5. Single Judicial System in India

Though Indian is a Union of States, still it has Single Judiciary. Alike

USA, we don‘t have Union and State Court in separation. All Courts of
Laws are part of a Single Larger chain only. At the Apex level is
Supreme court of India. High Courts working at State Level are just
under it and under High Courts there are Subordinate Courts at District
Level. All these Courts have been established under constitution and

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they give verdict on the basis of Statutory Laws, State Laws, and Civil
and Criminal Procedure Law. Hence India has excellently organized
Judicial system based on Single judiciary.
8.6. Supreme Court: Formation, Powers and Functions

This is the Apex Judicial body of Indian Judiciary system. It is the highest
court of India and its decisions are final and binding.
It had jurisdiction on both Preliminary and Appeal, but this was not the
Final Court of India. One could approach Privy Council of England
against its verdict as an appeal.
Composition of Supreme Court: It has been constituted under Article
124 which reads as ―There shall be a Supreme court of India‖. Initially,
there were One Chief Justice and 7 other Justices in it but an act of
1957 increased the number of other Judges to 10. In 1960, this was
increased to 13 by another act of parliament, but in December 1977,
the number was increased to 17. Further in April, 1986 the number
went up to 25 and at present, supreme court has 1 Chief Justice and 25
other Judges.
In case of work overload, president can appoint more Judges on Adhoc
basis. Adhoc Judges also get same Salary and allowance as permanent
judges. At times, any retired judge can also be asked to work.
Appointment of Judges: Chief justice and other Judges of the
Supreme Court are appointed by the President, but while doing so, he
does not act at his discretion. He has to consult other judges of
Supreme court and judges of State high court while appointing Chief
Justice of India. for appointing other judges of Supreme Court, he needs
to consult Chief justice of India. Appointment of Adhoc judges are done
in consultation with Chief Justice.

These appointments are done without bias. to ensure neutralism, there

is a seniority list of Judges, so that In case of a vacancy of Chief justice,
then the senior most in the list can be appointed. But on April 15, 1973
when Chief Justice Sikri retired, this principle was violated and justice
A.N. Rai was appointed as Chief Justice of India. Justice Shelet, Hegde
and Grover as a protest against the decision. After M.H. Baig retired on
April 22, 1978 senior most judge Y.V. Chandrachood was appointed
Chief Justice of India and thus again independence of Judiciary was
restored.

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Qualifications of Supreme Court Judges

Following are qualifications as fixed by the constitution:

 He should be an Indian citizen.
 He should have worked as Judge in High Court or any court for
minimum 5 years.
 He should have practiced in any High Court for minimum 10
years or.
 He should be a famous Jurist in the opinion of the president.
Tenure of Judges: Judges of supreme can work up till the age of 65
years and they retire after this. Parliament can increase their tenure.
After retirement they are entitled for pension. They can retire before their
tenure also by resigning. President can‘t sack them at his discretion.
Removal of Judges: They can be removed on the basis of Incapacity
or proved misbehavior. They can be removed only when parliament
passes a proposal by 2/3rd majority of its strength and by 2/3rd majority
of its present and voting members with allegation of misconduct and
send this proposal to president in same session and after president
approves it. Article 124 (4) 1 has the provision of removal and is has
been made complexed and tough so that Judiciary can work
independently and fearlessly.
Salary and Allowances: Chief justice‘s salary is Rs. 1 Lac and other
members get Rs 80,000 per month. Besides, each Justice gets free
accommodation and Conveyance allowance in case an official tour is
required. Salaries and Allowances of judges are paid from the
consolidate fund of India, which parliament clears without Voting. Only in
the case of Financial Emergency, president has the right to decrease
them. Parliament passed a law in March 1976 which increased the
pension of judges of SC.
Prohibition of Practice after Retirement: Judges of Supreme Court
can‗t practice after retirement. But it does not mean that Government
can‘t assign them any special task. They can be appointed Member or
Head of any commission. In April, 1977 Janta Government. appointed
Retired Chief Justice J.C. Shah to investigate the atrocities and
wrongdoing of 1975 Emergency. Besides, many retired judges have
been appointed on other government posts. Mr. M.C. Chagla was
appointed as Ambassador to United States.

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 Separate Establishment: Under article 146, provisions of formation of
Supreme Court is separate. Appointment of its officers and other staff,
terms and conditions relating to their work is done by Chief Justice of
India. Besides, expenditures of Supreme courts are incurred from
Consolidate Fund of India. This is how, Supreme Court is free from
intervention of any other institution and totally independent.
Oath of Office: Everybody who is appointed as Chief Justice or any
other Judges of Supreme court of India takes oath as following: ― I
……… (name)................................................... having been appointed
Chief Justice of India
(or a judge) do swear in the name of God/solemnly affirm that I will bear
true faith and allegiance to the constitution of India as established by law
that I shall dutifully and faithfully and to the best of my knowledge, ability
and judgment perform the duties of my office without any fear, affection
or ill-will and that I shall uphold the constitution and law‖.
Seat of Supreme Court: It is seated in New Delhi. It has a beautiful
building in the shape of an Indian Weighing Scale, But Chief Justice with
president‘s approval can do meeting at other places too.
Decisions of Supreme Court: To suggest president on any subject,
there has to be a 5 judge bench in other matter, this number can be 3.
All verdicts are given unanimously by the judges. Those judges who
don‘t agree with majority verdict, can make their disapproval and its
reasons recorded.
Immunities of Judges: To protect the independence of judiciary, all
verdicts and decisions of the Justices have been kept out of scope of
criticism. Even parliament can‘t discuss on the behavior of any judge. It
can happen only when any removal proceeding is under way in
parliament. This has been done to ensure fear free judiciary. To sustain
the dignity of Court and to keep it free from criticism, Courts have the
right to initiate Contempt of Court proceeding against any person who
disrespects it.
8.6Jurisdiction and Powers of Supreme Court

Supreme Court is the Apex court of the nation. Its jurisdiction and powers
are immense and no less than any other Supreme Court of the world. As
per Ex Attorney General MC Sitalwad,‖ powers of Indian Supreme Court
is even bigger than that of American Supreme Court‖. Its jurisdiction can
be classified as the following :

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1. OriginalJurisdiction: Those cases which can‘t be presented in any
other court of law and which have to directly come to Supreme Court for
hearing. They are as following:
(i)Cases which involves Government of India at one hand and State
Governments on the other.
(ii) Such fights on one hand and the Government of India and one or
more states are on the other sides.
(iii) Cases which involves State Government as one and another party.

8.7. Limitations on Original Jurisdiction

(i) These are those cases which are concerned with Legal or Statutory
aspect of dispute and not with political aspect.Those cases which are
related with any Agreement, Treaty, Guarantee or any other Document
which have been implemented before or after the Adoption of the
Constitution. For ex. Agreement of Indian Estate with Government of
India after Independence.
(ii)Parliament can by passing a law, can keep cases pertaining to
disputes on Inter State Rivers from the ambit of Supreme Court of India.
(iii)
Appellate Jurisdiction: These are Cases which start at any other
court of law, but come finally to Supreme court as appeal against earlier
verdict. They can be classified as following:
(iv) Constitutional: Under article 132, if is proved by High court that
there is an unsolved point regarding interpretation of constitution in any
verdict, then Supreme Court can be approached against High Court
verdict. Supreme court can itself pass an order if it of the same opinion
(article 136) and high Court refuses to tender certificate concerning this.
Resultantly, Supreme court becomes protector of constitution and final
interpreter.
(v) Civil: Under original constitution, only those cases could be
appealed in Supreme court against High court orders, in which the
amount of dispute is minimum of 20,000 and above or the value of
property accordingly, but after the 30th amendment, this Limit has been
deleted and inserted that all those against High court verdict can be
presented in Supreme Court, in which High Court can prove that there is
a specific question to be answered with respect to interpretation of
constitution.

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(vi) Criminal: following Criminal cases can be appealed against
High court verdict in Supreme Court:
 If after an appeal is presented in High Court verdict is
converted from Acquittal to Capital Punishment or.
 If High Court has taken over any case and Death
sentence is pronounced.
 If High Court proves that a Case is fit to be heard by
Supreme Court.
Under article 136, barring Military Court, there is no constitutional cap on
Supreme Court to take Appeal Cases against the verdicts of High
Courts. It depends on Supreme Court itself.
2. Advisory Jurisdiction: As per article 143, Supreme Court has
advisory rights also. President can take consultation on any
constitutional or legal matter from Supreme Court. Consultation on
Interpretation of Constitution, Interpretation of Treaties with Local
Estates also can be asked by him. President is not bound to abide by
the advice of Supreme Court. Other parts of government, individuals
and Court also are not bound to accept those advices. In American,
Supreme Court does not have such right to give advice. Many Scholars
have severely criticized this right of Supreme Court and said that due to
this right, there can be peculiar conditions in the political space of Indian
democracy and chances of betterment are not much.
President has asked for such advices from Supreme Court several times
and Supreme Court has reciprocated as well. For example V.V. Giri
asked Supreme Court after the dissolution of Gujarat Government. In
1974, that what will be the situation of Gujarat in the upcoming
presidential election in August, 1974? Supreme Court opined on June 5,
1974 that under article 62, presidential election has to be completed
before the expiry of tenure of current president, even if Vidhan Sabha is
in dissolved stage.
3. Guardian of Fundamental Rights: There are several fundamental
rights provisioned in the constitution for people and Supreme Court
protects them. Supreme Court has primary jurisdiction in this regard. In
case of violation of Fundamental rights of any individual or institution,
then to get them enforced, they can directly approach Supreme Court.
Supreme Court can issue many writs like Habeas Corpus, Mandamus,
prohibition, Quo Warranto or Certiorari.
Verdicts of Supreme Court on fundamental rights are applicable on all courts

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of India. In 1967, Supreme Court gave verdict in Golaknath vs. government
of India, that fundamental rights can‘t be changed by parliament, but later
in the judgment of April 24, 1973 while considering writ petitions against
24th, 25th and 29th amendment of constitution, that parliament has the
right to amend fundamental rights also under the basic tenets of our
constitution. This verdict of Supreme Court has reversed its Golaknath
verdict. 42nd amendment of constitution empowers parliament to do
necessary amendments in the constitution without any ban and
amendments done under article 368 are not enforceable in Court of Law
under any circumstances.
4. Power to Interpret the Constitution: Supreme Court has the last
right to interpret the constitution. Under article 141, Laws as declared by
Supreme Court shall be binding on all Courts of Law across India. India
has Union Administrative system and division of powers has been done
between Centre and States on Statutory basis. Under such
circumstances, there are bound to be differences of opinion. To resolve
such difference, Supreme Court has to interpret the constitution. Such
Interpretation exercise of Supreme Court is last and final and each party
is bound to accept those decisions taken in this regard.
5. Power to Transfer of Cases: Under 42nd amendment of constitution
in 1976, one new clause has been added in the constitution of 139(A),
which empowers Supreme Court to transfer Cases from One High Court
to another, in order to let Justice prevail. Besides, if Attorney General is
of the view that any case pertaining to general welfare and it
incorporates any important Legal angle to be discussed, then it can
request Supreme Court to transfer it from High Court to Supreme Court
and get it resolved.
6. Disputes Concerning Election of President and Vice-President:
th
Prior to 39 amendment of constitution, Supreme court used to hear
any dispute relating the election of president and vice president, but in
1975, this right was taken away and decided that parliament would
constitute by enactment of law, any body or institution to resolve such
disputes. But again with 44th amendment, this right of Supreme Court
has been restored and now Supreme Court is final authority on such
disputes and its decisions shall be final and binding.
7. Power to Frame Rules to Regulate Activities of Courts: Under
article 145, Supreme Court has been empowered to frame rules at
frequent intervals to regulate the activities, functions and process of
Courts. A new clause has been added by 42nd amendment to this
effect. Under this new clause, Supreme Court can use provisions

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mentioned in 131 A and 139 A to frame rules.
8. Power to Review its Own Decisions: Supreme Court has the right to
review its own decisions. For example, Supreme Court has opined in
case of Sajjan Kumar vs. Government of Rajasthan that Parliament can
amend necessary in the fundamental rights. In 1967, in Golaknath case
Supreme Court gave verdict that Government can‘t amend the
constitution but in 1973 case of Keshavanand Bharti, Supreme Court
gave verdict that parliament can amend the fundamental rights.
10. Court of Record: Supreme Court is considered as a Court of
Record. All its proceedings and verdicts are published as a proof and are
accepted as Judicial Precedent by all courts of Law. Supreme Court can
penalize any person for Contempt of Court.
11. Miscellaneous Functions: Supreme Courts can perform following
functions also:
(i)
Supreme Court can appoint its Officials. This is done with the
consultation with Union Public Service Commission and itself.
(ii) Supreme Court is the Administrative Head for all Courts of India
and ensures that they are functioning correctly or not.

(iii) President has the power to remove Chairman and other

members of Union Public Service commission, but he can do it only
when Supreme Court investigates Charges as leveled against them and
proves them guilty.
Enlargement of the Jurisdiction of Supreme Court: Parliament has
the right to pass Bill under Article 138 and 139 and enlarge the
jurisdiction of Supreme Court in the following aspects:
(a) Appeal jurisdiction on Cases related with Decision on Criminal
Cases against High Court verdicts

(b) Any subject mentioned in Union List (c) Any Case which Centre
and States have decided collectively to hand over to Supreme Court (d)
Any other power required to exercise its Jurisdiction (e) Apart from
fundamental rights, issuing Writs and advices for implementing any
other objective. With the detailed analysis of the powers of Supreme
Court, it is clear that Supreme Court is a very powerful and influential
Institution.
Position of Supreme Court: Supreme Court is considered to be a
powerful & influential part of the government it is as powerful as any
other Supreme Courts of the world. It has been vested with immense
powers by the Constitution. Verdicts passed by Supreme Court are

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applicable on all government bodies and Courts. It has the right to hear
appeals on several subjects. Supreme Court also has the right to issue
Special Orders on Appeal. Besides, Supreme Court protects the
constitution. It has the final right of Interpretation of Constitution. It also
protects the fundamental right of the people. Right of Judicial Review
has made its position even more powerful and important.
Alladi Krishna Swami Aiyar states that, ―Future Evolution of Indian
constitution will to a large extent, thus depend on the work of Supreme
Court and the directions which it gives to the nation‖. As per another
Scholar M.C. Sitalwad,‖ The jurisdictions and powers of Supreme Court
are wider than those exercised by the highest court in the
Commonwealth or of Supreme Court of America‖. In the same context
Paylee said, ‖Combination of such wide & varied powers of Supreme
Court not only makes it a supreme authority in judicial area, but also
the Guardian of the Constitution and the law of the land―.
8.8 State High Court

India has Single Judicial System, where Supreme Court is at its Apex
Level and State High Courts functions under it. Under Article 214, there
shall be a High Court for each state. As per Article 231, this has also
been said that parliament can have provisions for One Combined High
Court for two or more number of States or for any Union Territory. As
per the Punjab Reorganization Act 1966, parliament made provisions for
a Court for the States of Punjab and Haryana and for the Union Territory
of Chandigarh, which is situated in Chandigarh. High courts even though
being a part of the National Judicial System, are independent Units of
their own. There is no control of State Legislative or Executive.
Composition: Each High Court has One Chief justice and some other
Judges. Their numbers are fixed by the President by considering the
need of functioning. Due to work overload, Additional judges can also be
appointed in any High Court for a maximum period of 2 years. At
present, Punjab & Haryana High Court has One Chief Justice and 26
other Judges. Allahabad High Court has 60 Judges at present.
Qualifications: Following are the Qualifications required to be a Judge
and Chief Justice:
(i) He should be and Indian Citizen.
(ii) He should have worked on a judicial post in Indian Union for a
minimum period of 10 years or
(iii) He should have practiced Law for a minimum period of 10

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years in any or more High Courts. The Tenure worked as a judicial
member of any Tribunal or any post offered by Central/State
Government which required specialized knowledge of law after he
started practicing Law, can be included in the required qualification of 10
years.
It was decided by 42nd amendment that anyone can be appointed
Judge of High Court, who is famous specialist of law in president‘s view
or has been appointed member of any Tribunal or has worked on a
post of Central/State government which requires special understanding
of Law. But after 44th amendment, it was provisioned that President
can‘t appoint anyone as a Judge who is a famous Legal Expert, unless
he fulfills other eligibility criteria.
8.9 Appointment of the Judges
President appoints Chief Justice and other Judges of High courts in
consultation with the Chief Justice of India and Governor of the State
concerned. While appointing other Judges of the High Court, President
has to consult Chief Justice of the concerned High Court. Normally,
Chief Justice is appointed on the basis of Seniority. But on May 10,
1974 Justice Narula was appointed the Chief Justice of Punjab and
Haryana Court after Justice D.K. Mahajan retired, resulting in the
resignation of Senior Justice Prem Chand Pandit as a protest. On
January 27,1983 Central Government decided to appoint Chief justice of
High Courts from outside the State and the basis of their selection shall
be the Seniority and Ability in their respective courts. On July 15,1986
Supreme Court directed Central Government to implement the policy of
appointment of Chief justice of High Court form outside the State.
Term of Office: High court Judges work till the age of 62 years and they
can also exit by resigning before their term expires. They can‘t work on
any other post thereafter without government‘s approval.
Removal: In case of Misbehavior and Incapacity, if both the house of
parliament passes proposal with 2/3rd majority of their total number and
with 2/3rd majority of available and voting members and sends it to
president, then president can terminate the Judge .
Salary: Chief Justice of High Court gets 80,000 and other Judges
70,000 per month as Salary. Besides, they get other Allowances also.
Apart from Financial Emergency, their Salary and Allowances can‘t be
reduced under any circumstances. In March, 1976 government made
provisions for the pension after retirement for Judges of High Courts.
Oath: As per Article 219, each Judge has to take Oath of his post in

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front of Governor or in front of any other Officer as appointed by him
that, he shall have Faith in Constitution, shall discharge his Duties with
Honest and shall protect Constitution and Law.
Transfer of Judges: President can transfer Judges from One State to
another. During Internal Emergency, one State high court held the
Transfer of 7 of its judges to another State as illegal, in a very important
verdict. On January 27,1983 Central Government passed a Law, that
those judges can‘t be transferred to another State, who only have one or
less number of years left in his service.
General Provisions: after retirement, Judges of High Court can‘t
practice in any Court of Law other than Supreme Court and other High
Courts. It means that he can‘t practice in the High Court, from where he
has retired.
Powers and Functions: powers and functions of Judges of High Court
remain the same as they were before the adoption of Constitution. Main
function of High Court is to give verdict on Cases, but it also has got the
right to Judicial Review. Besides, it has to handle administrative work of
Courts under it. These powers and functions can be described as
following:
1. Original Jurisdiction: In Kolkata, Mumbai and Chennai high
Courts, some Civil and Criminal Cases can be directly filed as First
Petition only. For them, it is not essential that should be first filed in
subordinate courts, as found in other states.
(i) Admiralty: Case like Will/Probate, Marriage Laws, Divorce
Laws, Company Laws etc can also directly be filed in High Courts. In the
context of Contempt of Court, All high Courts enjoy Original Jurisdiction.
(ii) Guardian of citizen’s Fundamental Rights: Any citizen can
directly approach High Court or Supreme Court in case of a violation in
Fundamental Rights. Courts by several writs such as; Habeas Corpus,
Mandamus, Prohibition, Quo Warranto, Certiorari etc protect interests of
the people. These writs can be used for other objectives also. By the
42nd amendment, Courts were deprived of some of its special rights,
but with 44th amendment, those have been restored .
2. Appellate Jurisdiction: Each High Court has a right to hear appeals
against verdicts of its Subordinate Courts, which can be classified in to
following two parts: (i) Civil (ii) Criminal
(i)
Civil : in Civil Cases, any appeal can be either first or second. First
Appeal means that, appeal can be made against District Court directly in

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High court, which is possible only when there is a vital Legal part
involved which needs discussion. Second Appeal means that, when
District Court has heard appeal against its verdict, even then it can be
filed in high Court, but when there is a vital Legal part involved which
needs discussion. If there is First and Second Appeal been heard in
High Court by its Judge, even against that verdict, it can be presented in
High Court again, such Cases are heard and considered by more than
One judges .
This is mentionable here that Punjab Courts Amendments Ordinance,
1979 was implemented on January 9,1980. As per this Ordinance, First
Appeal in District Court and Second Appeal in High Court against verdict
of District Court can be directly filed, if it is a case pertaining to the
amount of 20,000 to 5 Lac.
(ii)
Criminal: following cases of appeal against verdict of Lower courts
can be done in High Courts:

(a) If Sessions judge has awarded Death Sentence to any Criminal,

then it has to be confirmed by High Court. The Criminal himself/herself
can appeal in High Court.

(b) If Lower Court has awarded a Sentence of 4 years or more to

any Criminal.
(c) Appeal against any Presidency Magistrate can be done in High
Court.
(d) Appeal against the verdict of High court can be done In Supreme
Court, but such appeal can‘t be done in each Cases. Legally, it is
imperative that those Cases which can be appealed in Supreme Court as
per Law, has to be approved by High Court. Supreme Court under Article
136 can give permission to hear any particular case without the consent
of High Court also.
3. Adminstrative Powers: Place of High Court in State Legal
Framework is of paramount status. It takes care of all subordinate court‘s
functioning and frames rules for discharging of their duties. Following
are the Administrative powers of High Courts:
a) It can investigate all courts and tribunal within State Boundaries
except Military Courts.
b) It can frame Rules of Procedure for all its Subordinate Courts.
c) It can frame rules for subordinate courts relating to Keeping
Records, Accounting and safely managing the Documents.\

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 d) It has the right to ask for any particular File Record on
Information from Lower Courts for inspection.
e) It can transfer any particular Case from One Court to another.
f) High court is a Court of Record, which means that its Decisions
and work style can be presented in other courts as an example.
g) It has the right to get any Case transferred from any Court of law
to itself and also has the right to ask any Court of Law to
pronounce Verdict sooner.
h) It has the right to see whether subordinate courts are performing
duties within their jurisdiction and are discharging duties with
honesty and dedication.
i) It has the right to fix Salary, Allowances and other terms &
conditions of work for employees of its subordinate courts. It also
is empowered with making rules and Laws concerning
Promotion/ Demotion of judges, Pension etc.

j) As per article 129, Chief justice appoints staff and other

officials and fixes their terms and conditions of work. He consults
State Public Service Commission. These Rules/Laws get
implemented after securing the approval of the Governor. If High
Court is situated in Central governed area, then it has to be
approved by the President.
4. Right to Transfer Cases: If high court gets to know about any
ongoing Case in any of subordinate court which requires Interpretation
of Law, then it can take over that case. It can itself deliver verdict on it or
can return to subordinate law for passing verdict after Interpreting the
Law concerned. It also has the right to transfer a Case from One Court
of Trial to another.
5. Court of Record: It is a court of record. All its decisions and verdicts
are published and become a precedent for future. Advocates refer to
them while pleading in Lower Courts. High Court also has the right to
penalize people with Contempt of Court proceedings.
6. Guardian of Fundamental Rights: It protect fundamental rights of
citizens and in case of its violation, it can act on those individuals or
institutions who do so. it can issue several writs to protect them. Matters
relating to Fundamental rights violation can be directly appealed in the
supreme court also.

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Right to Interpret the Constitution: It has right to interpret the
constitution on some matters. It heards constitutional Cases and
delivers verdict on them. But its verdicts are not Final and they can be
challenged in Supreme Court. If any State Legislative passes any bill or
State Executive issues any orders which violates constitution, then High
Court held them as illegal. After 42nd amendment, provisions have been
made that High Court can‘t consider those cases which relate to the
constitutional validity of any Central Act. Such Cases can only be
considered and decided by the Supreme Court.
7. Right to Certify Cases: Cases against High court verdict can be
appealed in Supreme Court only when it is certified by High Court that
required criteria of appeal as per constitution is fulfilled for such appeal.
But Supreme Court can grant permission to consider Cases, even when
High Court does not certify it in some cases.
Extension of Jurisdiction: As per Article 230,parliament can remove or
add any Union Territory by enacting a law for the Judicial function
purpose from the jurisdiction of High Court.
8.9.1. Independence of High Court Judges

Same set of provisions have been ensured by the constitution for the
independence of High Court judges, as have been done for Supreme
Court judges which are as following:
1. Judges of High Court are appointed by the President and such
appointments are done in consultation with people having Judicial
ability.

2. Retire Judges of High court can only practice in Supreme Court

and other High Courts where has not served as a Judge.
3. Salary and Allowances of judges of High Courts have been fixed
by the constitution and after taking charge, there can be no
reductions in their Salary or Allowances. Right to frame laws on
Salary, Allowances, Pension and Leave are with parliament and
not with State Legislature.
4. Tenure of High Court Judges are safe. Judges work till their
retirement age and they can be removed before the expiry of their
tenure only by Impeachment.
5. Officials of High Courts are appointed by the Chief Justice of
High

6. Court and fixes their Terms & Conditions also.

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 7. Judges Salary and other administrative expenses depends on
Consolidate Fund of State or Union and hence there can be no
Voting in State or Union Legislative.
8. Thus, independence of high Courts has been ensured
completely and as regards till date working of High Courts of
Indian Union, it can be said that High Courts have been able to
discharge their duties in a totally independent and neutral
manner.
Judicial Review

Provisions of Judicial Review while understanding the importance of

being used as a tool against potential Constitutional & Executive Errors
and use of Excessive powers against mentioned limits, has been
included in the Indian Judiciary System by the constitution makers. But
instead of writing it in one particular article, they have tried to fix it by
separate constitutional provisions. They tried to emulate the provisions
of American constitution, but at the same time, it was moulded to suit
Indian conditions. Indian constitution is Nation‘s Supreme Law and
Supreme court of India has the right to protect and Interpret it. It also
works as the Guardian of Fundamental rights of the people. For
discharging this duty, it uses its power to investigate and evaluate the
Statutory and Executive works and Laws. This power of Court is called
as the Power of Judicial Review. During Judicial Review process, if any
Law/order or part of it, is found to be Unconstitutional, then it is Quashed
by the Court. State High Courts also have Judicial Review rights, but
Supreme Court can improve, stop or quash it.
This is how, Supreme court of India has Absolute and Final powers of
Judicial Review on all Laws/ Rules of Executive and Legislature.
Judicial Review: Meaning and Definition

This is that powers of Courts on the basis of which, Constitution is

Interpreted and those work of Executive, Legislature or Administration is
revoked that are found to Unconstitutional. As per Dimok and Dimok, ―
Judicial Review is that experiment of Courts through its Cases, which in
fact are in front of them by the work of Executive, Administrative work or
Statutory Laws and to decide that whether Constitutional provisions
have been violated or is in excess to its given powers.‖ After Interpreting
Constitution, it is found that any part or whole of any law violates any
article of the constitution, then Supreme Court revokes the Law or part
of that Law by declaring it unconstitutional.

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In general, we can say that power of judicial review is such that by which
it:
1. Reviews Laws of Executive and Legislature, but in those cases
only which come across it.
2. Decides on the Constitutional Validity of the Acts.
3. Revokes any law or part of law, which is found to be
unconstitutional.
4. Judicial Review is not discretionary to the Courts. It can be
considered only when during any case or in any special case‘s
context, any particular law/act is challenged. Further, if Court
revokes any particular law or its part, then the decision becomes
effective from the date of verdict and all those provisions done in
the past are not revoked basis this particular verdict. While
revoking any particular law or its part, Court has to clarify that
which Constitutional Article has been violated by this Law/Act. It
also has to mention the reasons of revocation. By using this
power of review, Court discharge its duty to protect the rights of
the people, protects violation of constitution and Interprets the
constitution against Executive and Statutory ‗s unwarranted and
excessive use of powers.
Judicial Review in India
Justice P.B. Mukharjee has made it clear while narrating the origin of
judicial Review in India, ―this is constitution only which is Supreme in
India and along with parliament state legislature also has to work within
the boundaries of three schedules of Schedule seven but also have to
be make the fundamental rights as mentioned in part III of the
constitution enforceable. Courts can revoke any such law which is found
to be against constitution‖.
Constitutional Basis of Judicial Review in India

None of the Article of constitution mentions about Judicial Review

provisions. Its constitutional legality and applicability appears from the
fact which declares that constitution is the supreme law of India and right
to Interpret and protection of constitution rests with Supreme Court of
India. Many articles of constitution provide constitutional base to judicial
review as following:
(i) Article 13: It provides base to the Judicial Review power of the
courts. It states,‖ State shall not make any law, which dilutes or rejects

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rights as mentioned in part III and laws made in violation to these
articles, shall be revoked‖. In other words, it contemplates that laws
against fundamental rights shall be revoked. Supreme Court has the
authority to decide on their constitutionality.
(ii)
Article 32: Gives right to approach Supreme Court to enforce
fundamental rights mentioned in part III of the constitution. Supreme
Court exercises right of Judicial Review to protect fundamental rights.
(iii)Article 131 and 132: These two mention Original and Appellate
Jurisdiction of Supreme court. These empower Supreme Court to
resolve Centre-State dispute, State-State dispute and have
interpretation of constitution. Supreme Court while deciding on above
uses its power of judicial review.
(iv) Article 226: This article give State high Courts power of Judicial
Review, which are exercised to protect the fundamental rights of the
citizens, as mentioned in part III of the constitution.
(v) Article 246: As per this article, statutory powers have been
distributed among Centre and States. Supreme court has been
empowered to resolve all types of issues between centre and state,
which arise out of division of power. This article also provides base to
Judicial Review system.
(vi)Article 124(6) and Article 219: Under these articles, judges of
Supreme court and High Court have to take Oath towards Constitution
as established by law.
By all these special activities, judicial review power is given strength. In
words of Dr. S.C. Dash, ―this is the duty of judiciary to keep constitution
protected against the invasion of Executive and Legislature‖.
Apart from these, there are some more qualities of constitution, which
provide strength to judicial review power of Courts:
8. The principle of Limited Government: Constitution clearly outlines
powers of the Government and government can only exercise defined
powers and not more. No constituent of the government can go out of its
jurisdiction. It is the duty of the judiciary to see that government body is
working within its defined jurisdiction and in case of violation, Courts can
quash those works.
9. Federalism: In federal system, judiciary has extra work that is,
protecting constitution also. As Union and State government are
restricted to go out of their jurisdiction, use of Judicial Review becomes
even more essential for Courts.

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10. Written Rights: Whenever constitution does provision for written
and relevant rights as implemented by concerned laws, foundation of
Judicial Review is laid. Courts get the right to implement to protect these
rights. In the constitution of India, written right‘s bill is included with right
to constitutional remedies, which is part of fundamental structure of
constitution and for which it provides Judicial Review provisions.
11. Exercise of Judicial Review power of Judiciary: Ever since
1950, judiciary has been effectively using the tool of Judicial Review
consistently. It has used this power to revoke many acts/laws of
Executive and Legislature which have been found to be unconstitutional.
There are several verdicts given in this regard viz; Gopalan Case,
Golaknath Bharti Case, Keshavanand Bharti Case, Minerva Mills Case
which are evidence of Judicial Review system and its recognition is
given by government and other people.
12. 42nd and 43rd Amendment: These amendments have
strengthened Judicial Review system. By 42nd amendment, some
restrictions on Judicial Review power of Supreme Court and High Court
were introduced, but with 43rd amendment, these were rolled back. In
this process, the system of Judicial Review has got recognition as an
invaluable and integral part of constitutional system.
Therefore, Judiciary enjoys the power of evaluating constitutional validity
of laws/acts/rules passed by Executive and Legislature and it is called
power of Judicial Review.
Judicial Review in India: Features

Following are the qualities of judicial review system in India:

1. Both Supreme and High Court exercise the power of Judicial
review, but to decide the constitutional validity of any Law rests
with Supreme Court and its decision is Final.
2. Judicial Review can be exercised in all Union and State Laws,
Executive Orders and constitutional amendments.

3. Judicial Review can‘t be exercised for provisions of Schedule 9

of the Constitution.
4. Judicial Review is not at discretion of Courts. A supreme court
does not act on legal issue, unless it is challenged. When there
is a question of constitutional validity during the course of any
ongoing case, then only it considers it.

5. Supreme court can decide after reviewing challenged

laws/orders as following:

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 1. Law is correct, it can remain to be in force as before.
Law is unconstitutional. It should cease to exist from the date of
verdict.
2. Only some or one part of the law is unconstitutional, that
concerned part/s is revoked. but in case those found
unconstitutional are so important that without them, rest of the
law can‘t be implemented, then entire Law/Act is revoked.
3. Those decisions remain in force which has been implemented
before the date of verdict when a particular Law/Act is proved
unconstitutional.
Supreme Court can amend or annul its earlier decisions.
Procedure established by law vs. Due process of Law: in India the
principle on which judicial review is bases is of: procedure established
by law, which is in force in America. Under due process of law, judiciary
does dual test for testing constitutionality of law. First, courts decide on
whether institution has worked under jurisdiction for making law and
followed prescribed procedure and second is that whether the law fulfills
the objectives of Natural Justice and whether it is a relevant act or not?
If the law does not confirm to any of the tests, then it is revoked terming
it as unconstitutional. In contrast, as per procedure established by Law
in India, Courts only decide whether the act has been made as per
provisions of constitution and processes have been adhered to or not. In
this regard, judicial review system is only related with the system of
procedure established by law. Courts only see that whether the law is
made as per constitution or not and its scope is limited. In Gopalan vs.
State of Madras, pleas was given that there is hardly any difference in
procedure established by law and due process of law. But Attorney
General opined that guarantee of procedure established by law in
nothing but security of procedure established by law as made by eligible
Legislature and nothing else. Court got convinced by the comment of
Attorney General. thus courts can revoke laws on finding that required
process was not followed by Legislature while framing laws. But in
practice, supreme court of India has several times

investigated the authencity of such laws. It never hesitated in reviewing

the constitutional validity of constitutional amendments and on ban on
fundamental rights.

While rejecting the system of Due process of Law and accepting

Procedure established by Law, Indian constitution rejects the principles

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of Supremeness and Sovereignty, as it is prevalent in America and
Britain. It adopts the Middle Path. Legislature has supremeness but
within areas as defined by constitution and is exercise its powers within
the defined boundaries as set up by law.
While revoking any particular Law/Act in case of being found
unconstitutional, Supreme Court has to explain those clauses/article
which have been violated by such act/law. Supreme Court has to prove
the unconstitutionality and illegality of the law, which is being repealed.
LET US SUM UP

With above mentioned powers and positions, it is established that High

court is the Supreme Judge of the concerned State and all other Courts
function under it. Even State government does not have any control over it.
State Government can‘t make any law on its Composition and powers. Its
Judges enjoy complete safety of their Posts and government can‘t try to
influence them by any obligation. This is the reason, Judges have been
able to function with Dedication, Honesty and Independence. As per M.C.
Chhagla, ―our constitution has set up such a Judiciary by having
Supreme Court and High Courts, that can‘t be removed and that are in
no ways under the influence of Executive and Legislature‖.
CHECK YOUR PROGRESS

1. Member of Rajya Sabha can also be elected as Prime minister,

provided he has majority support of ----------and that majority
elects him as leader.
2. -------------are 15-20 High profile Ministers who form Extra
Constitutional Body and jointly work for policy formation under
prime minister‘s leadership.
3. Chief justice and other Judges of the Supreme Court is
appointed by the ----------
4. --------------is the Apex court of the nation.
5. Under ---------- amendment of constitution in 1976, one new
clause has been added in the constitution of 139(A), which
empowers Supreme Court to transfer Cases from One High
Court to another, in order to let Justice prevail
GLOSSARY
ANSWERS TO CHECK YOUR PROGRESS

1. Lok Sabha

2. Cabinet Ministers.

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 3. President.
4. Supreme Court.
5. 42nd

EFERENCES AND SUGGESTED READINGS

1. Indian Political System – N. Chhabra.

2. Indian Administration and Politics – P. Rastogi.
3. Indian Political System – U.R. Ghai.
MODEL QUESTIONS

1. Write in details the powers and functions of prime Minister of India.

2. Explain the powers of supreme court.
3. Enumerate the constitutional basis for Judicial review in India

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 P.G. DEGREE EXAMINATION –JUNE 2021
SOCIAL WORK
FIRST YEAR
ECONOMIC AND POLITICAL SYSTEM

TIME: 3 hours Maximum Marks: 70

PART – A

(5x5=25)

Answer any FIVE questions.

1. What do you mean by Ruaral Economic structure?

2. How has the barter system impacted the economy of a
country?

3. How do you mean by Urban Economic Structure?

4. What do you mean by Democracy?
5. What do you mean by Aristocracy?
6. Difference between GDP and GNP?
7. What do you mean by an Opportunity cost?

PART – B (3X15=45 Marks)

Answer any three questions.

8. How do you mean an economy?

9. Which type of development aims at a centralized system of
economic and political relations for rapid indudtrialization?

10. Write an essay on Panchayati raj system in India.

11. Write Detailed note on Capitalism and socialism.

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