This course material is designed and developed by Indira ...egyanagar.osou.ac.in/slmfiles/MAEC_08_Block_01.pdf · equation models. You might have learnt all these techniques in MEC-003

This course material is designed and developed by Indira Gandhi National Open

University (IGNOU), New Delhi. OSOU has been permitted to use the material.

Master of Arts

ECONOMICS (MAEC)

MAEC-08

INDIAN ECONOMIC POLICY

Block – 1

FRAMEWORK ON INDIAN ECONOMY

UNIT-1 ECONOMIC POLICY: AN INTRODUCTION

UNIT-2 TREND AND STRUCTURE OF NATIONAL INCOME

UNIT-3 DEMOGRAPHIC FEATURES AND INDICATORS OF

DEVELOPMENT

UNIT-4 POVERTY AND INEQUALITY: POLICY

IMPLICATIONS

UNIT-5 EMPLOYMENT AND UNEMPLOYMENT: POLICY

IMPLICATIONS

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UNIT 1 ECONOMIC POLICY: AN INTRODUCTION

Structure

1.0 Objectives 1.1 Introduction 1.2 Need for Economic Policy in India 1.3 Aims of Economic Policy in India 1.4 Instruments of Economic Policy in India 1.5 Process of Economic Policy Formulation

1.5.1 Planning Commission of India 1.5.2 Central Statistical Organisation 1.5.3 ICSSR 1.5.4 Lobbyists 1.5.5 NGOs 1.5.6 International Politics and Multilateral Lending

1.6 Disappointing Outcomes 1.7 Let Us Sum Up 1.8 Exercises 1.9 Some Useful Books 1.10 Answers or Hints to Check Your Progress Exercises

1.0 OBJECTIVES

After going through this unit, you shall be able to:

• state the need and objectives of economic policy; • explain the various instruments of economic policy; • examine the dynamics of formulation of economic policies in India; and • identify the causes of failures of economic policies in India.

1.1 INTRODUCTION Economic policies are statements of aims and ideals to be achieved through various instruments outlined by the Government to guide the process of economic development. In a way, it can be termed as a structural response to correct economic imbalances (and inequality). Government, by manipulating economic and social variables, influences the process of resource allocation to achieve desired level of economic development with social justice and stability. An economic policy essentially relates to either or all of the three basic economic decisions viz., ‘what to produce’, ‘how to produce’ and ‘for whom to produce’ at macro level.

Generally, it is believed that economic policy-makers are guided by economic considerations supported by economic theories in framing various subsets of economic policies. However, in the democratic countries like India, the decisions about public policy in general and economic policy in particular are taken by the elected representatives at different levels. Hence, these are essentially political decisions. Apart from legislators, different shades of public opinion, through mass-media, bureaucracy, judiciary, trade

Framework of Indian Economy

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organisations, experts’ bodies, voluntary organisations (NGOs), and other interest groups exert ‘pulls and pressure’ to influence the process of economic policies formulation. Hence, comprehension of the interaction between politics and economics can help us to gain insight into the key questions of ‘making, implementation and failure’ of economic policies and programmes. This unit aims to introduce you to economic policy formulation process wherein apart from interaction between economists and politicians, a large number of institutions/organisations influence the policy formulation process. To begin with, let us discuss the need and importance of economic policy and its various instruments.

1.2 NEED FOR ECONOMIC POLICY IN INDIA

Why do we need economic policies (outlined by governments)? Seemingly naive but it is an important question. The answer to this question leads us to the most exciting and ceaseless ideological debate in Economics and is beyond the scope of this unit. However, a brief discussion on this topic will help you to develop a perspective about economic policies and plans of the Government of India.

Market system is an institutional arrangement that has persisted and evolved over the past few hundred years because it has contributed greatly to our economic well-being. It 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. Failure of market is the most important reason behind ‘making of’ an economic policy.

Economic literature says that competitive markets generate a Pareto optimal solution and an economy that reaches a Pareto optimal solution is commonly said to be efficient. Pareto optimal solution is based on certain assumptions. You might have learnt about these assumptions in Unit 14 of MEC-001 course. If one or more of these assumptions does not hold good, the market system does not give rise to an efficient outcome. These inefficient outcomes are called ‘market failures’.

Choices through time, under-provision of public goods, presence of externalities, existence of common property resources, imperfect competition, asymmetric information, etc., are some of the well-documented reasons for ‘market failures’. These need some sort of Government intervention in the form of ‘economic policies and programmes’. Further, even if under Pareto optimal solution resources are efficiently allocated, the distribution may not be ‘equitable one’. State through participation in the production activities can give a direction to the resource allocation in more efficient manner in the larger public interest. It can directly own and manage various public utility services (also called social consumption of public goods). Competition is wasteful in such industries, and, hence, these can be best entrusted to the state. The state itself can undertake the production and distribution of public goods meant by collective consumption. Production of public goods is necessary not only for itself but also for generating new opportunities to secure the goal of full employment. The state may engage itself in production of such services that are beneficial but which do not attract private enterprise either because they are too risky or because the rate of return on capital employed is too low. There are certain goods of strategic importance that cannot be left in the hands of the state. The state can also act as a countervailing power to private monopolies. The state may: (i) prevent consumption of noxious products, and (ii) protect the consumers against fraudulent practices.

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Economic Policy: AnIntroduction

Further, if certain well-specified conditions are met, the Government can shift the economy from one Pareto optimal solution to another by redistributing purchasing power and then allowing people to trade in competitive markets. The need for ‘redistribution that takes the economy to any desired Pareto optimal solution’ underlines the need of economic policy.

Moreover, India at the time of independence was socially and economically backward. In order to solve these problems, the framers of the Constitution provided certain Directive Principles. Under ‘directive principles’, it is the duty of the state to 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.

All such constitutional obligations can be fulfilled by a sound economic policy.

1.3 AIMS OF ECONOMIC POLICY IN INDIA

The principal goal of economic policy in a developing country like India is to accelerate the process of economic development and thereby ensuring swift economic development. It is worth to mention here that the concept of economic development is distinct from the concept of economic growth as traditionally defined. You will find details on this issue in Unit 3. The goals of economic development are listed below:

1) Rapid Economic Growth: In a developing economy, the principal goal of economic policy is to ensure rapid economic growth. Growth, i.e. increased output of goods and services, helps to build up backward and forward linkages that are so essential to ensure trickle-down and other spread effects.

2) Full Employment: Linked to the growth objective is the goal of full employment, i.e., to find productive use for all available resources in the economy. The economic gains from full employment are enormous. Full employment yields the individual security, which, in turn, promotes progress, contributes to human dignity and weakens non-functional discrimination.

3) Better Distribution of Income: Market mechanism left to itself promotes inequalities in the distribution of income and wealth. Inequalities lead to misallocation and misutilisation of resources. They lead to a serious breach of social welfare. Economic policy can be so designed as to achieve a somewhat better distribution of income and wealth.

4) Human Development and Decent Work: Human development as an indicator of improvement in the quality of life is considered an important objective of economic development. Several factors like education and illiteracy rate, life expectancy, the level of nutrition, consumption of energy per head etc. are involved in the measurement of such qualities. With the growing concern of human development, decent work has emerged another goal of economic development. There are four dimensions of decent work: work and employment itself, rights at work, security, and representation and dialogue.

5) Stability of Prices and Rates of Foreign Exchange: Monetary instability adversely affects both the growth process and the welfare. Fluctuations in the rate of foreign exchange affect international trade and introduce an


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element of uncertainty into the economic life of the country. Economic policy is a powerful instrument to ensure stability.

6) Maintenance of Fair Competition: Competitive conditions are essential for welfare maximisation. These can be ensured by an effective antimonopoly policy.

7) Avoidance of Cyclical Fluctuations: An essential feature of free market economies is what we call business cycles or trade cycles. These refer to regular cyclical fluctuations in economic activity with attendent consequences. An important goal before economic policy is to rid the economy of these ups-and-downs.

Having discussed the major objectives of economic policy, let us know what are the weapons available in the state’s armoury to address the targets, i.e., the instruments of economic policy.

Check Your Progress 1

Note: i) Space is given below each question for your answer.

ii) Check your answer(s) with those given at the end of the unit.

1) What do you mean by the term ‘Economic Policy’?

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2) Why do we need state intervention in the economic affairs of a country? Give two reasons in support of your answer.

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3) Why is ‘full employment’ included among the objectives of economic policy?

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1.4 INSTRUMENTS OF ECONOMIC POLICY IN INDIA

Though there is no theoretical framework about the necessary components of an economic policy, based upon our historical experience, we can outline a few of them.

Properly defined targets, explicitly outlined strategy to achieve those targets, specific programmes for implementation and objective methods of evaluating outcomes are some of the basic ingredients of a ‘sound economic policy’. Further, a good backup of statistical data helps to generate alternate options, to

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set targets in quantitative term to determine the best course of action(s), i.e., strategy to achieve these targets. Many a time, it is observed that ‘failure to achieve desired outcomes’ is due to errors on ‘estimation front’.

Good use of statistical techniques to analyse public policy problems and policy options are quite imperative in a complex modern world. Some of the techniques employed are use of simple and general linear regression modeling, use of intercept-dummy variables and interaction variables, linear probability model and the probit model of discrete choice, and simultaneous equation models. You might have learnt all these techniques in MEC-003 course on ‘Quantitative Techniques’.

The instruments of economic policy vary between the types of economic policies. Broadly speaking, we can distinguish between two types of economic policies, viz., (i) macro-economic policies (or aggregative policies), and (ii) micro-economic policies (or sectoral policies).

1) Macro-economic Policies are designed to address the big aggregative macro variables, like national output, employment, general price level, investment, saving, rate of exchange, etc.

2) Micro-economic Policies are sectoral policies and are designed to direct and contribute to the growth in the individual sectors of the economy, like agriculture, industry, services, etc.

1) Macro-economic Policies

It is in the macro-economic arena that the state finds its full flow. It encompasses the whole spectrum of economic activity. The state has to employ different weapons to achieve the targeted goals. Before we attempt to prepare a brief catalogue of these weapons, we need to reiterate that these different weapons cannot be seen in isolation; these have to be employed in an integrated manner to achieve a balanced growth.

The principal instruments of macro-economic policy can be identified as follows:

i) Fiscal Policy: The foremost among the instruments of macro-economic policy is the fiscal policy, also called the budgetary policy. As the name implies, the policy operates through the budgetary operations. A budget is an annual financial statement of the Government’s transactions. Public revenue and public expenditure form the core constituents of budget. The principal sources of public revenue are taxes of different kinds. Besides, governments can and do raise large sums of money by way of borrowings, both internally and from external sources. On the expenditure side, subsidies, economic and social sector, etc. constitute the principal heads. Each of the items on the revenue side and the expenditure side has the potential to affect the course of economic activity, both in aggregative sense and in the sense of individual sectors.

ii) Monetary Policy: Monetary policy deals with the volume and price of money in an economy. Volume of money refers to the amount of money in circulation in the economy. While an inadequate quantity of money in an economy may fail to provide the required liquidity for the growing volume of transactions in the economy, and may, thus, adversely affect the process of economic growth, an excessive supply of money, on the other hand, may prove inflationary, and, hence, in turn, may adversely affect the process of economic growth. Therefore, the state (or the monetary authority, i.e., the Central Bank of the country) would have to exercise


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judicious control over the creation of money (both by the Central Bank and Commercial Banks) in the economy.

Domestic price level also affects the external value of currency. Fluctuations in the external value of currency, i.e., the rate of exchange, may, in turn, have adverse effect on the domestic economic activity. This becomes another important reason why too-little or too-much of money cannot be created in an economy.

The total supply of money (along with its demand) also affects the rate of interest, i.e., the price of money. Rate of interest, in turn, is an important determinant of various macro variables, like consumption, saving and investment.

iii) Commercial Policy: A third important component of macro-economic policy is commercial policy. Commercial policy defines, broadly speaking, the Government’s attitude towards the external sector of the economy, i..e., policy towards investment by foreign capital in the host country (both in the form of portfolio investment and direct investment), policy towards inflows and outflows of foreign exchange, goods and services. A state may opt for a total open-door policy; another extreme could be when at every entry or exit, a call is to be made to the state. A mild protection may be a middle way. Which of the policies, absolute free trade or protection, or mild protection comes to be selected is determined by obtaining economic environment, both domestic and international.

2) Micro-economic Policies

The state need not be content with restricting itself to broad macro-economic aggregates. The state can and does define its attitude towards activity in different individual sectors of the economy, like agriculture, industry, and services of different types. The state may permit and promote certain lines of activity in agriculture, industry and services. On the contrary, the state may prohibit and discourage certain lines of action. The different instruments of micro-economic policies may be identified as: (i) industrial licensing, (ii) quota-permit system, (iii) import control, (iv) export control, (v) competition or anti-monopoly policy, (vi) procurement policy, (vii) policy of minimum support prices, (viii) policy of buffer stocks, etc. These are only a few illustrations of micro-economic policy, by way of examples.

1.5 PROCESS OF ECONOMIC POLICY FORMULATION

As hinted in section 1.1 above, the process of formulation of economic policy in India involves people of different inclination and interest. Legislatures as political institutions are primarily responsible for policy-making. Policy- makers in a democracy like India are accountable to the electorate either by direct election or by appointment by elected officials. Thus, in the Indian context, the political decision-making is supreme. However, the political parties and the members of Parliament have little professional and research support to articulate alternative (public) choices.

Normally, the Government picks up a clue (or a problem) from public domain, constitutes a committee or a task-force to generate policy options, makes ‘necessary political changes’ in those recommendations, and, then, announces its decision at appropriate forums either in the form of an executive order or a legislative resolution.

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The character of political system plays a crucial role in identifying and prioritising problems. As we observe, democracy in India has evolved from a formal democratic system of 1950s to more meaningful and participative democracy after 1990s. This led to an environment of ‘more consultative and responsive’ process of policy formulation. It is being reflected in changing ‘policy rhetoric’. Nowadays, no political party talks of setting up of ‘big Public Sector Enterprises’. Instead they are speaking about creating ‘village business hubs’.

Further, role of mass-media and non-governmental organisations advocating new policy options got acceptance in policy-making process. Creation of National Advisory Council (NAC) consisting of non-governmental activists and headed by chairperson of the ruling coalition is one such example of widening of consultative process.

Notwithstanding the fact that formulation of economic policies is a political process, economists and experts play very important role in the deliberative processes. They are incorporated in Government institutions to make an ongoing consultation possible. They generate policy options based on ‘rational economic and technocratic criterion’. We have in India a large set of technical, scientific, development organisations/institutions to provide for an institutional forum for expert advice. The task of detailing the policy documents still lies with the bodies consisting of specialists and bureaucrats within administration. Some of such bodies/agencies involved in preparation of policy documents for consultation are as follows:

1.5.1 Planning Commission of India Planning commission is one such organisation. The Planning Commission was set up by a resolution of the Government of India in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community. The Planning Commission was charged with 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.

1.5.2 Central Statistical Organisation The Central Statistical Organisation is responsible for coordination of statistical activities in the country, and evolving and maintaining statistical standards. Its activities include National Income Accounting; conduct of Annual Survey of Industries, Economic Censuses and its follow up surveys, compilation of Index of Industrial Production, as well as Consumer Price Indices for Urban Non-Manual Employees, Human Development Statistics, Gender Statistics, imparting training in Official Statistics, Five Year Plan work relating to Development of Statistics in the States and Union Territories; dissemination of statistical information, work relating to trade, energy, construction, and environment statistics, revision of National Industrial Classification, etc. It has a well-equipped Graphical Unit. The CSO is headed by the Director-General who is assisted by 2 Additional Director-Generals and 4 Deputy Director-Generals, Directors & Joint Directors and other supporting staff. The CSO is located in Delhi. Some portion of Industrial Statistics work pertaining to Annual Survey of industries is carried out in Calcutta.


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1.5.3 Indian Council of Social Science Research (ICSSR) ICSSR was established in the year 1969 by the Government of India to promote research in social sciences in the country. The Council was meant, inter-alia, to advise the Government of India on all matters pertaining to social science (including economics) research as may be referred to it from time to time; and take such measures generally as may be necessary from time to time to promote social science research and its utilisation.

The Indian Council of Social Science Research (ICSSR) with 27 research institutes is established to provide regional orientation to research that can be used for policy purposes. All these institutes receive state grants and, therefore, act according to the requirements of the pay-master.

Subsequently, few private funded research organisations have come up, viz., National Institute of Public Finance and Policy, Centre for Science and Environment, Tata Energy Research Institute, Tata Institute of Social Sciences, etc. Apart from conducting research, these institutes play an important advocacy role by publicising their studies in the media and holding seminars for the relevant policy-makers. Time to time, the Government also constitutes committees and task forces in which social and other scientists play major roles.

1.5.4 Lobbyists There are other forms of organised advocacy by private interests in the formulation and implementation of public policy. Organised labour (Trade Unions) and their counterparts Trade Associations (FICCI, ASSOCHAM, CII) also influence the policy process through representation and collective actions. These private organised interest groups are normally well-connected to different political parties as latter depend upon their support for funds and workers during elections. The cost of elections has become almost obscene, requiring candidates to raise hundreds of thousands of rupees just to seek a legislative seat. The only ready source for such huge sums of money is ‘special interests’. They, of course, have a very direct stake in economic policies.

1.5.5 Non-governmental Organisations (NGOs) Recently, with the adoption of economic reform policies in 1991, there has been explicit recognition of the role of markets and non-governmental organisations (NGOs). In fact, the Eighth Plan made a strong plea for greater role of the voluntary organisations. This resulted into mushrooming of non-governmental organisations, popularly known as NGOs. Most of these NGOs are registered under the Societies Registration Act, which gives them legal recognition to raise funds from Government and non-government sources. The numbers of such NGOs run into thousands. They also try to influence policy using their micro-level experience as a basis of suggestions for policy options.

1.5.6 International Politics and Multilateral Lending In the guise of guidance based upon ‘cross-country experiences’ the external forces also influence the policy formulation in India. We have observed ‘socialistic’ influences during 1950s; and have been feeling ‘pressure for privatisation and liberalisation’ since 1990s. There has been constant pressure of developed countries to open up fast growing Indian economy for multinational corporations. The subsequent shift in ‘policy framework’ in recent years may be viewed in this perspective.

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Anyway, on the record, it is the departments and ministries of Government of India headed by political functionaries (ministers) who supervise the making of economic policies in their respective domains. Normally, these policies are announced with approval of the Union Cabinet. Occasionally, these policy statements are approved by the Parliament in the form of Resolutions/Acts.

1.6 DISAPPOINTING OUTCOMES

With above discussion, you must have got a fair understanding about the process of policy formulation. You should also have an idea about the process of implementation, as it is equally important for the purpose of ‘evaluating outcomes’.

We have democracy in India. The economic policies of local and national governments (and parties) set the direction and parameters for the formulation of laws, governmental programmes and budgets. After the policy is finalised and programmes are launched, the role of bureaucracy i.e., the implementing agency becomes important. The task of implementation of Government’s economic policies and programmes is delegated to the bureaucracy. The bureaucracy (agent) is the instrument for implementing the policy laid down by the political leadership (principal). Bureaucracies are necessary for policies to be carried out with some predictability, equity, and due process.

The Government could seldom meet the policy targets in the past. Earlier, we have argued that the way to rein in “market failures” is to introduce Government intervention, i.e., policies and programmes. But we have experienced that there also is such a thing as “Government failure”.

The outcomes of policies enunciated by the Government were invariably disappointing due to more than one reason. The failure is so widespread and the success is so rare that pointing the finger at any single component is futile.

At formulation stage, the political interests get precedence over economic reasoning. The policy-makers might settle for or even prefer deliberate vagueness as a momentary expedient to finalise a plan (or programme), thus, authorising a policy which often proves unworkable, unsatisfactory, or even contradictory to other policies. The failure to articulate precise and operational goals, objectives, procedures, and plans leaves enough scope for task ambiguity for implementing agencies.

At times, it happens that the ‘policy-makers’ have poor information on the effort the ‘bureaucracy’ is making. In other words, policy-makers have no mechanism to monitor performance of ‘implementing agency’. The bureaucracy may, then, be tempted to shirk. You will find more details about the issue in Unit 21 and 22.

The policy-makers, including economists, do not have time to seek access to information about the performance or suitability of implementing ‘agents’. This may result into under-achievement of the policy goals.

Another hurdle encountered is the large structure of bureaucracy. In a federal structure, there is enough scope for buck passing. Moreover, within administration, there is no proper system of ‘reward for extra efforts and/or penalty for non-performance’.


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Multiplicity of similar type of schemes is another important reason responsible for failure of schemes. Due to lack of inter-ministry or Centre-State co-ordination, similar kind of ‘benefits’ compete to reach to same segment of ‘beneficiaries’. Success of one programme leads other programmes to failure.

For successful undiluted outcomes of economic policies in India, the policy-makers, particularly economists, shall have to prepare policy by taking into account all the above mentioned ‘influences’ so that immediate benefits from deviating becomes negligible. The policy-makers have to develop tools and technique to check ‘performance and suitability of implementing agencies.’ In other words, policies and programmes should be outlined in such a manner that ‘deviations’ are easily and instantly observed. Moreover, economists have to devise ways to enhance ‘technical expertise’ of politicians on economic issues. In other words, process reform should go hand-in-hand with policy reform.




1) State the principal instruments of macro-economic policy.

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2) Do you think that economic policies are essentially political decisions? Give two reasons in support of your answer.

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3) How is CSO useful in policy formulation process?

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4) State any two disappointing outcomes of Indian Economic Policy.

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Economic Policy: AnIntroduction1.7 LET US SUM UP

Economic policies are statements of aims and ideals to be achieved by various instruments outlined by the Government. Due to several ‘market failures’, state intervention manifested in the form of economic policies is needed. Insuring swift economic development is the principal objective of economic policy. Rapid economic growth, full employment, human development and decent work, stability of prices and exchange rate, maintenance of fair competition and avoidance of cyclical fluctuations constitute the important objectives of economic policy. Broadly, economic policies can be classified under two categories: (i) macro-economic policies, and (ii) micro-economic (sectoral) policies.

Economic policies in India are political decisions. However, economists and technocrats play major role in the process of formulation of economic policy. Further, the policy-makers have to take into account opinions expressed by mass-media, trade unions, trade associations and NGOs. Even international politics and Multinational Corporations (MNCs) influence the process of making of economic policy in developing countries including India.

Over the period, several indigenous institutions have come up to generate macro level policy options. Most of them are funded and/or financially supported by the Government. The task of implementation of economic policies and programmes in India is delegated to bureaucracy.

There are many reasons for failure of economic policies and programmes in India. Although, major responsibility for under achievement (or failures) lies upon inflexible bureaucracy, a few of these reasons can be traced to flaws at formulation stage.

By articulating precise workable goals, operational procedures and ‘inbuilt mechanism for performance monitoring’, the policy-makers can improve the chances of meeting the development goals.

1.8 EXERCISES

1) ‘Economic Policy in India is a purely political process’. Comment.

2) Examine how different shades of public opinion influence the process of economic policy formulation. Give illustrations in support of your answer.

3) Discuss the various disappointing outcomes of the poor implementation of economic policies.

4) Suggest some measures to improve implementation of economic policy and programmes in India.

1.9 SOME USEFUL BOOKS

Buchanan, James M. and Tullock, Gordon (1962); The Calculus of Consent.

Dixit, A.K. (1996); The Making of Economic Policy, The MIT Press.

Gwartney, James D. and Stroup, Richard L. (1992); Economics: Private and Public Choice, 6th ed. Especially chaps. 4, 30.

Leach, John (2004); A Course in Public Economics, Cambridge University Press.

Samuelson, Paul and Nordhaus, William; Economics (latest edition).


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1.10 ANSWERS OR HINTS TO CHECK YOUR PROGRESS EXERCISES


1) See Section 1.1

2) See Section 1.2

3) See Section 1.3


1) See Section 1.4

2) See Section 1.5

3) See Sub-section 1.5.2

4) See Section 1.6

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UNIT 2 TREND AND STRUCTURE OF NATIONAL INCOME

Structure

2.0 Objectives 2.1 Introduction 2.2 Estimation of National Income in India 2.3 Trends of National Income in India

2.3.1 Explanation of the Break in Trend 2.3.2 Fluctuations in Growth Rates

2.4 Evaluation of the Performance 2.4.1 Comparison with Our Targets 2.4.2 Comparison with Our Needs 2.4.3 Comparison with Other Countries

2.5 Causes of Slow Growth 2.6 Measures to Promote Growth 2.7 Structure of National Income

2.7.1 Policy Implications 2.7.2 Limitations of the Services Sector

2.8 Let Us Sum Up 2.9 Exercises 2.10 Key Words 2.11 Some Useful Books 2.12 Answers or Hints to Check Your Progress Exercises

2.0 OBJECTIVES After going through this unit, you shall be able to:

• state the meaning and significance of national income estimates; • identify the long-term trends in India’s national income and per capita

income; • assess India’s economic growth since 1950-51; • find out the causes of relatively slow growth in India; • make out a pen-picture of the structure of the Indian economy and how it

has been changing all these years; and • explain the implications of the changing structure of the economy.

2.1 INTRODUCTION

Each sector of the economy employs natural, human and material resources and contributes to the aggregate flow of goods and services during a given time period which may normally be specified as a year. The aggregate flow of goods and services represents the aggregate income earned by factors of production employed during the year, and is termed as national income or national product. The rate of growth of national income when compared with the rate of growth of population indicates whether the economy is declining, stagnant or developing. It is only when the national income grows at a rate faster than the rate of growth of population that the per capita income depicts a rising trend; the community is able to improve its living standards and add to

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its stock of capital and the economy moves on the path of a rising level of activity and productivity.

2.2 ESTIMATION OF NATIONAL INCOME IN INDIA

In India, the first attempt to estimate national income and per capita income was made in the year 1867-68 by Shri Dadabhai Naoroji. This was followed by several intermittent efforts by individuals, officials as well as non-officials.

Immediately after independence, the Government set up the National Income Committee in August, 1949 to prepare a report on national income and related estimates to suggest improvements in the collection of data, and to recommend guidelines for research in the field of national income. The First Report of the Committee was published in 1951, and the Final Report in 1954.

The task of preparing national income estimates has been assigned to the Central Statistical Organisation (CSO). The CSO has been producing annual official estimates of national income of India since 1955 and publishing the same in its annual report National Accounts Statistics. It is with the help of these data that we shall try to establish the trend in India’s national income over the last fifty-five years.

2.3 TRENDS OF NATIONAL INCOME IN INDIA Estimates relating to India’s national income and per capita income are available to us for each of the years beginning 1950-51. These estimates are available to us both at current prices for each of the years, and at constant prices (Base 1993-94) also for each of the years. For the purpose of comparison over a period of time, we generally concentrate on estimates at constant prices. The whole time-series data is given in Table 2.1 below.

Table 2.1: Net National Product and Per Capita Income

Net National Product at Factor Cost (Rs. Crore)

Per Capita Net National Product (Rs.)

Year At Current

Prices At 1993-94

Prices At Current

Prices At 1993-94

Prices 1 2 3 4 5

1950-51 9142 132367 254.7 3687.1 1951-52 9634 135551 263.9 3713.7 1952-53 9474 139379 254.7 3746.8 1953-54 10341 148159 272.8 3909.2 1954-55 9628 154184 249.4 3994.4

1955-56 9776 158001 248.8 4020.4 1956-57 11706 166793 291.9 4159.4 1957-58 11928 163902 291.6 4007.4 1958-59 13299 176483 318.2 4222.1 1959-60 13916 179592 326.7 4215.8

1960-61 15204 192235 350.3 4429.4 1961-62 15960 197514 359.5 4448.5 1962-63 17029 200895 375.1 4425.0 1963-64 19491 210946 420.1 4546.2 1964-65 22814 226640 481.3 4781.4

Trend and Structure ofNational Income

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1965-66 23752 216244 489.7 4458.6 1966-67 26918 217427 543.8 4392.5 1967-68 31745 235418 627.4 4652.5 1968-69 33421 241234 645.2 4657.0 1969-70 36742 257359 694.6 4865.0

1970-71 38968 270597 720.3 5001.8 1971-72 41340 272252 746.2 4914.3 1972-73 45392 270061 800.6 4763.0 1973-74 55896 283061 963.7 4880.4 1974-75 65432 286417 1103.4 4830.0

1975-76 69005 313643 1136.8 5167.1 1976-77 74242 316358 1197.4 5102.5 1977-78 85151 340751 1343.1 5374.6 1978-79 91094 359732 1405.8 5551.4 1979-80 98631 338124 1485.4 5092.2

1980-81 118236 363417 1741.3 5352.2 1981-82 137388 384392 1985.4 5554.8 1982-83 151716 393274 2142.9 5554.7 1983-84 178121 423265 2463.6 5854.3 1984-85 198794 440119 2690.0 5955.6

1985-86 221401 459185 2932.5 6081.9 1986-87 246064 477158 3191.5 6188.8 1987-88 279400 493312 3545.7 6260.3 1988-89 334302 545572 4152.8 6777.3 1989-90 385729 582518 4692.6 7086.6

1990-91 450145 614206 5365.3 7320.7 1991-92 514607 617372 6011.8 7212.3 1992-93 587064 648182 6732.4 7433.3 1993-94 685912 685912 7689.6 7689.6 1994-95 805981 734358 8856.9 8069.9

1995-96 941861 787809 10149.4 8489.3 1996-97 1093962 852084 11564.1 9007.2 1997-98 1224946 891086 12706.9 9243.6 1998-99 1415093 948580 14395.7 9649.8 1999-00 1564048 1008114 15624.9 10071.1

2000-01 1686995 1050338 16555.4 10307.5 2001-02 1848229 1115171 17822.8 10753.8 2002-03 (P) 2008770 1161902 19040.5 11013.3 2003-04 (Q) 2252070 1266005 20988.5 11798.7

P: Provisional estimates.

Q: Quick estimates.

Source: Central Statistical Organisation.

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It would be seen from Table 2.1 that India’s national income (at constant prices) has got multiplied by about 10 times during the period beginning with 1950-51. During the same period, per capita income has been increasing, from Rs. 3,687.1 in 1950-51 to Rs. 11,798.7, i.e., by about 3.5 times. The difference in the growth between the national income and the per capita income is accounted for by the growth in population. However, the fact that the per capita income in the economy has been increasing proves that the rate of growth of national income has been more than the rate of growth of population. Let us work out the rates of growth of national income and per capita income for each of the years beginning 1950-51.

The Table 2.2 below shows the rates of growth of India’s national income and per capita income since 1950-51. Table 2.2: Annual Growth Rate of Net National Product and Per Capita Income

Net National Product at Factor Cost

Per Capita Net National Product

Year At Current

Prices At 1993-94

Prices At Current

Prices At 1993-94

Prices 1 2 3 4 5

1951-52 5.4 2.4 3.6 0.7 1952-53 -1.7 2.8 -3.5 0.9 1953-54 9.1 6.3 7.1 4.3 1954-55 -6.9 4.1 -8.6 2.2 1955-56 1.5 2.5 -0.3 0.7

1956-57 19.7 5.6 17.4 3.5 1957-58 1.9 -1.7 -0.1 -3.7 1958-59 11.5 7.7 9.1 5.4 1959-60 4.6 1.8 2.7 -0.1 1960-61 9.3 7.0 7.2 5.1

1961-62 5.0 2.7 2.6 0.4 1962-63 6.7 1.7 4.4 -0.5 1963-64 14.5 5.0 12.0 2.7 1964-65 17.0 7.4 14.6 5.2 1965-66 4.1 -4.6 1.8 -6.8

1966-67 13.3 0.5 11.0 -1.5 1967-68 17.9 8.3 15.4 5.9 1968-69 5.3 2.5 2.8 0.1 1969-70 9.9 6.7 7.7 4.5 1970-71 6.1 5.1 3.7 2.8

1971-72 6.1 0.6 3.6 -1.7 1972-73 9.8 -0.8 7.3 -3.1 1973-74 23.1 4.8 20.4 2.5 1974-75 17.1 1.2 14.5 -1.0 1975-76 5.5 9.5 3.0 7.0

1976-77 7.6 0.9 5.3 -1.2 1977-78 14.7 7.7 12.2 5.3


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1978-79 7.0 5.6 4.7 3.3 1979-80 8.3 -6.0 5.7 -8.3 1980-81 19.9 7.5 17.2 5.1

1981-82 16.2 5.8 14.0 3.8 1982-83 10.4 2.3 7.9 0.0 1983-84 17.4 7.6 15.0 5.4 1984-85 11.6 4.0 9.2 1.7 1985-86 11.4 4.3 9.0 2.1

1986-87 11.1 3.9 8.8 1.8 1987-88 13.5 3.4 11.1 1.2 1988-89 19.6 10.6 17.1 8.3 1989-90 15.4 6.8 13.0 4.6 1990-91 16.7 5.4 14.3 3.3

1991-92 14.3 0.5 12.0 -1.5 1992-93 14.1 5.0 12.0 3.1 1993-94 16.8 5.8 14.2 3.4 1994-95 17.5 7.1 15.2 4.9 1995-96 16.9 7.3 14.6 5.2

1996-97 16.1 8.2 13.9 6.1 1997-98 12.0 4.6 9.9 2.6 1998-99 15.5 6.5 13.3 4.4 1999-00 10.5 6.3 8.5 4.4

2000-01 7.9 4.2 6.0 2.3 2001-02 9.6 6.2 7.7 4.3 2002-03 (P) 8.7 4.2 6.8 2.4 2003-04(Q) 12.1 9.0 10.2 7.1


Q: Quick estimates.

Source: Central Statistical Organisation.

A cursory glance at Table 2.2 brings out a mixed picture as far as the rate of growth of national income and per capita income are concerned. There have been years when the rate of growth was as high as 10.6 per cent (as in 1988-89) or 9.0 per cent (as in 2003-04) or 8.3 per cent (as in 1967-68); contrary-wise, very many years have also recorded negative growth rates (e.g., -6.0 per cent in 1979-80, -4.6 per cent in 1965-66, -1.7 per cent in 1957-58, -0.8 per cent in 1972-73, etc.).

In view of these annual fluctuations, it would be more useful to trace long-term trends, and analyse their features. For this purpose, we can extend our whole analysis to a small period-wise analysis. We can regroup the data given above in the form of plan-wise rate of growth as shown in Table 2.3 below.

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Table 2.3: Average Annual Growth Rates

NNP (At Current Prices)

NNP (At 1993-94 Prices)

PCY (At Current Prices)

PCY (At 1993-94 Prices)

First Plan (1951-56) 1.5 3.6 -0.3 1.8 Second Plan (1956-61) 9.4 4.1 7.3 2.0 Third Plan (1961-66) 9.5 2.5 7.1 0.2 Three Annual Plans (1966-69) 12.2 3.8 9.8 1.5 Fourth Plan (1969-74) 11.0 3.3 8.5 1.0 Fifth Plan (1974-79) 10.4 5.0 7.9 2.7 Annual Plan (1979-80) 8.3 -6.0 5.7 -8.3 Sixth Plan (1980-85) 15.1 5.4 12.7 3.2 Seventh Plan (1985-90) 14.2 5.8 11.8 3.6 Two Annual Plans (1990-92) 15.5 3.0 13.2 0.9 Eighth Plan (1992-97) 16.3 6.7 14.0 4.6 Ninth Plan (1997-2002) 11.1 5.5 9.1 3.6


Q: Quick estimates.

Source: Based on data in Table 2.1.

Data given in Table 2.3 above help us to reach the following conclusions relating to the trend of growth of national income and per capita income in India since 1950-51.

1) The real national income of India has increased at an annual average rate of a little over 4 per cent per annum since 1950-51. During this period, population has increased at an annual average rate of 2 per cent per annum. Therefore, the per capita income has increased only at a national annual average rate of 2.0 per cent.

2) The rate of growth initially decelerated over the years but has subsequently accelerated continuously. During the first decade of economic planning, real national income went up by 3.8 per cent per annum; subsequently this rate came down to 3.5 per cent in the 1960s, and 3.1 per cent in the 1970s. A reversal of trend occurred during the 1980s: the rate of growth was around 5.5 per cent per annum during the decade. The rate of growth further accelerated during the decade of 1990s to go up to about 6.0 per cent per annum. Presently, the economy is all set to grow at a still higher rate of 7.0 per cent which may go on to become and even exceed 8.0 per cent.


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3) The rate of growth of per capita income, likewise, initially decelerated over the years but has subsequently accelerated continuously. The per capita income went up by 1.8 per cent during the 1950s, 1.2 per cent during the 1960s and 1.1 per cent during the 1970s. Reversing the trend, it went up by about 3.6 per cent per annum during the 1980s and 4.1 per cent per annum during the 1990s. Presently, per capita income is rising at about 5.2 per cent per annum, and is expected to accelerate further to 6.3 per cent in next couple of years.

2.3.1 Explanation of the Break in Trend An economy can grow in three different ways or all three ways may work simultaneously:

1) Horizontally, i.e., it may go on producing more of the same goods and services by either adding to the capacity of the same firms or by adding new firms.

2) Qualitatively, i.e., by improving the quality of goods and services it produces.

3) Vertically, i.e., by producing more of the same things by making its workers more productive.

The break in trend in growth rate can be seen as vertical growth; the 1980s saw predominantly productivity – led growth. Labour productivity steadily increased. Changes in productivity could be caused either by an increase in workers’ and managers’ skills or better machines. Most of the productivity improvement could be attributed to the employment of better quality imported machines by the firms.

2.3.2 Fluctuations in Growth Rates Fluctuations in year-to-year growth rates in early stages were very marked, which indicated that the economy had failed to create conditions conducive to stable economic growth. We depended on chance factors, like monsoon. Such impressive growth rates as were witnessed in the past were due to chance elements rather than due to planned efforts. Recent growth has been more robust; it has been less vulnerable to agricultural performance and to vagaries of the monsoon.

In the initial stage, there was a tendency towards an increase in the element of fluctuations over successive decades. But it seems to have been subdued now, as can be seen from Table 2.4 below.

Table 2.4: Variance in GDP Growth Rate

Period Variance 1951-52 to 1959-60 6.15 1960-61 to 1969-70 12.15 1970-71 to 1979-80 15.76 1980-81 to 1989-90 4.59 1991-92 to 2003-04 2.93

An examination of the annual rates of change – observed by the three sectors of the economy, primary, secondary and tertiary – further shows that the annual variations are not specific to any one sector. Fluctuations are observable in all the sectors, although their order of magnitude is higher in the

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primary sector, followed by the secondary sector and the tertiary sector in that order.




1) What do you mean by national income? How is it estimated? What is the use of national income estimates?

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2) How is national income estimated in India? Examine the major trends in national income in India.

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3) Account for (i) the recent break in past trends in growth rates, and (ii) fluctuations in growth rates.

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2.4 EVALUATION OF THE PERFORMANCE A proper objective assessment of our performance can be carried out only when we juxtapose our current achievements with: (i) planned or targeted rates of growth, (ii) desired rates of growth, and (iii) rates of growth currently achieved by other countries.

2.4.1 Comparison with Our Targets

An important test to evaluate our performance is in terms of a comparison with the targets of growth rates fixed in our different plans. It must be remembered that ours is a planned economy in which all targets of growth are fixed after making “an assessement of the material, capital and human resources of the country.” If the actual achievements fall short of the targets, it would mean that our performance has been less than satisfactory. Let us have a look at the data in Table 2.5.


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Table 2.5: Target and Actual Increase in National Income during Five Year Plans

(Annual Percentage)

Plan Target Rate Actual Rate I 2.1 3.6 II 4.5 4.1 III 5.6 2.5 IV 5.7 3.3 V 4.4 5.0 VI 5.2 5.4 VII 5.0 5.8 VIII 5.6 6.7 IX 6.5 5.4 X 8.0 6.0*

* Relates to 2002-05.

It would be seen from Table 2.5 that the rate of increase in national income had always been very slow, much less than what we had targeted for. It is only in the Fifth Five Year Plan and subsequent plans that the rate of growth picked up, and moved ahead of the targets. In any case, growth targets decided upon have been rather conservative and on lower side.

2.4.2 Comparison with Our Needs We can further test our performance by juxtaposing it with our requirements. Admittedly, it is very difficult to determine ‘needed’ rate of growth which would involve several non-economic, social and psychological variables such as people’s hopes, desires and rising expectations. Some estimates nevertheless, have been made to determine needed rate of growth to meet specific commitments. For example, using estimates on such variables as the labour force growth, employment potential actually realised and the employment-investment-ratio, Subramaniam Swamy estimated that ensuring full employment within 10 years would require a 10 per cent annual rate of growth. A similar rate of growth in investment income will be required to “guarantee acceptable minimum level of consumption within the foreseeable future”. Taking cue from the Newly Industrialising Countries⎯Japan, Hong Kong, Taiwan, South Korea, Singapore⎯we can be reasonably sure that a 10 per cent annual growth in national product can produce at least the first phase of economic transformation. To obtain a 10 per cent economic growth rate, the investment rate must be some 35 to 40 per cent. Against this, our best achievement has been only about 27 per cent or so.

An alternative simple way is to find if the increase in national income has made any dent on poverty that we inherited from the Britishers in 1947. We know poverty in India is still widespread. According to a recent estimate made by the Planning Commission using norms of calorie consumption, the percentage of population below the poverty line in 1999-2000 may be projected at 27.09 per cent in rural areas and 23.62 per cent in urban areas; although the exact estimates are debatable, there can be no doubt of the order or magnitude of the problem of poverty.

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Framework of Indian Economy 2.4.3 Comparison with Other Countries

The basic purpose of this type of comparison is that: (i) it helps us to know the potentials of growth that can be built up in an economy, and (ii) it helps us in a more meaningful evaluation of our performance. For this purpose, we make use of the comparable data prepared by the World Bank as given in Table 2.6.

Table 2.6: Average Annual Growth Rate of GDP in Selected Countries (Per cent)

Country 1980-90 1990-2003 India 5.8 5.8 China 10.9 9.5 Pakistan 6.3 3.5 Indonesia 6.1 3.5 Egypt 5.3 4.5 Thailand 7.6 3.7 Mauritius 6.2 5.1 Brazil 2.8 2.6 Mexico 1.1 3.0 South Korea 9.5 5.5 Hong Kong 6.9 3.7 Singapore 6.6 6.3

Two observations as follows can be made from Table 2.6:

1) The growth rate in India has been among the lowest in the group of fast developing countries included here.

2) An encouraging feature is that whereas in other countries, the growth rates tended to slow down during the 1980s and the 1990s as compared to that during the 1970s, the growth rate in India, as in neighbouring Pakistan and China, accelerated during the period.

Thus, we reach the unhappy conclusion that the rate of growth of national income in India has been far from satisfactory. Further, it has not only been inadequate, but what is worse is that the incremental income accruing to the nation all these years has concentrated in a few hands. In consequence thereof, disparities in income have widened. Jagdish Bhagwati rightly puts it as:

“It is now clear that India’s economic performance, while a definite improvement over that in the pre-independence period, is less than satisfactory when one takes the ‘capitalistic’ index of growth rates or the ‘socialist’ indices of eradication of poverty and reduction of income inequality.”

2.5 CAUSES OF SLOW GROWTH A recent empirical study seeks to explain statistically the variations in inter-country growth rates. The global pattern of growth is shown to depend on four factors: (i) initial conditions, (ii) policy variable, (iii) demographic dynamics, and (iv) resources and geography.

Table 2.7 below statistically measures the contribution of each of these factors in the variation of growth between India and that in East and South-East Asia.


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Table 2.7: Contribution of Selected Factors to the Difference (per person, per year) and Growth in East and South-East Asia* (1965-90)

Initial Conditions 0.3 Initial GDP Per Person 0.5 Schooling -0.2 Policy Variables -2.1 Government Saving Rate -0.4 Openness -1.2 Institutional Quality -0.5 Demography -0.9 Life Expectancy -0.5 Growth in Working-age Population -0.3 Growth in Total Population -0.2 Resources and Geography 0.2 Natural Resources 0.1 Landlocked 0.0 Tropics 0.5 Ratio of Coastline -0.3 Distance to Land area -2.5 Predicted Difference in Growth -2.9 Actual Difference -2.9

It would be seen from Table 2.7 that whereas India scored positively over East and South-East Asia in terms of initial GDP per person, its growth has suffered because of the adverse conditions relating to the following: (i) schooling, (ii) Government saving rate, (iii) openness, (iv) institutional quality, (v) life expectance, (vi) growth in working age population, (vii) growth in total population, and (viii) ratio of coastline distance to land area.

2.6 MEASURES TO PROMOTE GROWTH

In view of the recent global experience, the following steps need be taken to accelerate the rate of growth.

1) Mastering and constantly improving process technology with just-in-time inventory systems, inter-active supplier relationships, total quality management (getting it right the first time to economise on inspection, reworking, retesting and warrantly claims), a production system driven by computer-aided design/manufacture, rapid retooling processes and delivering enhanced product value at the lowered costs which follow economies of scale.

2) Focussing on seven key sectors: microelectronics, biotech, polymers, telecom, robotics and ‘smart’ machine tools, information technology and civil aviation.

3) Practising economic discipline with a high savings rate to generate capital.

* China, Hong Kong, Indonesia, Malaysia, Papua New Guinea, Singapore, South Korea,

Taiwan, Thailand.

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4) Forging a cooperative, not adversarial, relationship between the corporate world and Government with minimal bureaucratic obstruction.

5) Investing in education.

6) Practising an honest work ethic by the individual and a code of decent corporate ethic by industry.




1) How would you prove that the rate of growth in the Indian economy has been relatively slow?

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2) State reasons for the slow rate of growth of the Indian economy.

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3) Suggest measures to accelerate the rate of growth in the Indian economy.

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2.7 STRUCTURE OF NATIONAL INCOME The structure or composition of national income of an economy explains the relative significance of the different producing sectors in an economy. When a country is in a state of underdevelopment, primary sector (agriculture and allied occupations) makes the largest contribution to the national income. As the country grows and gets developed, the contribution of the industrial and services sectors gradually increases. Therefore, on the basis of the composition of GDP, one can easily pronounce whether a country is developed or underdeveloped.

Let us examine what has happened in India.

In India, over the period 1951-2005, the share of the primary sector in national income has fallen by about 40 per cent while that of the secondary and tertiary sectors has increased. This trend is projected to accelerate further in wake of liberalisation of the economy. This may happen primarily because of the following factors:

• Reduced restrictions on involvement of private sector in areas like software development and information services;


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• Technological advances; and

• Lower fixed capital requirements.

Table 2.8 below shows sectoral shares in India’s national income and their growth rates during the era of planning.

Table 2.8: Composition of Gross Domestic Product and Growth Rates (At 1993-94 prices)

Primary Secondary Tertiary

Share Growth Rate

Share Growth Rate

Share Growth Rate

1950-51 to 1959-60 56.0 2.3 16.0 5.7 28.0 4.1

1960-61 to 1969-70 47.8 2.5 21.1 6.5 31.4 4.9

1970-71 to 1979-80 42.8 1.3 22.8 3.7 34.4 4.5

1980-81 to 1989-90 36.4 4.4 25.0 6.8 38.6 6.6

1990-91 to 2000-01 28.6 2.9 27.1 5.9 44.3 7.6

2001-02 26.0 6.5 21.1 3.2 52.9 6.5

2002-03 25.0 -5.2 22.5 6.0 52.5 7.1

2003-04 26.0 9.1 21.4 6.8 52.6 7.6

2004-05 24.03 1.1 24.54 8.9 51.43 7.0

It would be seen as follows from Table 2.8:

1) The rate of growth of the secondary and tertiary sectors has been more than double that of the primary sector, with the secondary sector having an edge over the tertiary sector during the first two decades. In the subsequent decade, the tertiary sector grew faster than either of the other two sectors. During the 1980s, when all the three sectors were growing at a faster rate, the secondary sector was the fastest. Subsequently, the tertiary sector has been growing the fastest.

As a result, the service sector has become the growth-driver in the Indian economy. This becomes clear from the data given in Table 2.9 below:

Table 2.9: Per centage Contribution to Increase in GDPFC

Sector 1951-52

to 1960-61

1961-62 to

1970-71

1971-72 to

1980-81

1981-82 to

1990-91

1992-93 to

1996-97

1997-98 to

2003-04

Primary 45.2 35.1 27.2 24.2 20.3 13.0

Secondary 23.5 26.5 25.6 28.6 30.9 23.1

Tertiary 31.3 38.4 47.2 47.2 48.8 63.9

Total 100.0 100.0 100.0 100.0 100.0 100.0

Presently, about two-thirds of the incremental growth in the Indian economy can be attributed to the tertiary sector.

2) The growth of services sector has imparted resilience to the economy, particularly in times of adverse agricultural shocks as also during cyclical downturns in industry.

This pattern of structural change in Indian economy has deviated from the development pattern of the western economies. Those economies experienced

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first a shift from primary to secondary sector and only in their advanced stage did they experience a significant shift in favour of tertiary sector. That pattern of development enabled them to transfer growing labour force from primary sector to secondary sector. In India, this has not been possible because secondary sector has not expanded fast enough to absorb growing labour force. The unskilled and uneducated rural masses have continued to struggle in the primary sector and those who have been forced out by economic, social and political factors have joined the urban slum sector. This pattern of growth underlines the link between the growing poverty and unemployment and the inadequate growth of manufacturing and building activity in the country. If economic betterment of the masses of the people is our goal, there is an imperative need to promote manufacturing and allied supportive activities in the economy.

2.7.1 Policy Implications The expansion of the services sector has wider implications for population, employment, and trade prospects of the economy, some of which are as follows:

1) The growing share of the services sector points to the need for policy initiatives towards introducing greater competition and efficiency in this sector so as to ensure its sustained contribution to exports (especially software) and to higher long-term growth.

2) The gains in productivity in the agricultural and industrial sectors resulting from technological progress and innovation will have the effect of shifting employment away from the non-service sector to the services sector. This may also indicate a shift in real expenditures from commodities to value added services.

3) The services sector constitutes a tax-base with vast but unexploited potential, and, therefore, its growth has long-term implications for the fiscal policy.

2.7.2 Limitations of the Services Sector The services sector in India, as at present, suffers from low productivity and low quality in spite of fairly large investment in technology. Unless sustained efforts are put in to improve these, with the increasing importance of the services in wake of structural adjustment and liberalisation in the economy, we may get into two alternative scenarios.

One, economic and social position of workers in the services sector will steadily go down⎯since real incomes cannot be higher than productivity for any extended length of time. This means economic stagnation and consequent social tensions.

Two, the workers in this sector will use their numerical strength to get wages higher than their economic contribution justified. This will impoverish others⎯reducing everyone’s income and increasing unemployment, for example, personnel having technical skills.

The knowledge, the workers have about their job, is the starting point for improving productivity, quality and performance. Partnership with other equally knowledgeable workers is the only way to ensure higher productivity and quality.


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1) Examine the principal changes in the structure of India’s national income since 1950-51. Identify the factors responsible for these changes.

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2) State the implications of the changes in the structure of India’s national income.

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3) What are the limitations from which the service sector suffers presently?

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2.8 LET US SUM UP National income estimates are the most reliable macroeconomic indicators of an economy. Changes in national income measure the rate of growth of the economy; similarly, changes in the structure of national income of an economy reflect the changing significance of different sectors. In India, national income, as also per capita income, have been continuously increasing. In more recent years, the rate of growth of national income has accelerated. It indicates that the economy has been growing at a faster rate in recent years than in the past. Along with this, the structure of national income has also undergone a change; the tertiary sector has emerged as the dominant sector of the economy.

2.9 EXERCISES

1) Evaluate India’s growth performance during the era of economic planning on the basis of accepted yardsticks. Suggest measures to accelerate the rate of growth.

2) Indian economy is gradually emerging out to be a service-dominated economy. Examine the implications of these trends for widespread poverty and unemployment in India. What type of policy initiatives would you suggest?

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Framework of Indian Economy 2.10 KEY WORDS

Closed Economy: An economy that does not maintain any economic relations with the rest of the world.

Economic Goods: Those goods which are scarce in supply and, hence, command a price.

Economic Growth: A sustained increase in real national income of a country.

Nominal National Income: The money value of all the final goods and services produced in an economy during a year, estimated at current prices.

Real National Income: The money value of all the final goods and services produced in an economy during a year, estimated at some fixed prices.

Subsidy: It is the grant given on current account by the Government to the private industries and public corporations for selling certain goods at a price fixed by the Government.

2.11 SOME USEFUL BOOKS Central Statistical Organisation (Government of India), National Accounts Statistics (Annual).

Dhingra, Ishwar, C. (2005); The Indian Economy: Environment and Policy, Sultan Chand & Sons, New Delhi.

Government of India, Economic Survey (Annual).



1) See Section 2.1

2) See Section 2.2 & 2.3

3) See Sub-section 2.3.1 & 2.3.2


1) See Section 2.4

2) See Section 2.5

3) See Section 2.6


1) See Section 2.7



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UNIT 3 DEMOGRAPHIC FEATURES AND INDICATORS OF DEVELOPMENT

Structure

3.0 Objectives 3.1 Introduction 3.2 Demographic Profile of India 3.3 Trends in Population Growth

3.3.1 Distribution of Population by States 3.4 Growth Rate of Population 3.5 Density of Population

3.5.1 Inter-State Variations 3.6 Life Expectancy

3.6.1 Age and Sex Composition 3.6.2 Rural-Urban Distribution

3.7 Literacy 3.8 Nature of the Population Problem in India

3.8.1 Effects on Economic Development 3.9 Population Policy in India

3.9.1 National Population Policy, 2000 3.10 Indicators of Development

3.10.1 Economic Growth and Economic Development 3.10.2 Human Development Index 3.10.3 Economic Development Index

3.11 Let Us Sum Up 3.12 Exercises 3.13 Key Words 3.14 Some Useful Books 3.15 Answers or Hints to Check Your Progress Exercises

3.0 OBJECTIVES

After reading this unit, you will be able to:

• state the role of human resources in the process of economic development;

• identify the long-term trends in the growth of India’s population;

• know that there are great variations in the size of population of different states in India;

• analyse the causes responsible for fast growth of population and recent slowing down of its growth;

• establish relationship between economic development and different other demographic features;

• appreciate the problems that arise out of a large population;

• make out the outlines for a proper national population policy; and

• make it clear that there are other alternative measures of economic development.


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3.1 INTRODUCTION We have learned in the previous unit that human resources play a significant role in generating aggregate flow of goods and services. The difference in the growth of national income and the per capita income is explained by the growth in population. Hence, in this unit, we will discuss demographic features and indicators of development.

Human resources have a two-pronged relationship with economic growth. As a resource, people are available as factors of production to work in combination with other factors of production like land, capital and enterprise. As consumers, human beings make demand on the national product of the economy. The size of population, therefore, is a crucial determinant of economic growth. A large population may not necessarily contribute to economic growth; in fact, a large fast-rising population may find itself in a situation described by economists as ‘over-population’.

A related question is: Does economic growth alone constitute economic development? The answer is simple ‘No’. Then, What is economic development? What are the indicators of economic development?

After reviewing the demographic profile of the Indian economy, we, in this unit, will also address the related question of indicators of development.

3.2 DEMOGRAPHIC PROFILE OF INDIA A demographic profile of India can be prepared out of the data collected by the office of the Registrar General of India who is the responsible authority for conducting an all-India census of population every ten years. The census of India unleashes a vast store of official data relating to the demographic scene in the country. It is with the help of this that a concise demographic profile of the country can be prepared.

The country’s first all-India census was completed in 1872. Thereafter, decennial censuses have been organised in the years ending in ‘1’, i.e., 1881, 1891, 1901, 1911, 1921, etc. The last such census, i.e., 14th census was completed in March, 2001. The data in the census has been collected on the reference date namely March 1, 2001. 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.

3.3 TRENDS IN POPULATION GROWTH India is the second largest country in the world with the total population enumerated in the 2001 census at 102.7 crores. This forms about 16 per cent of the total population of the world. In other words, every sixth person on the earth is an Indian. India, on the other hand, has got only 2.4 per cent of the total land area of the world. China with about 21 per cent of the world’s population has about 7 per cent of the land area, the USA maintains only 5 per cent of the total world population on about 7 per cent of the total world area; Russia has 2.43 per cent of the population and 12 per cent of the land area (see Chart-1).

35

Demographic Featuresand Indicators of

Development

Chart-1: Countries with their Share in the World Population

It would, thus, be seen that India has been seriously handicapped in that a large proportion of the world population is found jam-packed in a small area.

India’s population has grown over the years as can be seen from Table 3.1 below.

Table 3.1: Trends in Population in India (Crore)

Year Population 1901 23.8 1911 25.2 1921 25.1 1931 27.9 1941 31.87 1951 36.10 1961 43.92 1971 54.81 1981 64.33 1991 84.63 2001 102.70 2011* 117.89 2016* 126.35

* Projections.

As brought out in Table 3.1, the history of population growth in India divides itself into four natural phases:

Phase I 1901-1921 : Stagnant Population Phase II 1921-1951 : Steady Growth Phase III 1951-1981 : Rapid High Growth Phase IV 1981-2001 : High Growth with definite signs of slowing down


36

1) Before 1921, the growth of population was very slow; as a matter of fact, India’s population had declined during the decade 1911-21. The decline was caused by famines and epidemics. The year 1921, therefore, is also known as the ‘Year of Great Divide’.

2) The census of 1931 and the following census of 1941 recorded an increase of the magnitude of about 2.76 crore and 3.97 crore respectively. The increase after the country’s independence was more rapid. Thus, whereas during the first fifty years of the present century, i.e., during 1901-51, India’s population had increased by about 12 crores, it increased by about 32.5 crore during the three-decade period of 1951 to 1981.

3) The upward trend in population growth rate maintained since 1951 got reversed during the decades 1981-2001. It means that although India’s population continues to grow in size, its pace of net addition is on the decrease.

3.3.1 Distribution of Population by States An interesting feature of India’s population is the different size of different states in terms of the number of people. This can be seen from Chart-2.

At one extreme Uttar Pradesh has a population as large as 16.60 crore (roughly one-sixth of India’s population); at the other extreme Sikkim has barely 5.40 lakh people. Among the other relatively large states which have a population of more than 5 crores we have Bihar, Maharashtra, West Bengal, Andhra Pradesh, Madhya Pradesh, Tamil Nadu, Gujarat, Karnataka and Rajasthan.

Chart-2

Other States & U.T.s: Tripura (0.31%), Mainpur (0.23%), Meghalaya (0.22%), Nagaland (0.19%), Goa (0.13%), Arunachal Pradesh (0.11%), Pondicharry (0.09%), Chandigarh (0.09%), Mizoram (0.09%), Sikkim (0.05%), Anadman & Nicobar Islands (0.03%), Dadra & Nagar Haveli (0.02%), Daman & Diu (0.02%) and Lakshadweep (0.01%).

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Development3.4 GROWTH RATE OF POPULATION The growth rate of population is a function of migration, birth rate and death rate in a country. 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. That leaves us with birth rate and death rate. The difference between the birth rate and the death rate measures the growth rate of population.

The birth and death rates in India have followed the general trends indicated in the theory of demographic transition, as would be seen from Table 3.2 below. Table 3.2: Birth Rate, Death Rate and Natural Growth Rate of Population in India

(Rate per annum per thousand population)

Period Crude Birth Rate Crude Death Rate Natural Growth Rate 1891-1901 45.80 44.40 1.40 1901-1911 49.20 42.60 6.60 1911-1921 48.10 48.60 -0.50 1921-1931 46.40 36.30 10.10 1931-1941 45.20 31.20 14.00 1941-1951 39.90 27.40 12.50 1951-1961 41.70 22.80 18.90 1961-1971 41.20 19.00 22.20 1971-1981 37.20 15.00 22.20 1981-1991 32.50 11.40 21.10 2001 25.80 8.50 17.30 2004 25.00 8.10 16.90 2011* 22.70 8.10 14.60

* Projections.

It would be seen as follows from Table 3.2:

1) The crude death rate registered a marked decline in the decade 1921-31 and ever since has been continuously declining. On the other hand, during this period lasting till the mid-1970s, there was hardly any fall in the birth rate. As a result, the natural growth rate of population picked up to reach the maximum at 22.20 per thousand or about 2.22 per cent per annum during 1971-1981 (and 21.1 per cent during 1981-91). In consequence of this growth rate, India has been adding about 17 to 18 million every year to its population.

2) Beginning with the 1970s, a stage is set for transition to the third phase. During this period, the birth rate has registered a fall, but this has been neutralised by declining mortality. In future, as the death rate reaches the plateau (natural deaths cannot be prevented irrespective of progress in death control technology), any fall in birth rate would get reflected in slower growth of population. Growth rate of population during 1981-91 and 1991-2001 has been less than that in the period 1971-81.





38

1) Examine the major trends in India’s population since 1951.

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2) Why has the population growth slowed down in the recent years?

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3) What are the projections about the growth rate of population in near future?

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3.5 DENSITY OF POPULATION The density of population is calculated as a ratio of the number of persons per sq. km. of land area. According to the 2001 census, the density of population in the country is 324. No doubt, India is one of the densely populated countries in the world.

However, on the basis of the available evidence, it is not possible to establish any indisputable relationship between the density of population and the level of economic development. 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. On the contrary, Japan with a density of 349 has a per capita income of $34,510. Similarly, less densely populated countries show both high and low levels of development. Canada with a density of only 3 persons per sq. km. has a per capita income of $23,930, which is among one of the highest in the world. On the other hand, Mali with a density of 10 has a per capita income of only $290.

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. It is in this sense that we find that India is already a densely populated country and that more additions are likely to add only more to the burden on land.

3.5.1 Inter-State Variations Inter-state variations in the density of population are also very informative about the demographic situation. The relevant information is presented in Chart-3 below.

The density is generally high in industrially-developed states; it is also high in those regions which have a better climate, rainfall and irrigation facilities. In

39


Development

an economy where the agrarian sector dominates, it is to be expected that the above factors should exercise an influence on the density of population.

Chart-3

3.6 LIFE EXPECTANCY The mean expectation of life at birth is the best statistical measure of the health conditions and of the general level of mortality of a country. If the death rate is high and/or death occurs at an early age, life expectancy will be low; on the other hand, if the death rate is low and/or death occurs at an advanced age, life expectancy will be high.

During the last few decades, the death rate in India has recorded a perceptible fall; this is reflected in the rising life expectancy in the country. Life expectancy at birth currently is being estimated 63.87 years for males and 66.91 years for females.

Rising life expectancy has some social implications as follows:

One, 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.

Two, as the elderly continue to live longer, the number of joint or multi-generational families tends to increase.

However, the average size of households has not increased significantly over the last five decades and the total number of households has risen sharply. This is not really surprising, because the tolerance limits for the strain arising out of joint family living have gone down.


40

3.6.1 Age and Sex Composition The age and sex composition, at any time, is the result of past trends in fertility and mortality. The persistence of high birth and death rates for a fairly long time results in a bottom-heavy age pyramid.

The obtaining age-composition of India’s population is presented in Table 3.3. Table 3.3: Age Composition of India’s Composition

(Percentage Share)

Age Group (Years) Share 0-14 35.3 15-59 56.9 60+ 7.8

The age distribution indicates that every one person, on an average, has to earn for himself and for one dependent also. Thus, the dependency ratio of the population works out to about 64.07 per cent. A high dependency ratio acts as a serious drag on production and improvement of living standards. Obviously, the dependency ratio of a country greatly influences the proportion of national income going into savings, investment, pensions, welfare and education.

Sex ratio is a powerful indicator of the social health of an economy. It conveys a great deal about the state of gender relations.

The sex distribution of population in India shows two things: (i) a higher ratio of males in the population, and (ii) a rising tendency towards masculinity, as would be seen from Table 3.4.

Table 3.4: Sex Composition in India (Number of Females Per 1000 Males)

Census Year Sex Ratio 1901 972 1911 962 1921 955 1931 950 1941 945 1951 946 1961 941 1971 930 1981 934 1991 927 2001 933

The sex ratio differs among different states; while it is as high as 1,058 in Kerala, it is as low as 861 in Haryana. The varying position of the states is shown in Chart-4.

There are six possible explanations as follows for the decline in sex ratio:

1) A progressive undercount of women compared to men in different censuses.

2) An increased discrimination of females in providing the minimum nutritions, access to health and other amenities.

3) Increase in the proportion of male selective migrants from other countries.

41


Development

4) Reduction in foetal wastage resulting in a decline in female-male ratio at birth.

5) Female selective termination of pregnancy.

6) Lagged effect of small sex differences in mortality at young ages persisting over a long period of time.

Chart-4

NUMBER OF FEMALES PER 1000 MALES

In future, as the mortality of child-birth falls and the general status of women specially in the rural society improves, there should be perceptible rise in the sex ratio – projected 943 in the year 2011.


42

3.6.2 Rural-Urban Distribution While there has been a progressive increase in the number as well as the proportion of people residing in urban areas during the last few decades, India continues to be predominantly rural. The percentage of urban population in total population has gone up from 17.1 per cent in 1951 to 27.8 per cent in 2001.

Inter-state variations may also be observed. Tamil Nadu is the most urbanised state with 43.9 per cent of the population living in the urban areas. The share of urban population in total population is more than 30 per cent in states like Goa, Gujarat, Karnataka, Maharashtra and Mizoram, while it is between 20 per cent and 30 per cent in other states like Uttar Pradesh, Andhra Pradesh, Haryana, Jammu and Kashmir, Kerala, Madhya Pradesh, Manipur, Punjab, Rajasthan and West Bengal. The ratio is less than 20 per cent in other states like Assam, Bihar, Himachal Pradesh, Meghalaya, Nagaland, Orissa, Sikkim, Tripura, etc.

3.7 LITERACY According to the census definition, a person is deemed as literate if he or she can read and write with understanding in any language. A person who can merely read but cannot write is not literate.

During the period 1951-2001, there has been a substantial progress in literacy. This is brought out in Table 3.5.

Table 3.5: Literacy Rates in India (1951-2001) (Percentage)

Year Age Persons Males Females 1951 5 years and above 18.33 27.16 8.86 1961 5 years and above 28.31 40.40 15.34 1971 5 years and above 34.45 45.95 21.97 1981 7 years and above 43.56 56.37 29.75 1991 7 years and above 52.11 63.86 39.45 2001 7 years and above 65.38 75.85 54.16

Another important fact that comes out clearly from the available data is that with the passage of time, sex differentials in literacy rates are narrowing down. In 1951, the female literacy rate as a percentage of male literacy rate was about 33; in 2001, it has gone upto 71.40 indicating a substantial expansion in female education during the last five decades.

3.8 NATURE OF THE POPULATION PROBLEM IN INDIA

The demographic profile of India portrayed above helps us to bring in a clear perspective the nature of the population problem being faced by us. Some of the salient features that emerge from it are as follows:

One, India has a large population base. It is already densely populated; the proportion is projected to increase further in future.

Two, the growth rate of population in India since the 1950s has been consistently high and has been caused by: (i) persistence of high fertility, and (ii) declining mortality.

43


Development

Three, 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.

Four, the country shows a rising masculinity with the proportion of women in the total population gradually falling.

Five, the rural sector dominates the economy. It is indicative of the overall low productivity.

Six, about one-third of the total population is illiterate which speaks of the very poor quality of human capital in the country.

Among these various features the one which is of utmost concern to all the students of population in India, and also to the policy-makers at large, relates to the high growth rates of population witnessed during the last five decades.

3.8.1 Effects on Economic Development Faster population growth is a handicap, like extra weight carried by a racehorse. This would be clear from a brief discussion of the various problems that the growth of population in India has caused.

1) Cassen’s Argument: While talking about the ‘macro-economics of population’, R.H. Cassen has drawn attention to two main relationships through which population growth affects the economy. These are: (a) savings effect, and (b) composition of investment effect.

a) Savings Effect: The savings effect argues that savings are reduced by population growth because of the increase of so-called ‘burden of dependency’: with high fertility, and declining mortality in younger and older age groups, the population acquires an increasing proportion of people in the non-working age groups relative to those of the working age. Since all must consume while relatively fewer produce, consumption per head must rise and savings per head must fall – even if productivity is rising, savings are less than they would be with a smaller number of dependants per worker.

b) Composition of Investment Effect: The investment argument says that, with an increasing population, a share of investible resources has to be devoted to reproducing for additional people ‘unproductive’ facilities⎯particularly social overhead capital⎯which would be unnecessary if the population were not growing. The composition of investment is altered in an unproductive direction instead of additions to capital going to raise the productivity of the existing labour force; investment becomes merely ‘demographic investment’ instead of real investment.

2) Coale and Hoover’s Argument: Coale and Hoover compared the economy along two time paths: (i) one with higher fertility, and (ii) the other with lower fertility. They reached the conclusion that the GNP per capita would be lower under higher fertility than under lower fertility. Per capita product in India is undoubtedly lower than it would have been had population been growing more slowly, for three reasons:

• If fertility had been lower for a longer period, the labour force would have been little smaller in size but the number of people it had to support would have been much smaller.

• The amount of capital per worker would have been greater simply by reason of the smaller number of workers.


44

• The capital itself would have been more productive⎯the effect of diminishing returns in agriculture was equivalent to a lower average productivity of capital.

To sum up, the pressures stemming from population growth have become progressively more intense. Steps need be taken to mitigate the effects of a fast-growing population and to bring the population under control.

3.9 POPULATION POLICY IN INDIA A review of the population problem in India, as given above, would suffice to bring out the necessity of a direct attack on the problem that should aim at a rapid reduction in the birth rate.

The population policy should emphasise the following:

1) Increase the rate of employment at such a rate that it will do away with unemployment among population of working age; and

2) Controlling the growth of population, by adopting family planning. Family planning implies two things: (i) limiting the number of children to be born to a couple to one or two; and (ii) determining the spacing of children.

3.9.1 National Population Policy, 2000 The National Population Policy was announced on February 15, 2000 with following objectives:

1) The immediate objective of the policy has been described as aimed at meeting the “unmet” needs for contraception, health care infrastructure, health personnel and integrated service delivery.

2) The mid-term objectives are outlined as aimed at bringing the total fertility to replacement levels⎯two children per couple⎯by a vigorous implementation of intersectoral strategies.

3) The long-term objective is stabilisation of population for 2045.

The policy has outlined 16 promotional and motivational measures to implement it vigorously. Among these, the more important are as follows:

1) Reward Panchayats and Zila Parishads for promoting small family norm.

2) Strict enforcement of Child Marriage Restraint Act and Pre-natal Diagnostics Techniques Act.

3) Health insurance cover of Rs. 5,000 for couples below poverty line, with two living children, who undergo sterilisation.

4) Rewards for 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.

5) Funds and soft loans for providing ambulance services in rural areas.

6) Strengthening abortion facilities scheme.

A National Commission on Population, headed by the Prime Minister, has also been set up. The Commission will monitor the new policy.

45


Development




1) Do you think that relationship exists between density of population and economic development? Give reasons in support of your answer.

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2) List any three dimensions of the population problem in India.

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3) Highlight the need for a suitable population policy in India.

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3.10 INDICATORS OF DEVELOPMENT As stated earlier in Unit 1, national income estimates (and the corresponding per capita income estimates) have been used as indicators of economic growth. But economic development is a broader concept than economic growth. It is important to understand the distinction between the two.

3.10.1 Economic Growth and Economic Development Economic growth has been defined as “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.”

The concept of economic development emphasises the achievement of the following three objectives:

1) To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter and protection. This, however, would be possible with a fast increase in real per capita income.

2) To raise levels of living including, in addition to higher incomes, the provision of more goods, better education and greater attention to cultural and humanistic values, all of which will serve not only to enhance material well-being but also to generate individual and national self-esteem.

3) To expand 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


46

ignorance and human misery. Economic development is to be assessed ultimately by the enhancement of the “positive freedom”.

In view of the above three objectives, the quality of life is regarded as an important index of development. Several factors are involved in the measurement of such ‘quality’; such as education and literacy rates, life expectancy, the level of nutrition, consumption of energy per head, etc. Some of these factors are ‘non-monetary’, while others can be measured as ‘monetary’. There is a need to set up a synthetic index of these different factors to measure economic development and the quality of life.

Some attempts, undoubtedly, have been made in this direction. We will refer, at least, to two most important among these, viz., (1) Human Development Index, and (2) Economic Development Index.

3.10.2 Human Development Index Human Development Index (HDI) is being prepared annually by the United Nations Development Programme. Human development has been defined as a process of enlarging people’s choices. In principle, these choices can be infinite and change over time. But at all levels of development the three essential ones are for people to lead a long and healthy life, to acquire knowledge and to have access to resources needed for decent standard of living. If these choices are not available, many other opportunities remain inaccessible.

Computation of HDI

The HDI is based on three indicators: (i) longevity, as measured by life expectancy at birth; (ii) educational attainment, as measured by a combination of adult literacy (two-thirds weight) and combined primary, secondary and tertiary enrolment ratios (one-third weight); and (iii) standard of living, as measured by real GDP per capita (PPP$).

For the construction of the index, fixed minimum and maximum values have been established for each of these indicators:

• Life expectancy at birth: 25 years and 85 years

• Adult literacy: 0% and 100%

• Combined gross enrolment ratio: 0% and 100%

• Real GDP per capita (PPP$): $100 and $40,000 (PPP$)

For any component of the HDI, individual indices can be computed according to the general formula:

valueMinimum valueMaximum valueMinimum valueActual Index

xi xi

xixi

−−

=

The HDI is a simple average of the life expectancy index, educational attainment index and adjusted real GDP per capita (PPP$) index, and so is derived by dividing the sum of these three indices by 3.

The Human Development Report, 2004 presented HDI values for 177 countries arranged in a descending order of the value of HDI. India ranked 127 in this group.

3.10.3 Economic Development Index (EDI)

New Delhi based National Council of Applied Economic Research (NCAER) has developed a new measure, called EDI.

47


Development

The EDI develops further on the HDI. EDI is based on three components: (i) the health attainment index, (ii) the education attainment index, and (iii) per capita GDP.

i) The health attainment index is a function of the infant mortality rate, the total fertility rate and crude birth rate.

ii) The education attainment index is an equal weighted index of gross enrolment in middle or upper primary schools and total university enrolment in graduate courses.

EDI has been estimated for India for different periods. The results are summarised in Table 3.5 below.

Table 3.5: Average Annual Growth Rate (%)

Health Indicator

Education Indicator

Per Capita GDP

Economic Development

Index 1970s 1.53 2.71 0.40 1.53 1980s 2.74 4.86 3.56 3.79 1990s 2.47 3.46 3.24 3.24

NCAER’s findings are not a one-time affair. The model can analyse policy changes in Government expenditure on health and education and changes in public investment and tax rates on macro-economic variables like output, prices and the current account balance as well as on human development.




1) Distinguish between economic growth and economic development.

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2) What is HDI? How is it estimated?

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3) What is EDI?

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3.11 LET US SUM UP Demographic features relate to the size, growth rate and other attributes of population of a country. From India’s point of view, the most important demographic feature has been the size and rate of growth of population. India’s population has been increasing right since 1921. After 1951, the rate of growth of population picked up fast. This was because of the fact that the death rate in the Indian economy had begun to fall appreciably, whereas there was a relatively slow fall in birth rate. By 1981, the death rate had reached the plateau, and the fall in birth rate accelerated a little. As a result, the growth rate of the population in India has slowed down.

Population along with the national income determines the per capita income. National income and per capita income estimates have been employed as indicators of economic growth of a country. Economists have also developed alternative indicators of economic development, like HDI and EDI.

3.12 EXERCISES

1) Examine the basic demographic features of India. Also examine their relevance for Indian economic policy for development.

2) Account for the rapid increase in India’s population. Can India sustain a large population? Discuss your answer from the perspective of economic policy for growth.

3) From the perspective of economic policy for growth, examine the nature of different indicators of economic development.

3.13 KEY WORDS Crude Birth Rate: The number of children born per 1,000 population during a year.

Crude Death Rate: The number of deaths per 1,000 population during a year.

Growth Rate of Population:

100 Population sYear'Last

Population sYear'Last Population sYear'Current ×

−

Demographic Transition: Change in the size of population and its determinants.

Population Explosion: Rapid increase in population.

Working Population: Population in the age-group of 15-60 years.

Urbanisation: Trend of migration of people from rural areas to urban areas.

Life Expectancy: The number of years a newborn child is expected to live.

Density of Population: Number of people living per sq. km. of land.

Literacy Rate: 100 Population Total

Literates ofNumber ×

Family Planning: The practice to limit the size of families.

Infant Mortality Rate: 1000 BirthsofNo.

DyingBorn -New of No.×

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Development3.14 SOME USEFUL BOOKS Dhingra, Ishwar C. (2005); The Indian Economy: Environment and Policy, Sultan Chand & Sons, New Delhi.

Government of India, Census of India (2001); Paper I, Paper II and Paper III.

Government of India, Economic Survey (Annual).



1) See Section 3.3

2) See Section 3.4

3) See Section 3.4


1) See Section 3.5

2) See Section 3.8

3) See Section 3.9





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UNIT 4 POVERTY AND INEQUALITY: POLICY IMPLICATIONS

Structure

4.0 Objectives 4.1 Introduction 4.2 The Concept of Poverty 4.3 Measurement of Poverty

4.3.1 Income Indicators of Poverty 4.3.2 Indicators Covering Income and Non-income Dimensions of Poverty

4.4 Dimensions of Poverty in India 4.4.1 Income Poverty Indicators 4.4.2 Indicators Covering Income and Non-income Dimensions of Poverty

4.5 Concept of Inequality 4.6 Measurement of Inequality

4.6.1 Measures of Inequality of Income 4.6.2 Indicators Covering Inequality in Non-income Aspects of Life

4.7 Levels of Inequality 4.7.1 Levels of Inequality in Income and Consumption 4.7.2 Levels of Inequality in Non-income Aspects of Life

4.8 Policy Implications 4.9 Let Us Sum Up 4.10 Exercises 4.11 Key Words 4.12 Some Useful Books 4.13 Answers or Hints to Check Your Progress Exercises

4.0 OBJECTIVES After reading this unit, you shall be able to:

• define the concept of poverty; • state different income and non-income indicators of poverty; • assess the dimensions of poverty in India; • define the concept of inequality; • state the different methods of measurement of inequality of income; • explain the levels of inequality; and • state the policy implications of poverty and inequalities.

4.1 INTRODUCTION

As seen in unit 2 earlier, the Indian economy has expanded and diversified considerably since the advent of planning. The Gross Domestic Product (GDP) grew at the average annual rate (compound rate) of 3.2 per cent in the 1960s and 1970s. The economy moved to a higher growth path thereafter – to 5.8 per cent per annum in the 1980s and 5.7 per cent per annum in the 1990s. This momentum of growth has more or less been maintained during the first half of the current decade. The share of the agricultural sector in total GDP has declined from about 55 per cent to about one-fourth and that of the

Poverty and Inequality:Policy Implications

51

services sector has increased from about 30 per cent to over 50 per cent over the fifty-year period.

Has such economic expansion and diversification led to the socio-economic well-being of the people of the country? This does not seem to be the case for sizeable sections of the people. About one-fourth of the Indian population of over a billion is poor. A significant proportion of labour force remains unemployed, there are gross inequalities in distribution of income. In the present unit and the following unit 5, we address ourselves to these issues of economic development.

4. 2 THE CONCEPT OF POVERTY

Poverty is a multidimensional concept. Poverty may be defined as a state of lack of access to the basic needs of income, food, shelter, education, health services, safe drinking water and sanitation that help an individual lead a decent, normal and effective existence. Indeed, the list of basic and other needs may vary, depending upon the society in question and what, in its view, constitutes normal and effective existence. The next question that comes up is about how “lack of access” is understood. Is a total lack of access to food (hunger), etc., necessary to be considered as being in a state of poverty? Or is there a minimum desirable level of access, only below which an individual will be considered as being poor? These questions lead one to the realm of estimating the incidence of poverty or the number who are poor and the related quantitative indices of poverty or deprivation and measures of human development. We shall deliberate upon these issues in the next section.

4.3 MEASUREMENT OF POVERTY

4.3.1 Income Indicators of Poverty The first step in estimating the incidence of poverty is to define a poverty line. The “Task Force on Projections of Minimum Needs and Effective Consumption Demand” of the Planning Commission (1979), used an average energy (nutritional energy) requirement norm to define the poverty line. Since calorie is the unit of energy, the norm used was in terms of calories. The Task Force estimated the average daily per capita requirements for rural and urban areas by using the specific calorie allowances recommended by the Nutritional Expert Group (1968) for population groups of different age groups, sex and activity. In this manner, the Task Force attempted to capture in the average norms factors such as age, sex and occupational differences in the daily calorie requirement of the population. The calorie norms, thus, derived were rounded off to 2,400 calories per capita per day for rural areas and 2,100 calories per capita per day for urban areas. The monetary equivalents of these norms were obtained by using: (i) data on the quantity and value of items of household consumption and (ii) the calorie content of the items of food consumed by population groups belonging to different per capita expenditure classes with appropriate conversion factors. The Task Force, thus, estimated, on the basis of the observed consumer behaviour in 1973-74, that, on an average, a consumer expenditure of Rs. 49.09 per capita per month was associated with a calorie intake of 2,400 calories per capita per day in rural areas and Rs. 56.04 per capita per month with a calorie intake of 2,100 per capita per day in urban areas. In other words, the poverty line was defined as the per capita expenditure level at which the average per capita per day calorie intake is 2,400 calories for rural areas and 2,100 calories for urban areas. This poverty line serves as a cut-off line for separating the poor from


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the non-poor if the distribution of population with per capita expenditure below the level defined by the poverty line is counted as poor. The proportion of the poor to the total population is the Poverty Ratio (PR) or the Head Count Ratio (HCR). PR or HCR measures the incidence of poverty. It is, thus, defined as:

number of people below poverty lineIncidenceof Poverty PR HCR 100total population

= = = ×

It is expressed as a percentage. This is useful for comparing the poverty situation in two areas like the rural and urban areas or different States or the situation in an area in the year 2005 compared to, say, 1995.

The computation of the poverty line for the base year (1973-74) has been done with prices of items in the base year. This is, therefore, updated for changes in prices over time. This is, then, used with the distribution of population by different per capita consumer expenditure classes available from time to time from periodic surveys of the NSSO on household consumption to arrive at estimates of the number of the poor and the poverty ratio for subsequent years.

The measurement of poverty described above, namely, the poverty ratio or the head count ratio, is simply the proportion of the number of people below the poverty line in the population. This ratio, however, does not make any distinction within the broad category of the poor on the basis of their actual levels of consumption and deprivation. Consequently, the poverty ratio fails to capture the depth and severity of poverty in an adequate manner. A measure developed for this purpose is the Poverty Gap (PG) Index. The PG Index calculates the total shortfall of consumption below the poverty line, per capita of the total population. This is, then, expressed as a percentage of the poverty line. It can also be calculated as:

(Poverty line – Per capita consumption of the poor)PG Index Poverty Ratio 100Poverty line

= × ×

More comprehensive measures of the severity of poverty are the Squared Poverty Gap (SGP) and the Sen Index (SI). We shall not go into the formulae for these measures except to observe that: (i) SGP is not PG x PG, (ii) it possesses the properties of both the Poverty Ratio and the Poverty Gap Index and (iii) in addition, it also captures the extent of variation in the levels of consumption of the poor. It is, however, sensitive to measurement errors at the bottom of the per capita expenditure scale. The Sen Index takes note of the shortfall in average consumption of the poor from the poverty line as well as the inequality in consumption among the poor.

4.3.2 Indicators Covering Income and Non-income Dimensions of Poverty

Poverty Ratios (PR) and measures related to PR provide a composite picture of people whose per capita consumption expenditure is below the level of per capita consumption expenditure corresponding to the basket of commodities constituting the desired minimum. These do not, however, provide a complete picture of the extent of deprivation or, alternatively, the state of well-being of the population. These are rooted in calorie consumption and do not say anything about several other factors that shape living standards, like: (a) the health status of the population like longevity, overall mortality, infant mortality, maternal mortality (mortality of women arising from child birth and related causes) and morbidity (prevalence of diseases) and in general, access to health services, (b) the nutritional status, (c) the educational status and


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(d) the living environment like housing, access to safe drinking water and sanitation as also pollution-free air and water resources. Attempts have been made to capture these aspects in alternative measures of poverty. Let us have a brief look at them.

a) The Human Development Index (HDI) and the Human Poverty Index (HPI)

As discussed in unit 3, the UNDP has been preparing Human Development Reports (HDRs) and making estimates of the Human Development Index (HDI) for different countries since 1990. The HDI incorporates three most critical and socially useful choices, viz.,

i) the choice to lead a long and healthy life;

ii) the choice to acquire knowledge; and

iii) to have access to the resources needed for a decent level of living.

The countries are ranked in order of the value of the HDI.

HDR also presents estimates of Human Poverty Index (HPI). This being a measure of deprivation, HPI makes use of the following for the three areas of choices referred to above:

i) Proportion of population not expected to survive beyond 40 years;

ii) Adult illiteracy rate; and

iii) (a) Percentage of population without sustainable access to an improved water source; and (b) Percentage of children aged 5 or below who are underweight for their age.

The National Human Development Report, 2001 prepared by the Indian Planning Commission follows the framework of human development adopted in the UNDP HDR. It presents estimates of HDR for 1981 and 1991 for the country and different States and Union Territories. It also gives estimates of HDI for 2001 for the country and for 15 major States. Estimates of HDI for the other States and Union Territories could not be prepared due to lack of comparable data for these States for 2001.

b) Gender-related Development Index (GDI) or Gender Equality Index (GEI)

The Human Development Index (HDI) that we have discussed so far is based on indicators reflecting economic, educational and health attainments of the population. It does not, however, reflect gender-based disparities in such attainments. Gender-based discrimination is prevalent in every society – developed or not – to a lesser or greater degree. Such discrimination results in a higher incidence of poverty in the female population than in the male population, in whatever manner we measure poverty. Gender-related Development Index (GDI) or Gender Equality Index (GEI) seeks to reflect gender disparity in human development. This will help to focus attention on aspects of development planning that fail to reduce gender discrimination. This index is estimated as a proportion of economic, educational and health attainments of females to that of males. The common set of variables for which the attainments of females and males are compared is the same set that is used in estimating HDI.

c) Capability Poverty Measure (CPM)

UNDP HDR 1996 had also developed a Capability Poverty Measure (CPM) for different countries. Three indicators, (i) the percentage of children under 5


54

who are underweight (ii) the percentage of births unattended by trained health personnel and (iii) the percentage of women aged 15 years and above who are illiterate, were used for computing CPM.




1) In what way is the PG Index more useful in assessing the poverty situation?

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

2) What are the indicators which take note of income as well as non-income aspects of poverty?

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

3) What are the indicators on which Human Development Index and the Human Poverty Index estimated by the NHDR, 2001 of the Planning Commission are based?

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

4) What are the indicators of Capability Poverty Measure (CPM) prepared by NCAER?

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

4.4 DIMENSIONS OF POVERTY IN INDIA

4.4.1 Income Poverty Indicators The incidence of poverty has declined from 56.4 per cent in 1973-74 to 27.1 per cent in 1999-00 in rural areas and from 49 per cent to 23.6 per cent during the same period in urban areas (See Table 4.1). The decline is from about 55 per cent to 26 per cent for the country as a whole. While the number of the rural poor declined, the rise in the number of the urban poor had been more than compensating for it till 1994. Thereafter, the number of urban poor has also declined. As of 2000, a little over one-fourth of the population of the country is poor. These 260 million people do not have the purchasing power


55

needed to meet the specific standard of calorie intake with some margin for non-food consumption needs. About three-fourths of these are in the countryside. About one-half of the population of Orissa and about two-fifths of the population of Bihar and Madhya Pradesh do not have even this minimum level of purchasing power (Table 4.2). Rural as well as urban poverty is most severe in Orissa, with almost of its rural population and two-fifths of its urban population being poor (Table 4.2).

Table 4.1: Poverty Ratio and the Number of Poor

Poverty Ratio (per cent) No. of Poor (million) Year

Rural Urban Combined Rural Urban Combined (1) (2) (3) (4) (5) (6) (7) 1973-74 56.4 49.0 54.9 261.3 60.0 321.3 1977-78 53.1 45.2 51.3 264.3 64.6 328.9 1983 45.7 40.8 44.5 252.0 70.9 322.9 1987-88 39.1 38.2 38.9 231.9 75.2 307.1 1993-94 37.3 32.4 36.0 244.0 76.3 320.3 1999-00 27.1 23.6 26.1 193.2 67.0 260.2

Source: 1) Report of the Tenth Five Year Plan (2002-07) Steering Committee on Urban

Development, Urban Housing and Urban Poverty, 2001, Planning Commission. 2) National Human Development Report, 2001, Planning Commission.

Table 4.2: Poverty in India: 1999-00

Rural Urban Total

Sl. No.

State No. Poor Poverty Ratio

No. Poor Poverty Ratio

No. Poor Poverty Ratio

(Million) (Per cent) (Million) (Per cent) (Million) (Per cent)

(1) (2) (3) (4) (5) (6) (7) (8)

Major States

1. Andhra Pr. 5.81 11.05 6.09 26.63 11.90 15.77

2. Assam 9.22 40.04 0.24 7.47 9.46 36.09

3. Bihar 37.65 44.30 4.91 32.91 42.56 42.6

4. Gujarat 3.98 13.17 2.81 15.59 6.79 14.07

5. Haryana 1.19 8.27 0.54 9.99 1.73 8.74

6. Himachal Pr. 0.48 7.94 0.03 4.63 0.51 7.63

7. Karnataka 5.99 17.38 4.45 25.25 10.44 20.04

8. Kerala 2.1 9.38 2.01 20.27 4.14 12.72

9. Madhya Pr. 21.73 37.06 8.12 38.44 29.85 37.43

10. Maharashtra 12.51 23.72 10.29 26.81 22.80 25.02

11. Orissa 14.37 48.01 2.54 42.83 16.91 47.15

12. Punjab 1.02 6.35 0.43 5.75 1.45 6.16

13. Rajasthan 5.51 13.74 2.68 19.85 8.18 15.28

14. Tamil Nadu 8.05 20.55 5.00 22.11 13.05 21.12

15. Uttar Pradesh 41.2 31.22 11.79 30.89 52.99 31.15

16. West Bengal 18.01 31.85 3.34 14.86 21.35 27.02


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Other States

17. Arunachal Pr. 0.38 40.04 0.02 7.47 0.40 33.47 18. Goa 0.01 1.35 0.06 7.52 0.07 4.40 19. Jammu & Ka. 0.30 4.00 0.05 1.98 0.35 3.48 20. Manipur 0.65 40.04 0.07 7.47 0.72 28.54 21. Meghalaya 0.79 40.04 0.03 7.47 0.82 33.87 22. Mizoram 0.14 40.04 0.04 7.47 0.18 19.47 23. Nagaland 0.52 40.04 0.03 7.47 0.55 32.67 24. Sikkim 0.20 40.04 0.004 7.47 0.205 36.55 25. Tripura 1.25 40.04 0.05 7.47 1.30 34.44 26. A & N Islands 0.06 20.55 0.02 22.11 0.08 20.99 27. Chandigarh 0.01 5.75 0.04 5.75 0.05 5.75 28. D & N Ha. 0.030 17.57 0.003 13.52 0.033 17.14 29. Delhi 0.01 0.40 1.14 9.42 1.15 8.23 30. Pondicherry 0.06 20.55 0.18 22.11 0.24 21.67 31. Lakshadweep 0.003 9.38 0.008 20.27 0.011 15.6

India 193.24 27.09 67.01 23.62 260.25 26.10

Source: National Human Development Report, 2001, Planning Commission.

Incidence of Poverty among the Scheduled Castes and Tribes. Poverty ratios for these two groups for 1993-94 and 1999-00 are shown in Table 4.3. Roughly, two-fifths of the Scheduled Castes and Scheduled Tribes are poor, although there has been some reduction in the incidence of poverty in these groups of population over the six-year period (1993-94 to 1999-00). But incidence of poverty among Scheduled Tribes residing in rural areas is still very high. About one-half of these people are poor.

Table 4.3: Incidence of Poverty among Scheduled Castes and Tribes (1993-94 & 1999-00)

Group 1993-94 R U

1999-00 R U

General Population 37 32 27 24 Scheduled Castes 48 49 36 38 Scheduled Tribes 52 41 46 35

Source: Tenth Five Year Plan 2002-2007 – Vol. II, Planning Commission.

We referred earlier to the inadequacy of the poverty ratio in measuring the depth and severity of poverty. The poverty ratio does not give any idea of the distribution of the poor by levels of consumption. It does not say anything about, for instance, the number of the poor whose consumption levels are just about half of the poverty line consumption level. We have seen earlier how the Poverty Gap (PG) Index is able to take note of these aspects and show the magnitude of the effort required to raise the levels of consumption of all the poor below to the consumption level signified by the poverty line. We also noted that the Squared Poverty Gap (SPG) and the Sen Index (SI) are more comprehensive measures that reflect the severity of poverty. The position in India in the decade of 1990s, as reflected by the three measures, is shown in Table 4.4. We note that while the Poverty Ratio, the PG Index and the Sen Index have declined in 2000 to about 70 per cent of their levels in 1994, the


57

SPG Index has come down more sharply to about two-thirds its level in 1994. The depth and severity of poverty has declined as fast as incidence of poverty.

Table 4.4: Some Alternative Indices of Poverty – 1993-94 & 1999-00

1993-94 1999-00 Poverty Index Rural Urban Combined Rural Urban Combined (1) (2) (3) (4) (5) (6) (7) PG Index 8.2 6.7 7.8 5.8 5.0 5.6 SPG 2.7 2.3 2.6 1.7 1.6 1.7 Sen Index 11.4 9.3 10.9 8.1 7.0 7.8

Source: Sundaram, K., Keynote Address in the 38th Session of the Indian Econometric Conference, January, 2002.

4.4.2 Indicators Covering Income and Non-income Dimensions of Poverty

We have so far looked at levels of poverty as reflected in the poverty ratios. We noted earlier that poverty ratios do not reflect certain aspects of the living standards like health, education and nutrition and that the Human Development Index (HDI), the Human Poverty Index (HPI) and the Capability Poverty Ratio (CPM) are some of these attempts. Let us know what do these say about levels of living?

a) Human Development Index (HDI) and the Human Poverty Index (HPI)

India’s rank on the basis of HDI is 127 out of 177 countries, according to the UNDP Human Development Report (UNDP HDR), 2004. HDI for India has increased by about 40 per cent between 1975 and 2001. Norway is at the top of the table of country-wise HDI values and Sierra Leone at the bottom. HDI for the developing countries as a whole is well above that for India. Pakistan’s rank is 165 and Sri Lanka’s is 34. HPI, 2001 for India is less than that for our neighbours except Sri Lanka, Myanmar and Mauritius, according to UNDP HDR, 2004. India’s rank on the basis of HPI according to the UNDP HDR 2004 is 53 out of about 100 countries. Mauritius, Sri Lanka and Myanmar are relatively better off than India.

Inter-State Variations

Estimates of HDI for 2001 and those of HPI for 1991 for different States and Union Territories are shown in Table 4.5. Let us first look at the extent of deprivation across the country as revealed by HPI. Note that new areas get added to the list of high poverty areas given earlier on the basis of poverty ratio. The entire Northeastern Region except Mizoram, Rajasthan, Madhya Pradesh, Uttar Pradesh, Bihar, Orissa and Dadra and Nagar Haveli have a relatively high level of poverty as denoted by HPI. States and Union Territories with a relatively low level of human development are generally seen to have a relatively high incidence of poverty (HPI). This inverse relationship is seen to be very strong if we take into consideration only the 16 major States listed.


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Table 4.5: Human Poverty Indices (HPI) and Human Development Indices (HDI) for States & Union Territories, 1991 & 2001

Sl. No.

States & Union Territories

HPI1991 %

Rural

HPI 1991 %

Urban

HPI 1991 %

Total

HDI 1991

HDI 2001

(1) (2) (3) (4) (5) (6) (7)

1. Chandigarh 25.07 15.07 15.96 0.674 Ne

2. Delhi 21.02 17.99 18.22 0.624 Ne

3. Kerala 24.57 17.23 22.73 0.591 0.638

4. Goa 15.58 13.78 36.10 0.575 Ne

5. A & N Islands 28.80 16.32 25.24 0.574 Ne

6. Pondicherry 25.86 19.57 22.52 0.571 Ne

7. Mizoram 37.19 14.07 26.47 0.548 Ne

8. Daman & Diu 23.88 15.82 19.90 0.544 Ne

9. Manipur 43.84 26.51 39.82 0.536 Ne

10. Lakshadweep 15.67 12.26 13.89 0.532 Ne

11. Nagaland 45.00 23.56 41.30 0.486 Ne

12. Punjab 28.04 18.47 25.25 0.475 0.537

13. Himachal Pr. 21.67 9.91 20.90 0.469 Ne

14. Tamil Nadu 30.31 18.61 26.45 0.466 0.531

15. Maharashtra 29.30 17.65 24.73 0.452 0.523

16. Haryana 31.64 18.57 28.41 0.443 0.509

17. Gujarat 31.83 20.87 28.05 0.431 0.479

18. Sikkim 38.14 17.80 38.59 0.425 Ne

19. Karnataka 35.28 21.59 30.99 0.412 0.478

20. West Bengal 42.43 23.22 37.35 0.404 0.472

21. Jammu & Kashmir 34.94 17.67 30.95 0.402 Ne

22. Tripura 46.32 21.97 42.71 0.389 Ne

INDIA 42.25 23.03 37.42 0.381 0.472

23. Andhra Pradesh 43.19 25.12 38.34 0.377 0.416

24. Meghalaya 55.81 20.15 49.41 0.365 Ne

25. Dadra & Nagar Hv. 45.66 21.95 43.64 0.361 Ne

26. Assam 49.32 22.52 46.29 0.348 0.386

27. Rajasthan 51.17 26.73 44.73 0.347 0.424

28. Orissa 47.97 28.29 45.22 0.345 0.404

29. Madhya Pradesh 45.43 25.69 40.79 0.328 0.394

30. Arunachal Pradesh 50.75 25.65 47.40 0.328 Ne

31. Uttar Pradesh 50.02 32.62 46.65 0.314 0.388

32. Bihar 53.65 29.70 50.48 0.308 0.367

Ne: not estimated. Source: National Human Development Report, 2001, Planning Commission.


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b) Gender-related Development Index (GDI) or Gender Equality Index (GEI)

UNDP HDR 2003 estimates GDI 2001 for India as 57.4 per cent and India’s rank with reference to this index as 103 out of 175 countries. In other words, the attainment of women in the three dimensions covered by HDI is only about three-fifths of those of men. The attainment of women in human development dimensions covered by NHDR HDI (income, health and education) is only about two-thirds of that of men. Gender equality was the highest in Kerala (87.2 per cent) followed by Manipur (80.2 per cent), Meghalaya (79.9 per cent), Himachal Pradesh (78.3 per cent) and Nagaland (78.3 per cent) in the 1980s. It was the highest in Himachal Pradesh (85.8 per cent) in the 1990s and the least in Bihar (46.9 per cent). Estimates of GEI showed that women were generally better off in Southern India than in the Indo-Gangetic Plain, especially in Bihar and UP.

c) Capability Poverty Measure (CPM)

NHDR 2001 provides the basic data required for making estimates somewhat similar to the estimates of CPM. These estimates are given in Table 4.6. The extent of inadequate physical growth among women and children is alarming.

Table 4.6: Some Measures Relevant to Capability Poverty: 1998-99 (Percentage)

Measure

INDIA

Highest Value among States &

Union Territories

Lowest Value among States &

Union Territories

Children who are underweight for age

47.0 55.1 (Madhya Pradesh)

20.6 (Sikkim)

Children who are underweight for height

15.5 24.3 (Orissa)

5.3 (Haryana)

Children who are not tall enough for their age

45.5 55.5 (Uttar Pradesh)

18.1 (Goa)

Women with BMI less than 18.5 kg./m2

35.8 48.0 (Orissa)

10.7 (Arunachal Pradesh)

Source: National Human Development Report, 2001, Planning Commission.

We have considered several measures of poverty and estimates of the levels of poverty based on these. One set of measures is income based. The most important among these is the poverty ratio, which gives the incidence of poverty with reference to the (lack of the) purchasing power required to afford the minimum desirable standard of calorie consumption. Another set attempts to capture the extent of deprivation that the poor suffer in the matter of access to food, safe drinking water, sanitation, medical attention, shelter, education and health and nutrition to ensure longevity. The third consists of those that measure levels of human development in the population, as this is one of the important instruments for tackling poverty. A part of this set is also the one that looks at gender disparity in human development. The fourth is based on the lack of the capability to attain a specified minimum desirable standard of living. And we find that the inability to access the basic needs of living and the low levels of human development and capability usually form part of a vicious circle. Only a development policy that is capable of cutting this vicious circle can effectively solve the problem of poverty.

Let us now turn our attention to the problem of inequality.


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1) What is hunger ratio?

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

2) Describe the trends with reference to incidence of poverty.

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

3) What is the incidence of poverty among scheduled castes and tribes?

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

4.5 CONCEPT OF INEQUALITY While the concept of poverty is rooted in the “lack of access” or “a low level of access” to food, nutrition, shelter, education and other services, inequality is related to “unequal access” or “different degrees of access” of different individuals or groups of individuals to these opportunities, services and benefits. Inequality is, thus, a more general concept than poverty. It looks at the relative levels of access of different groups to development opportunities and benefits. The “different levels of access” in the concept of inequality also include the low level of access below which people are considered poor. In fact, the low level of access or the limit (like for example, the calorie limit for consumption) that may be set for defining poverty will itself include a number of lower levels of access.

4. 6 MEASUREMENT OF INEQUALITY 4.6.1 Measures of Inequality of Income a) Lorenz Curve

The most simple way to represent inequalities is called the Lorenz Curve. To draw a Lorenz Curve, we take the cumulative percentages of the population and their corresponding shares in the total income of all individuals. On x-axis, we represent shares in population and on y-axis the corresponding shares in total income. The resultant graph called the Lorenz Curve (LC).


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Lorenz Curves on Consumer Expenditure - Rural and Urban India: 1999-00

Lorenz Curve: 1999-00

0

20

40

60

80

100

120

0 10 20 30 40 50 60 70 80 90 100

Population Shares

Sha

re o

f Con

sum

ptio

n

eg.LineU

R

We notice that the points of the curve corresponding to “eg. Line” in the figure lie on a straight line from the origin in the southwest corner of the graph and moving to the northeast corner. The percentages of population and the corresponding shares of these groups in total income are equal at any point on this line. This straight line, therefore, represents the line of complete equality or the egalitarian line. The graph representing the actual shares, however, appears as a loop joining the two corners of the graph and lying below this line of equality. The extent to which the loop deviates from the line of equality represents the extent of inequality. The situation of extreme inequality is given by the X-axis from the origin to the point representing 100 per cent on the X-axis and the perpendicular line joining the 100 per cent point on the X-axis and the (last) point on the northeast corner of the line of equality corresponding to this point. This is the situation where all the incomes generated in the economy accrue to one individual. The Lorenz Ratio of Inequality or the Lorenz Concentration Ratio (LCR) is given by the ratio. (area enclosed by the line of equality and the LC) LCR = (area of the right angled triangle formed by the X-axis, the line of equality

and the perpendicular line standing on the X-axis at the 100 per cent point)

This can be arrived at by computing the area enclosed by LC, the X-axis and the perpendicular line referred to earlier and subtracting it from the area of the right angled triangle. The required ratio is then easily calculated.

A comparison of the extent of inequalities (of income) between two economies or the trends in the degree of inequality in an economy over time is possible with the Lorenz Curve. Let us draw two such LCs, say for the rural and urban areas of India. Let one Lorenz Curve, say the curve for the rural areas lie completely within the other (the urban curve) all through the range of values. (This is the case in the LCs drawn as an illustration – see Graph). That is, one LC dominates the other. This is called Lorenz domination. Clearly, the inequality in the society corresponding to the curve nearer to the line of equality is less severe than the inequality in the society corresponding to the outer curve. Problems of comparison, however, arise when the two (or more) Lorenz Curves intersect, when it is not possible to arrive at a conclusion regarding which curve depicts a worse inequality situation than the other.


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Summary measures of inequality will be useful in such cases. To these we turn now.

b) Summary Measures of Inequality

The measures given below are ratios and, therefore, dimensionless, that is, free of scale. These measure relative inequality in distribution, that is, these will not be affected by any proportional change in all incomes.

Let the incomes of P individuals in a society be Y1, Y2, ………. Yi, ….., YP, where Yi is the income of the ‘i’ th individual in the population. The mean income (M) of all the individuals will be M = (∑ Yi) ÷ P. The mean income M does not tell us anything about the extent of inequality in incomes in this society. Let us then look at other measures that can help us in this regard. Let the individuals be arranged in the increasing order of their incomes. The Median Income Me is the income of the middlemost person in the ranking of individuals in the increasing order of their incomes, that is,

Me = Y(P + 1)/2 , if Yk is the income of the individual whose rank is ‘k’.

Me shows that the incomes of one-half of the population are below it. This is otherwise not a useful measure of inequality: it does not reduce to zero in the case of equality of all incomes.

1) Range of the incomes R = the difference between the highest individual income and the lowest individual income divided by the mean income M, that is,

R = (Maximum of Yi – Minimum of Yi)/M.

R is zero when all incomes are equal and is equal to P when all the incomes accrue to a single person.

2) Relative Mean Deviation RMD = (1/PM) (∑ ⏐Yi – M⏐),

where⏐x⏐stands for the absolute value of x (see footnote)1 and M the mean income.

3) Gini Ratio (GR) is defined as one half of the relative mean difference.2 Thus,

GR = (∑∑ ⏐Yi - Yj⏐) ÷ (2 P × P × M),

where the summation is done first with reference to j = 1, 2, ....P and then

with reference to i = 1, 2, ……..P.3

GR can also be expressed as follows:

GR = 1 + (1/P) – 2 × [PY1 + (P – 1) Y2 + …… + 2 YP-1 + YP]/(P × P × M)

where Y1 ≤ Y2 ≤ …………… ≤ YP.4 (Individual incomes arranged

according to increasing order of income)

1 For example⏐( - ) 3⏐= 3. 2 Mean difference is the arithmetic mean of the absolute differences between all pairs of incomes (P × P pairs) and is divided by M to get the relative mean difference. It is equal to (∑∑⏐Yi – Yj⏐)/(P × P × M). 3 For example, ∑∑Yi Yj for i= 1, 2 and j = 1, 2 will be Y1 Y1 + Y1 Y2 + Y2 Y1 + Y2 Y2. 4 ≤ less than or equal to.


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The alternative formula shows that GR involves a weighted sum of the incomes of individuals where the weights are the ranks of individuals when they are arranged in the increasing order of their incomes; but the poorest individual gets the biggest weight P, the next individual who is better off than the first gets the weight (P – 1) and so on and finally, the richest individual gets the weight one.

Other ratio measures can also be used. The distribution of income derived in the manner described under the section on Lorenz Curve can be used to compute simple ratio measures of inequality. For instance, we can compare the shares in total income of the richest (top) 10 per cent of the population and the poorest (bottom) 10 per cent of the population (Decile Ratio). Or we might look at the ratio of the share in total income of the top half (50 per cent of the population) of the income distribution to that of the bottom half.

Clearly, the measures mentioned above will give different values for a given distribution of income. The important question to be considered is whether these measures would rank different distributions of income in the same way in terms of distributional inequality. These measures would give the same ranking for, say, two distributions of income when there is Lorenz domination, that is, where the two corresponding Lorenz curves are such that one lies completely within the other. In cases, where the two curves intersect, the choice of a suitable ratio has to be based on further considerations. For example, a small transfer of income from a rich person to a person poorer than him should be expected to result in a reduction in the inequality measure. This property is known as the Pigou-Dalton effect. How sensitive are the measures mentioned above to this effect?

4.6.2 Indicators Covering Inequality in Non-income Aspects of Life

Quality of life, as we noted earlier, has dimensions other than income, like access to basic needs such as shelter, safe drinking water and services like sanitation, electricity, education and health and employment opportunities. An assessment of the varying degrees of access of different individuals or households to one or more of these services and facilities is one way of analysing such inequalities. Another is to attempt a similar assessment of how the level of access to these services and facilities differ between and among population groups like males and females, the rural folk and urban residents, different areas like the various States, Union Territories and other administrative divisions, the remote, the hilly and the backward areas, the socially challenged groups like the Scheduled Castes/Tribes and the physically challenged. The inclusion of the first population group and the last two population groups in this list has to be specifically emphasised since the most important social dimensions that need to be built into analysis of inequality in levels of living are gender and social and physical disability. Discrimination based on these has to do with social and cultural attitudes and biases and these have to be dealt with through empowerment of the groups concerned and through efforts to change the social mindset. A third is to attempt, if possible, the first and the second type of analysis by income/consumption expenditure classes. This would, in a way, integrate the analysis of income inequality attempted in an earlier section with the larger area of levels of quality of life.


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The GDI and its component indices considered in an earlier section are all indicators depicting gender inequality. The HDIs, GDIs and their component indices are available for different States and Union Territories and in some States at the district level also and can help analyse spatial inequality, that is, inequality among areas. This will help building location-specific needs into policy and policy implementation. The component indices of HDI and GDI are more specific and their availability for different vulnerable groups like the Scheduled Castes/Tribes, rural areas and women would help identifying problems needing attention. One can also compute these indicators for different income classes, areas and social classes to get an even better focus for policy action. It is possible for example to compile the distribution of school attendance, literacy, skills etc., by monthly per capita consumer expenditure classes (MPCE classes) from NSSO consumer expenditure surveys. Such a distribution by MPCE classes can also be extracted for the Scheduled Castes/Tribes and for women from these surveys. Lorenz curve/GR analysis can also be attempted for non-income aspects of quality of life. For example, quality attributes like proportion of educated persons (matriculates and above) to population in each income class can be analysed in the same way as income by income classes as in the preceding section (See the example worked out in the next section). Employment shares by income classes can be examined in a similar fashion.

4.7 LEVELS OF INEQUALITY

4.7.1 Levels of Inequality in Income and Consumption

Let us look at levels of inequality in income or consumption. Consumer expenditure of households is a good proxy for income, at least in the lower classes. A study of inequalities in levels of consumption will by itself be useful in an economy where agriculture, the unorganised sector, payment of wages in kind and the non-monetised sector still play an important role. Such an analysis will be able to pinpoint attention on specific areas of concern in the consumption pyramid. Let us, therefore, turn to levels of inequality in consumption.

Table 4.7: Inequality in Consumption: 1983 to 1999-00

1983 1993-94 1999-00 Sl. No. Inequality Measure Rural Urban Rural Urban Rural Urban 1. Share (%) in total

consumption of the

(a) Bottom 10% of pop. 3.80 3.47 4.34 3.37 4.58 3.48 (b) Top 10% of pop. 24.64 27.43 23.59 27.70 22.60 27.88 (c) Ratio of (b) to (a) 6.48 7.90 5.44 8.22 4.93 8.01 (d) Bottom 20% of pop. 9.03 8.19 10.01 8.01 10.32 7.85 (e) Top 20% of pop. 39.23 42.28 37.49 42.80 36.57 43.08 (f) Ratio of (e) to (d) 4.34 5.16 3.74 5.34 3.54 5.49 (g) Bottom half of pop. 30.14 27.72 31.92 27.20 32.56 26.79 (h) Top half of population 69.86 72.28 68.08 72.80 67.44 73.21 (i) Ratio of (h) to (g) 3.32 2.61 2.13 2.68 2.07 2.73

2. Gini Ratio 0.298 0.330 0.282 0.340 0.258 0.341

Sources: National Human Development Report, 2001, Planning Commission.


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The household consumer expenditure surveys of the NSSO provide us with trends in levels of consumption of expenditure in the population by monthly per capita consumer expenditure (MPCE) classes. Estimates of the different measures of inequality made from the data collected in these surveys are shown in Table 4.7.

A comparison of the share of the bottom 10 per cent (or 20 per cent or 50 per cent) of the population in total consumption with that of the top 10 per cent (or 20 per cent or 50 per cent) of the population brings out dramatically the extent of inequality in consumption. The inequality situation is worse in urban areas than in rural areas. This is so in all States and Union Territories. Inequality in consumption is declining, albeit slowly, in rural areas according to all measures of inequality. On the other hand, urban inequality shows no sign of any decline.

Regional Variations

Gini Ratios calculated for the rural and urban areas of different States and Union Territories are shown grouped by ranges of values of their Gini Ratios in 1999-00 in Table 4.8. Inequality in consumption levels is worse than in the rest of the country (GR greater than 0.3) in urban areas of all the four Southern States and adjoining Maharashtra and in urban areas of the region extending from Chandigarh to West Bengal and urban Assam. These are also areas where incidence of (urban) unemployment is high. Arunachal Pradesh, Dadra & Nagar Haveli, Pondicherry, the urban areas of the region extending from Gujarat to Himachal Pradesh, Goa, Orissa and Sikkim and rural areas of Tamil Nadu, Kerala and Maharashtra are only slightly better off in this regard, with a GR of 0.25 to 0.30.

Table 4.8: Gini Ratios of States and Union Territories – 1999-00

Range of Value of Gini Ratio

Rural Urban

(1) (2) (3) More than 0.3 Nil Assam,West Bengal, Bihar,

UttarPradesh, Madhya Pradesh, Delhi, Chandigarh, Maharashtra, Andhra Pradesh, Tamil Nadu, Karnataka, Kerala

0.25 to 0.30 Arunachal Pradesh, Chandigarh, Maharashtra, Dadra & Nagar Haveli, Tamil Nadu, Pondicherry, Kerala

Arunachal Pradesh, Tripura, Sikkim, Orissa, Himachal Pradesh, Punjab, Haryana, Rajasthan, Dadra & Nagar Haveli, Gujarat, Goa, Pondicherry

0.20 to 0.25 Assam, Sikkim, West Bengal, Orissa, Bihar, Uttar Pradesh, Madhya Pradesh, Punjab, Himachal Pradesh, Haryana, Rajasthan, Daman & Diu, Gujarat, Goa, Karnataka, Andhra Pradesh, A & N Islands

Meghalaya, Manipur, Nagaland, Mizoram, Jammu & Kashmir, Daman & Diu, A & N Islands, Lakshadweep

0.149 to 0.2 Tripura, Manipur, Meghalaya, Nagaland, Mizoram, Delhi, Jammu & Kashmir, Lakshadweep

Nil

Source: Gini Ratios are from the National Human Development Report, 2001 of the Planning Commission.

Let us now turn to inequality in aspects of life other than income.


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4.7.2 Levels of Inequality in Non-Income Aspects of Life We look at levels of inequality in the matter of access to certain basic needs like employment, education, health and shelter, adopting one or more of the three approaches to assessing the inequality situation, listed in Sub-section 4.6.2.

a) Employment

As brought out by the 55th Round of the NSSO, the quality of employment of those in the bottom 25 per cent of the population group in terms of whatever parameter we may choose to specify leaves much to be desired. Their share in regular wage/salaried employment is only 11 per cent and in casual labour, it is about one-third in rural areas and, roughly, one-half in urban areas. Most of the employment opportunities that come their way are low paid, insecure, intermittent opportunities – casual labour or self-employment. The levels of their earnings are obviously too low as the combined earnings of one or more such employed individuals in a household are hardly sufficient to raise the per capita monthly consumption level of the household to Rs. 300/- in rural areas and Rs. 425/- in urban areas at 1999-2000 price levels. The NSSO notes that there is sharp increase in the proportion of regular wage/salaried workers and the sharp decrease in the proportion of casual labour, especially in urban areas, as we move from the bottom one-fourth of the population to the rest of the population.

b) Other Aspects

The rural-urban divide and the social divide in the matter of quality of housing, education, health, shelter and other related aspects and facilities are indeed striking. Regional variations abound but the picture of divide is common everywhere.

4.8 POLICY IMPLICATIONS

What are the policy implications of the prevailing levels of inequality and poverty? Let us examine.

a) Structure of GDP Growth

The overall growth of GDP of an economy can be expressed in terms of the growth of GDP of the income classes. Let there be three income classes, the bottom 30 per cent of the population, the middle 40 per cent of the population and the top 30 per cent of the population. Let the rates of growth of overall GDP and GDP of the three income classes be r, r1, r2, and r3 respectively and the shares of the three classes in total GDP in the initial year be y1, y2 and y3 respectively. It can be shown that:

r = y1 r1 + y2 r2 + y3 r3

This is true of consumption also. If the income of each of the classes grows at the same rate during a period of time, overall GDP will also grow at the same rate. Further, the income shares of the income classes in total GDP at the end of that period will also remain the same as in the initial period. The income share of any income class will be higher than in the initial period only if the rate of growth of income in that class is higher than the overall rate of growth. However, the shares of all classes cannot increase simultaneously; some will increase while others will decrease. Thus, the share of the bottom 30 per cent class may increase while those of the other two classes may decrease. In such a case, income inequality will also come down. A development strategy that


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aims at reduction in income inequality would include steps to ensure that the rate of growth of income in the bottom 30 per cent of the population is significantly higher than the rate of growth of overall GDP so that its share of GDP goes up.

Alternative exercises with the Plan model carried out while formulating the Fifth Five Year Plan, for instance, postulated that by way of reduction in the inequality in expenditure distribution the rate of growth of consumption in the bottom few deciles of the population would be much higher than the growth rate of aggregate consumption during the Plan period. The subsequent Five Year Plans included specific targets of reduction in the poverty ratio in the relevant target years generally on the basis of a similar analysis. The Plans naturally, therefore, included policies and programmes designed to achieve these targets as also for realising objectives in non-income aspects of poverty and inequality like, for example, improvement of urban slums – shelter and basic services for the urban poor.

Notwithstanding these and the overall rates of growth of GDP as also the considerable sectoral diversification of GDP achieved over the last five decades, there have been shortfalls in the realisation of such targets. Indicators of non-income dimensions of poverty and levels of inequality in non–income aspects of life show that quality of life is far from satisfactory not only for the poor but also for sizable sections of society above the poverty line. We may not be in a position to give a complete policy prescription in this Unit. However, we shall highlight some problems and policy issues in areas relevant to this Unit.

The first is, of course, the restructuring of GDP growth in favour of the bottom three or four deciles so that the shares of these deciles in total GDP rises substantially as early as possible. Besides reorienting the structure of the production in line with this objective, action is called for in a number of other fronts. Some are dealt with below.

b) Employment

i) Employment Orientation of GDP Growth

The rate of growth of employment has lagged behind the rate of growth of the labour force during the 1980s and the 1990s and as a result, unemployment has increased, from 20 million in 1994 to 27 million in 2000. The rising rate of growth of the economy during the period 1994-2000 (6.7 per cent per annum on the average) has hardly helped in generating employment, as the employment intensity of GDP growth has declined substantially during the 1990s. Growth of GDP by one per cent during the period 1983-94 resulted in employment growth of one half of one per cent. During the period 1994-2000, however, the growth of GDP by one per cent led to employment growth of only about one-sixth of one per cent. It is, therefore, necessary to ensure that the structure of GDP growth should become more employment oriented than before. Globalisation facilitates easier access than before to the latest technology and international capital. These should be accessed only if the implications of such a step for employment in the short run as well as in the long run are clearly seen to be favourable. Quality of employment [see the sub-section 4.7.2 (a)] should be raised through: (a) stricter enforcement of labour laws relating to minimum wages and social protection to workers and (b) provision of loans and technical and marketing support to the self-employed.


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ii) Poverty Alleviation Programmes and Employment Schemes

Poverty alleviation programmes and a variety of employment and self-employment promotion programmes for the non-poor have been implemented for about 25 years now. The impact of these programmes on poverty and unemployment and, therefore, on inequalities has not been as much as expected. The factors responsible for such a state of affairs have to be tackled. Personnel implementing the programmes, especially at the grass-roots level, have to be trained properly. The routine approach being adopted by the official machinery to the implementation of the programmes, much to the detriment of their objectives, has to be changed, attitudinal changes in it have to brought about and it should be suitably reoriented to serve the goal of poverty reduction. Other impediments to the programmes which need to be dealt with firmly are: (a) the nexus between the official machinery and the rich and the powerful that runs counter to the interests of the poor, (b) corruption, and (c) the lack of a proactive cooperation from agencies whose inputs are crucial to the success of the programmes. The involvement of Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs) is important for better implementation of the programmes but these bodies are currently not endowed with the necessary powers and administrative support. PRIs and ULBs should, therefore, be strengthened in this regard and involved in the implementation of these programmes. The credit system is somewhat reluctant to provide credit to the poor and the unemployed or the self employed in view of their past experience with such lending programmes and a trustworthy linkage has to be built up between that system and the beneficiaries of the new set of programmes.

The processes of identification of the poor that are liable to be adversely affected by factors like: (a) the way the society is organised, (b) the lack of voice for the poor and (c) corruption, (d) lax implementation of programmes on the ground, (e) use of contractors despite instructions to the contrary, and (f) failure to utilise funds and other resources allocated for the programmes, lead to leakages in the programmes. These can be prevented only through: (i) a tightening up of the monitoring of programme implementation, (ii) organisation of the poor through social mobilisation and awareness creation in collaboration with NGOs who have successfully done such work, (iii) rooting out corruption and (iv) bringing about transparency in programme implementation. Finally, it is necessary to take a total view of poverty and reorient the planning process suitably to strike at the root causes of poverty. Most of these steps apply equally well to the problem of generation of productive employment opportunities on a scale sufficient to liquidate unemployment and underemployment.

iii) The National Rural Employment Guarantee Act, 2005

A debate on the question of making the Right to Work a Fundamental Right enshrined in the Constitution and the need for a national employment guarantee scheme had been going on in the country for a long time. At last, things have moved towards this goal. The National Advisory Council (NAC) prepared a draft Employment Guarantee Act (EGA) and based on the draft, Government came out with the National Rural Employment Guarantee Bill. The same has been passed by the Parliament and has become the Act i.e., The National Rural Employment Guarantee Act, 2005. This Act provides the enhancement of livelihood security of the households in rural areas of the country by providing at least one hundred days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work.


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All households are eligible to seek to perform casual manual work at the wage rate prescribed under section 6 of the Act. The Act would be extended to the entire country in five years. Transparency in the implementation of the Act is to be ensured through making available the muster rolls and other records for public scrutiny free of cost or at cost price. The Act would help in protecting the rural households from poverty and hunger; it will effectively check rural-urban migration; it will be a major source of employment for women giving them some economic independence; it will create useful assets in rural areas; it will change the power equations in rural society; it will foster a more equitable social order; and it is an opportunity to activate and empower the PRIs, including gram panchayats and gram sabhas.

c) Education

Education has expanded but school dropout rate at every stage of education is high. Schools without teachers, without proper infrastructure and absolutely basic teaching aids like maps and dust-free chalk in rural areas and the opportunity cost of going to school are some of the reasons that are responsible for such levels of dropouts. The provision of mid-day meals to school-children has improved the situation in States like Tamil Nadu where this was introduced long back. The situation is bound to improve in other States where this has been introduced recently. However, the implementation of this programme also needs to be monitored well and the points relating to leakages and other aspects mentioned in respect of poverty alleviation programmes apply to this programme too. The mid-day meals programme ensures that children do not drop out of the education system, their nutrition status improves and facilitates social cohesion of children. Their capacity to learn will also be enhanced since none can absorb any knowledge on an empty stomach.

The quality of education needs to be improved considerably if education has to facilitate access to productive employment. Further, regional, area and group-wise differences in quality will only convert education into an instrument for deepening inequalities from being an instrument for reducing inequality. An NGO has estimated that out of every 100 village girls enrolling in class I, just one survives in the system to reach class XII. Besides the question: (a) affordability and (b) the struggle against social attitudes, it is also an indicator of the difficulties of getting through the public examinations at the tenth and twelth classes with the kind of education imparted by rural schools insufficiently equipped to meet the standards required for these examinations. This leads to a quality divide between rural schools and insufficiently equipped urban schools on the one hand and the other well-equipped schools on the other. Equipping Government schools in rural and urban areas will call for massive investments. But if India can meet global standards in civil aviation, software and defence, it can certainly do so in providing for educating its children. In other words, it is a question of the right social priorities and also for sowing the seeds for sustained future growth at the right time.

d) Health

The percentage of GDP spent on public health in India (0.9 per cent) is lower than almost any other country and this includes those of similar income levels. Even the public health delivery system that this level of investment supports is neglected. Monitoring of performance is either non-existent or defective. Absenteeism among doctors is high. The proportion of doctors who try to recommend that patients should go and see them at their private clinics is very


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high. The public sector medical system does not offer diagnostic tests even for basic illnesses. Government does not in any way help patients in identifying who is a doctor and who is a quack. The result is that people are driven to private doctors for diagnostics and treatment and often get medical treatment from quacks, unable to rid themselves of their illnesses but get economically ruined in the process of finding a cure for their illnesses, despite the existence of a public health care system. For the urban poor and the not so poor, it is a story of waiting in long queues, indifferent medical attention and payment of bribes to doctors, nurses and other employees of the clinics and hospitals to get attended to.

What are the policy initiatives needed? First, the provision of basic health care to all should be the primary responsibility of the public sector and the specialised services that the rich need should be provided by the private sector. Basic health care and medical attention is not an area of privatisation. The present high share of the private sector in rural health care – a major deficiency of the Indian health system – has to come down drastically. Second, an effective monitoring system for the delivery of public health care should be put in place. Third, a system of weeding out quackery should be evolved and established. Lastly, investment in public health care should be raised substantially so that all the above reforms are implemented together as a package.

e) Shelter

As for shelter, a workable housing policy for the urban poor is conspicuous by its absence. Instead demolitions of slums or the so-called unauthorised shelters or encroachments in vacant land have become a substitute for a housing policy. Cities attract migrants from rural areas and, in the absence of a policy for housing the working class or the poor, these migrants occupy vacant land, pavements, water pipes and empty strips of railway land over time. Wherever possible, they build their shelters investing their time and labour and also whatever meagre resources they may have. Resort to demolitions without any alternative plan to resettle such people is hardly a policy. And such an option destroys, in one fell stroke, the entire investment made by the poor on their shelters. Efforts or plans to improve cities to bring them to international standards without any plan to think about housing the poor, who make up a substantial proportion of the city’s population and who provide a variety of services to the better off residents in the metropolis, will hardly measure up to the minimum standards of a social policy anchored on the common man. This is another area where Government should get its social priorities right.

f) General

As would be seen from the foregoing paragraphs, the key point is that the right social priorities – the interests of the common man and the social situation – should be the guide in matters like growth strategy, allocation of resources among sectors and within sectors and programmes, legislation, choice of sectors for privatisation, choice of projects like EGA, strengthening of rural school, components of development projects like development of cities and so on. A well organised monitoring system of projects and programmes and transparency in their implementation should be built into the programmes. All the points made in respect of the poverty alleviation programmes need to be stressed in respect of all the programmes providing social sector services. It is in the tenacity with which development policy holds on to the social priorities dictated by the social situation that the hope of


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a better future for the poor and the dispossessed lies, especially in a socioeconomic and political and cultural environment that generates pressures against the adoption of such policies.




1) Under which situation summary measures of inequality are useful over Lorenz Curve in the measurement of inequality?

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

2) State the indicators of inequality in non-income aspects of life.

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

3) Do you think that right kind of social priorities should be the guiding force in the poverty alleviation strategy? Give reasons in support of your answer.

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

……………………………………………………………………………

4.9 LET US SUM UP

We have seen that poverty is the state of lack of access or low access to basic needs of food, fuel, shelter, health etc. Inequality is a larger concept – it concerns itself with the relative levels of access of individuals to basic needs and opportunities and benefits from development.

Poverty is generally measured by the poverty ratio. This is based on a minimum desirable consumption standard. This standard is based on income or its proxy, the household consumption expenditure. Poverty, however, has several dimensions and, therefore, composite income and non-income indicators of poverty assume importance in assessing the nature and levels of poverty.

We found that the incidence of poverty has come down over the 1970s and the 1980s, though the number of the poor remained at about 320 million. Both the incidence of poverty and the number of people below the poverty line have come down during the period 1994 to 2000. Some indicators show that the depth and severity of poverty have also come down in the 1990s.

Inequality is analysed with the help of the Lorenz Curve which gives a visual presentation of the extent of inequality – the extent to which the actual levels of income or consumption deviate from the egalitarian line or the line of


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complete equality. The Gini Ratio is the most commonly used summary measure of inequality and can be used to compare inequality situations over time, areas and population groups.

The inequality in levels of consumption situation is worse in urban areas than in rural areas. This is so across States and Union Territories. Inequality in consumption is declining slowly in rural areas according to all measures of inequality but urban inequality shows no sign of any decline.

Restructuring GDP growth in favour of the bottom three or four deciles is important so that their share of total GDP rises substantially as early as possible. This calls for action on a number of fronts. Employment orientation of growth, streamlining of poverty alleviation programmes and employment promotion programmes (which have been affected adversely by many factors ranging from lax implementation to intervention from the rural power elite), implementation of an Employment Guarantee Act in all areas covering all adults seeking casual manual work, efficient implementation of the mid-day meals programme across the country, strengthening and raising the quality of rural schools and urban schools similarly placed, streamlining the public health care delivery system to provide basic health care including diagnostic services to all and the monitoring of the system, rooting out quackery, and evolving a workable housing policy for the urban poor are some essential elements of a development policy for tackling poverty and inequality.

4.10 EXERCISES

1) What do you mean by poverty? Explain the indicators that cover income and non-income dimensions of poverty.

2) What do you mean by inequality? How are the inequalities of income measured in an economy? Also state the different indicators that cover inequality in non-income aspects of life.

3) Examine the policy implications of widespread poverty and inequality in the Indian economy.

4) “The quality of life in India is far from satisfactory.” Comment.

5) Do you think that delivery of poverty alleviation programmes has not been effective? How can it be made more effective?

4.11 KEY WORDS Human Development: It is a process of enlarging people’s choices as well as raising the level of their well-being. For example, the three most critical and socially valuable choices are: (i) the choice to lead a long and healthy life; (ii) the choice to acquire knowledge and be educated; and (iii) to have access to the resources needed for a decent level of living.

Poverty Gap Index: It is calculated as the total shortfall of consumption below the poverty line, divided by the total population. This per capita shortfall in consumption below the poverty line is then expressed as a percentage of the poverty line. It can also be calculated as follows:

(Poverty line – Per capita consumption of the poor)PG Index Poverty Ratio 100Poverty line

= × ×

Poverty Line: Putting a price on the minimum required consumption levels of food, fuel, clothing shelter and health care etc., that is, the purchasing power


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required to acquire the minimum required consumption levels of food etc. This is expressed as so many rupees per capita per month.

Poverty Line Earnings: These are the earnings per day which will enable the worker and his dependents to reach the consumption level equal to the poverty line consumption level. It is assumed that on an average a worker has to support 2 dependents. It is also assumed that wages for 26 days in a month include wages for the four rest days in a month also.

Poverty Ratio: Poverty ratio is a measure of poverty. It is also called Head Count Ratio (HCR). It measures incidence of poverty and is used for comparing the poverty situation in two areas or two regions or two periods of time etc. It is expressed as a percentage and is defined as:

number of people below poverty lineIncidenceof Poverty PR HCR 100total population

= = = ×

Working Poor: Persons who are employed but who receive wages that are too low to enable him/her and his dependents to raise their level of consumption to the minimum desired standard level specified by the poverty line.

4.12 SOME USEFUL BOOKS Bhaduri, Amit (2004); Guaranteeing Employment, The Hindu, Chennai Edition, 27th December, 2004.

Dev, Mahendra (1996); Paper: Social Security for Indian Workers – Performance and Issues, Published in the Indian Journal of Labour Economics, Vol. 39, No. 4, October – December, 1996.

Dreze, Jean (2004); Employment As a Social Responsibility, The Hindu, Chennai Edition, 22nd November, 2004.

————, (2004); Unemployment Guarantee, The Hindu, Chennai Edition, 31st December, 2004.

Goverment of India (1993); Report of the Expert Group on Estimation of Proportion and Number of Poor, Perspective Planning Division, Planning Commission, New Delhi.

Kumar, Krishna (2005); Schooling in Rural India, The Hindu, Chennai Edition, 11th January, 2005.

————, (2002); Tenth Five Year Plan (2002-07), Volumes I & II, Planning Commission, New Delhi.

————, (2002); National Human Development Report 2001, Planning Commission, New Delhi.

Meier, Gerald M. (1990); Leading issues in Economic Development, Oxford University Press, Delhi.

Sainath, P. Everybody Loves a Good Drought: Stories from India’s Poorest Districts, Penguin Books India (P) Ltd., New Delhi – 17.

Sita Prabhu, K. (2001); Economic Reform and Social Sector Development: A Study of Two Indian States, Strategies for Human Development in India – Vol. 3, Sage Publications, New Delhi.


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United Nations Development Programme (UNDP), Human Development Report 2003, Millenium Development Goals: A Compact among Nations to End Poverty. UNDP, New York, USA.

The reports/documents of the Planning Commission referred to above can be accessed in the Planning Commission website http://www. planningcommission.nic.in. Human Development Reports of the UNDP for different years can be accessed in the Human Development Report Office website http://hdr.undp.org



1) The PG index is helpful in working out the shortful of consumption below the poverty line. It will indicate the magnitude of the effort that would be required to raise the consumption level of all the persons below the poverty line to the consumption level of the poverty line.

2) Human Poverty Index and Human Development Index

3) i) Human Development Index:

Longevity, Knowledge and Decent Living.

ii) Human Poverty Index:

a) Proportion of population not expected to survive beyond 40 years

b) Adult literacy rate

c) Access to improve water source

d) Percentage of underweight children.

4) i) Percentage of children under 5 years of age below are underweight

ii) Percentage of unattended births iii) Percentage of illiterate women aged 15 years.


1) The hunger ratio refers to proportion of the persons to the total population who do not have access to food.

2) The incidence of poverty has declined persistently since 1973-74. In 1999-2000, a little over one-fourth of the population of this country are poor.

3) The incidence of poverty among scheduled castes and scheduled tribes has declined although it is still very high.


1) In a situation when two Lorenz Curve intersect each other and it is difficult to state which curve depicts a worse inequality situation, summary measures of inequality are useful.

2) Gender Development Index (GDI) and Human Development Index (HDI).

3) Yes, for details see section 4.8.

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UNIT 5 EMPLOYMENT AND UNEMPLOYMENT: POLICY IMPLICATIONS

Structure

5.0 Objectives 5.1 Introduction 5.2 Enumeration of Workers 5.3 Dimensions of Unemployment 5.4 Growth of Employment Opportunities 5.5 Quality of Employment 5.6 The Task Force and Special Group on Targeting Ten Million

Employment Opportunities Per Year 5.7 Tenth Five Year Plan and Employment Policy

5.7.1 Employment Policy in the Tenth Plan 5.7.2 Evaluation of the Employment Policy

5.8 Towards an Agenda for Employment Policy Framework 5.9 Let Us Sum Up 5.10 Exercises 5.11 Key Words 5.12 Some Useful Books 5.13 Answers or Hints to Check Your Progress Exercises

5.0 OBJECTIVES This unit will enable you to:

• know the various concepts used in the measurement of employment and unemployment by NSSO;

• explain the various dimensions of employment and unemployment in India;

• examine the growth of employment in post-reform period; • assess the quality of employment; • state the major recommendations of Task force and special group set up

by Planning Commission on employment generation; and • suggest various measures towards employment policy framework.

5.1 INTRODUCTION Engagement of a person in any economic activity is central to the concept of identifying a worker. A worker is one who participates in any economic activity. His or her human capital endowment is utilised by the society (or the economy) and in the process, he or she earns a living. All workers constitute the workforce or the employed.

Those who are not workers are called non-workers. Some among the non-workers may be seeking or looking for work or are available for work. Such persons constitute the unemployed. The workforce and the unemployed together make up the labour force. The entire population of any area, region or country is, thus, made up of three components; the workforce (the


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employed), the unemployed and the non-workers. The third component is also referred to, for obvious reasons, as the population which is not a part of the labour force. The first is engaged in economic activity and produces the national product, the second is available for being engaged in such activity but the economy is unable to utilise it and the third is not available for utilisation in economic activity. Schematically, workforce can be illustrated as follows:

Population

Labour Force Out of the Labour Force They are not available Workforce The unemployed for utilisation in (the employed) economic activity

Economy is unable to utilise them

Utilised by the economy for generating the National Product

How are the workers or the employed and the other two categories of people in a given area – a region or a country, say, India – identified and enumerated? How are the workforce and the labour force measured? We shall answer these questions in the next section.

5.2 ENUMERATION OF WORKERS Now, let us discuss about the sources of data in India on workers. In India, two main organisations which generate and compile data on workers are the National Sample Survey Organisation (NSSO) and Office of the Registrar General of Census. These two organisations generate quite a substantial data on the workers, employment and unemployment etc. on regular intervals for the entire country. Within these two sources, NSSO provides more data on employment and unemployment.

For understanding and studying the data given in National Sample Survey (NSS) Rounds, it is important to be well aware of the concepts that are used in these data collection exercises. First of all, NSSO uses the concept of ‘Usual Principal Status’ (UPS) as a time reference period for identifying workers. In more general terms, NSSO uses three reference periods to describe the activity status of a worker. These reference periods are—a year, a week and a day.

• The UPS identifies these reference periods of workers’ activity status. More generally NSSO adopts a year as a reference period to identify the UPS status of workers. Taking a year as a reference period, NSSO identifies people as employed, unemployed or out of labour force. Thus, on the basis of UPS of people, a person is known to be employed if he or she was engaged in an economic activity for a longer period of time (183 days or more) in 365 days. In the similar fashion, a person is known to be unemployed if that person is available for work but is not engaged in any economic activity.

• ‘Subsidiary Status’ – A ‘subsidiary status worker’ is that worker who was engaged in an economic activity in a subsidiary capacity during the

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reference period. The UPS employed and the subsidiary status workers together make single group of employed in the economy.

The reference periods (i.e. a year, a week and a day) are basically used to describe the period for which the workers are employed in the economy. These periods also help in identifying the nature and extent of unemployment in the economy. For example, NSSO uses the ‘Current Weekly Status’ (CWS) and ‘Current Daily Status’ (CDS) of the workers to elaborate the estimates of employment in an average week and an average day respectively.

The CDS criterion, thus, gives the estimate of the extent of underutilisation of the labour force in terms of person-days. In other words, the CDS estimate of unemployment is the most inclusive measure of unemployment made up of open unemployment and visible underemployment. In fact, the difference between the unemployment rates given by CDS criterion and CWS criterion gives the rate of visible underemployment.

The estimate of unemployed person-days given by the CDS criterion divided by 7 can also be interpreted as the estimate of the number of persons unemployed on an average day.

Similarly, these approaches lead to estimates of UPS employment, UPSS employment, CWS employment and CDS employment. The estimate of UPS employment represents the number of persons who are employed for a relatively longer period of time during the reference year, or those who have stable employment. The UPSS criterion adds an additional group of persons to the UPS employed. These are UPS non-workers who have done intermittent work as a subsidiary activity during the reference year. CWS employment refers to those who are employed for at least an hour during the reference week or the number employed in an average week. CDS employment measures the rate of utilisation of the labour force in terms of person-days. While the first three measures overestimate, to some extent, levels of employment because of the way they are defined, the CDS measure gives a closer estimate of these levels.

Creation of employment opportunities depends on the volume and composition of economic activity in the economy, that is, the total output of goods and services in the economy and its structure. The total output of goods and services is called the Gross Domestic Product (GDP). Thus, levels of employment in an economy depend on the size and composition of its GDP. Factors that affect this basic relationship are: (i) the availability of capital, (ii) the availability of skills and expertise among the employed persons and (iii) the manner in which capital and labour (the number of employment persons) combine to produce the output of goods and services. In other words, a number of inter-dependent factors like material, financial and human capital, knowledge and technology utilised, productivity of labour and capital and Government policies shape this relationship.

5.3 DIMENSIONS OF UNEMPLOYMENT

What is the level of unemployment in the country? According to the 1999-2000 Survey of NSSO, the number of unemployed has increased from 20.13 million in 1993-94 to 26.58 million in 1999-2000. Consequently, the unemployment rate as percentage of labour force increased from 5.99 per cent in 1993-94 to 7.32 per cent in 1999-2000. The trend and structure of unemployment can be summarised as below:


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• The incidence of unemployment has been much higher in urban areas than in rural areas. The open unemployment rate (CDS basis) in urban areas was 7.7 per cent in 1999-2000 against 7.2 per cent in rural areas.

• Unemployment rates for women are higher than those for men. Female unemployment rates are significantly higher in urban areas at 9.8 per cent as compared to male unemployment at 7.2 per cent in 1999-2000.

• Unemployment rate is significantly higher among youth in the age-group of 15-29. The youth unemployment rate measured in terms of CDS was of the order of 12.1 per cent for India in 1999-2000 (15.5 per cent for urban areas and 11.0 per cent for rural areas) as against 7.2 per cent for the population as a whole. The increase in the youth unemployment rate from 15 per cent in 1993-94 to 15.5 per cent in 1999-2000 in urban areas and from 8.6 per cent in 1993-94 to 11.0 per cent in 1999-2000 is a issue of concern. This reflects the failure of the reform process to create enough jobs to absorb the new entrants in the age group of 15-29 years.

• Very high rate of unemployment is observed among the educated youth. Unemployment among educated youth was 18.5 per cent in 1993-94 (20.8 per cent in urban areas and 17.0 per cent in rural areas) and slightly declined to 14.8 per cent in 1999-2000 (18.3 per cent in urban and 12.5 per cent in rural areas). Thus, level of unemployment among the youth continues to be high.

• The incidence of unemployment among the educated youth who have attained technical education was much higher at 27.3 per cent in 1993-94. It slightly declined to 23.7 per cent in 1999-2000. This reflects the lower absorption capacity of the economy to provide jobs to technically educated manpower. Hence, enlargement of job opportunities commensurate with the vocationalisation of education is highly needed.

• Wide variations in the unemployment rates are observed among different states. In terms of current daily status, unemployment rates vary from 2.93 per cent in Himachal Pradesh to 20.77 per cent in Kerala. Other major states facing unemployment rate higher than all India average of 7.29 per cent are – West Bengal (14.95), Tamil Nadu (12.05), Assam (8.00), Andhra Pradesh (7.94), Orissa (7.38). States like Uttar Pradesh (4.27), Madhya Pradesh (4.60), Karnataka (4.61), Rajasthan (3.06), etc. have lower rates of unemployment.

The high incidence of unemployment among the educated in general and women in a particular reflects that the pace of creation of diversified employment opportunities is lagging behind the pace of expansion of education. The educational and training courses offered by the educational and training system and their curricular content is becoming increasingly irrelevant to the kind of employment opportunities being generated by the economy. Gender discrimination in the labour market and at the workplace also seems to be adding to the problem. These features of the unemployment situation call for steps like: (i) expansion and diversification of the economy, especially the rural economy, (ii) restructuring of the education and skill development system to make it responsive to the world of work and (iii) focus on removal of gender bias in the labour market, the workplace and in skill development.

We have so far looked at the number of unemployed and the incidence of unemployment at the macro level. What is the position at the level of the household, which is the basic economic unit, and the economic condition of


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the household is crucial to the quality of life of the members of the household? Are there households with no employed persons? The 1999-00 survey of the NSSO shows that about 5 per cent of the rural households and about 8 per cent of the urban households have no adult person with stable employment (UPS employment). One-third of the rural households and one-half of the urban households have only one adult with stable employment. The position of the female-headed households (fhh) is much worse: about one-fourth of such households in rural and urban areas have no adult with stable employment. 45 per cent of such rural households and about 40 per cent of such urban households have only one adult with stable employment.

Table 5.1: Unemployment* among Urban and Rural Areas

Rural Areas Urban Areas Survey Period Male Female Persons Male Female Persons 1977-78 7.1 9.2 7.7 9.4 14.5 10.3 1983 7.5 9.0 7.9 9.2 11.0 9.5 1987-88 4.6 6.7 5.3 8.8 12.0 9.4 1993-94 5.6 5.6 5.6 6.7 10.5 7.4 1999-2000 7.2 7.3 7.2 7.2 9.8 7.7

* Unemployment rate on current daily status basis. Source: National Sample Survey Organisation Surveys.

Table 5.2: State-wise Unemployment Rates*

Unemployment Rate Sl. No. State

1987-88 1993-94 1999-2000 1. Kerala 21.19 15.50 20.77 2. West Bengal 8.13 9.87 14.95 3. Tamil Nadu 10.36 11.44 12.05 4. Assam 50.9 7.96 8.00 5. Andhra Pradesh 7.35 6.67 7.94 6. Orissa 6.44 7.28 7.38 7. Bihar 4.04 6.25 7.35 8. Maharashtra 4.67 4.97 7.09 9. Haryana 7.59 6.59 4.67 10. Gujarat 5.79 5.73 4.63 11. Karnataka 5.06 4.89 4.61 12. Madhya

Pradesh 2.86 3.42 4.60

13. Delhi 4.77 1.91 4.58 14. Uttar Pradesh 3.44 3.45 4.27 15. Punjab 5.07 3.08 4.15 16. Rajasthan 5.74 1.33 3.06 17. Himachal

Pradesh 3.12 1.82 2.93

All India 6.09 6.03 7.29 * Current Daily Status Basis. Note: States have been arranged in the descending order or unemployment rates for

1999-2000. Source: National Sample Survey.


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1) What are the various measures of employment and unemployment?

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2) Do you think CDS criterion is the most inclusive measure of unemployment? Why?

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3) Differentiate between worker, non-worker and unemployed.

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5.4 GROWTH OF EMPLOYMENT OPPORTUNITIES

Several disquieting features are observed in the Indian labour market over the past two decades particularly during the 1990s. These are discussed below:

• The growth of employment has shown a downward trend. The 55th round of the National Sample Survey Organisation (NSSO) reveals that there has been a sharp decline in the growth rate of employment (UPSS) from 2.04 per cent per year in the period 1983 to 1993-94, to only 0.98 per cent in the period 1993-94 to 1999-2000. Although this deceleration in employment is accompanied by an equally sharp decline in the rate of growth of labour force from 2.29 per cent in the period 1987-88 to 1993-94 to only 1.03 per cent in the period 1993-94 to 1999-2000, yet the growth rate of employment has been less than the growth rate of the labour force. This indicates an increase in the unemployment rate.

• The employment elasticity (ratio of employment growth rate to GDP growth rate), mainly due to increasing capital intensity, has considerably declined over the years and more so after the liberalisation and globalisation of the economy. It declined from 0.41 during 1983-84 to as low as 0.15 during 1994-2000. This indicates a sharp decline in the employment absorption of the economy. The organised sector’s employment generating capacity came down to near zero and in the public sector has been negative in most cases. This is due to following reasons:

i) The present policy of downsizing of excess labour to meet the growing market competition.


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ii) Increasing capital intensity per unit of output.

iii) The pattern of growth moving in favour of capital-intensive sectors.

• In terms of sectoral distribution, it is observed that the deceleration in the employment growth during 1994-2000 is basically due to the stagnancy of agricultural employment as compared to the period 1983 to 1994 when agricultural employment grew by 1.5 per cent per annum. The community, social and personal services are another sub-sectors where employment has stagnated. Employment in sectors like trade, construction, financial services and transport, storage and communication has grown faster than the average and the share of these sectors in total employment.

• Slow down of employment growth in rural sector in general and agriculture in particular in post-liberalisation period (1999-2000) is a serious issue of concern because still the population pressure on the agrarian sector is higher than anywhere else despite its declining contribution in the GDP. This will further widen rural-urban divide, which is already large and on the rise. The slow pace of employment diversification outside agriculture has been an important concern. However, it seems that in recent years there has been an acceleration in the shift of employment from agriculture to other sectors. The share of non-farm sector employment rose from about 14 per cent in 1977-78 to nearly 24 per cent in 1999-2000, which is substantial, considering the initial base.

• The relatively faster decline in the employment growth of women in post- liberalisation period is another serious issue. For rural males, employment growth declined from 1.94 per cent during 1983/1993-94 to 0.94 per cent during 1993-94/1999-2000 and for females, it went down from 1.41 to a mere 0.15 per cent. In urban areas, the decline was from 3.22 per cent to 2.61 per cent for males and from 3.44 to 0.94 per cent for females. Whatever addition to female employment has taken place during this period has largely been confined to the informal sector. A detailed analysis of NSSO data in conjunction with micro-level data shows that the so-called feminisation of work may be associated with the increasingly precarious livelihood for women (Sharma, 2004).

Thus, higher GDP growth rate did not help in accelerating employment growth.

Recent estimates from the Planning Commission, however, suggest that the process of deceleration of employment growth has been reversed during 2000-2002. During the period June 2000 to December 2002, employment growth has been over 2 per cent per annum, with an average of 8.4 million jobs added per year, as revealed by the preliminary results of the 58th Round Survey of NSSO. Encouraged by these results, the Planning Commission is now hopeful of achieving the Tenth Plan target of 10 million jobs per year with the realisation of the envisaged GDP growth rate of 8 per cent. Doubts are being expressed about the veracity of these figures, probably because the sudden turnaround indicated by them is difficult to explain. However, it must be kept in mind that the results of the 58th Round are based only on half yearly survey and unlike the quinquennial round, the sample size is small. Hence, the results need to be interpreted with caution (Sharma, 2004).


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5.5 QUALITY OF EMPLOYMENT Broadly, quality of employment can be judged on the following basis:

• Productivity of employment;

• Proportion of workers in organised and unorganised workers; and

• Proportion of workers engaged in regular and casual labour.

Productivity of Employment

In a poor country like India being employed does not by itself necessarily ensure a decent level of living. In 1999-2000 the overall rate of unemployment in India was as low as 2.23 per cent, whereas the percentage of people below poverty line was as high as 26.1 per cent. This shows that of the total employed persons about 23.87 per cent fall under the category of working poor. Obviously, the major problem relates to that of the ‘working poor’ as the productivity of employment is very low. The low productivity of employment is mainly because of low educational and skill levels of the workers. About 44.0 per cent of all workers in 1999-2000 were illiterate and another 22.7 per cent has schooling only up to the primary level.

Proportion of Workers in Organised and Unorganised Workers

Increasing share of employment in unorganised sector reflect the deterioration in the quality of employment because workers’ earnings, regularity of employment, work environment and social security vastly differ between organised and unorganised sector. Workers in the organised sector have better wages and salaries, job security, reasonably decent working conditions and social protection against such risks as sickness, injuries, disability and death arising out of hazards and accidents at work, separations, and old age. Those in the unorganised sector apart from security of job generally have no protection against these risks, have low earnings, often lower than the modest statutory minimum wages and have no regularity. An increase in the share of unorganised employment obviously means an overall deterioration in the quality of employment. An important aspect related to quality of employment is the large size of unorganised sector as against organised sector in total employment. The size of the organised sector, characterised by higher earnings and job security, is small. It was only about 7 per cent of the total employment in 1999-2000. Over the years, the share of the organised sector employment has been shrinking and that of the unorganised sector increasing. Organised sector employment grew at 1.20 per cent per annum during 1983-94 but only at 0.53 per cent between 1993-1994 and 1999-2000. Though the overall proportion of organised sector employment has come down only marginally between 1993-94 and 1999-2000, the proportion has considerably decreased in construction, transport, storage and communication and financial services. Manufacturing, construction, trade and transport are sectors where there is large concentration of unorganised workers.

According to the estimates provided by the Director General of Employment and Training (DGET), organised sector employment saw an absolute decline of 9.1 lakh during the period March 1997 to March 2002; more than half of it in the manufacturing sector. During the single year 2001-2002, organised sector employment declined by 4.2 lakh. Unorganised sector employment, on the other hand, has shown consistently higher growth than that of the organised sector. The share of the unorganised sector employment which was estimated to be around 93 per cent earlier should, therefore, have gone up and may further increase over the coming years.


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Even within the organised sector, an increasing number of jobs are assuming the character of those in the unorganised sector as a result of the increasing labour market flexibility in the wake of globalisation. A comprehensive survey of about 1300 firms, scattered over 10 states and nine important organised manufacturing industry groups (consisting of both public and private sectors) shows that between 1991 and 1998 although the total employment increased by over 2 per cent, most of the increase was accounted for by temporary, casual, contract and other flexible categories of workers (Deshpande et.al., 2004). Several other studies at micro level also show that flexibility in the labour market increased after the introduction of economic reforms in India, and despite the existence of restrictive labour laws, the firms have been able to retrench a large number of permanent workers while many units were closed leading to unemployment of thousands of workers (Sharma and Sasikumar, 1996; Sharma, 1997).

Proportion of Workers Engaged in Regular and Casual Labour

Another dimension of deterioration in the quality of employment – in terms of low earnings, irregularity and uncertainty of work availability, poor condition of work and lack of social protection and vulnerability to the risks and hazards – is seen in the increase in the casualisation of the workforce. A majority of the workers, still work as self-employed, mostly in agriculture, though their proportion declined from around 59 per cent in 1977-78 to 53 per cent 1999-2000. Those in regular wage paid or salaried jobs continue to constitute around 14 per cent of all workers for over two decades. This segment of the workforce has regular jobs with security, relatively better earnings and social security. But their proportion is not increasing and there is a likelihood of its decline over the coming years, as most of these jobs are in the organised sector where employment has stagnated or is on the decline. On the other hand, the category of casual employment has steadily increased. It has increased from 27 per cent in 1977-78 to 32 per cent in 1993-94 and rose further to 33 per cent in 1999-2000. Thus, the casual workers are worst placed among the three categories of workers even in terms of the single indicator of income indicated by the relatively higher incidence of poverty amongst them as compared to the other two categories. In 1999-2000, 55 per cent of casual workers in rural areas and 50 per cent in urban areas belonged to households below the poverty line; the corresponding percentages for the self-employed was 22.5 and 26 per cent and for the regular wage and salary earners 15 and 11 per cent, respectively (Sharma, 2004).

Table 5.3: Distribution of Workers by Nature of Employment

Nature of employment Year

Self employment Regular salaried Casual 1977-78 58.9 13.9 27.2 1983 57.4 13.9 28.7 1987-88 56.0 14.4 29.6 1993-94 54.8 13.2 32.0 1999-2000 52.9 13.9 33.2





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1) What are the implications of slowdown of employment growth in agriculture during the period 1993-94 – 1999-2000?

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2) Do you think that higher growth necessarily helps in accelerating employment growth? Give examples in support of your answer.

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3) State the various dimensions of deterioration in the quality of employment in India.

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5.6 THE TASK FORCE AND SPECIAL GROUP ON TARGETING TEN MILLION EMPLOYMENT OPPORTUNITIES PER YEAR

The Planning Commission constituted a task force on employment opportunities under the chairmanship of Dr. Monetak Singh Ahluvalia, Member, Planning Commission to examine the existing employment and unemployment situation in the country and to suggest strategies of employment generation for achieving the target of providing employment opportunities to the ten crore people over the next ten years. The report was submitted to Planning Commission on 1st July, 2001. Due to much focus on policies of liberalisation and use of corporate sector in enlarging employment, the report was sharply criticised by economists, sociologists, policy-makers, and trade union leaders. Hence, a special group (headed by Dr. S.P. Gupta) on targeting ten million employment opportunities per year was set up on 5th September, 2001 to suggest strategies and programmes in Tenth plan for creating gainful employment for ten million persons per year.

The important recommendation of task force and that of special group targeting ten million opportunities are summarised in the following manner:

Sl. No.

Recommendation of Task Force on Employment Opportunities

(2001)

Recommendation of Special Group on Targeting Ten Million

Employment Opportunities (2002) 1. It perceives the reform process as a

panacea for all ills of economy including unemployment. It has focused and deliberated on those policy issues which pertain to growth only. Cure to the problem of unemployment according to the task force, lies in raising the GDP growth rate following the post economic reforms period pattern of development.

Special group rejects the reform process as a panacea for all ills of economy particularly to unemployment. It treated employment generation as a target variable and has worked out appropriate policies and programmes to achieve this goal.


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2. It gave top priority to organised sector for generation of employment opportunities.

It rejects the thesis of the reformists that organised sector, more specifically the corporate sector will bring down zero unemployment rate and can remove poverty. The special group focused much on unorganised sector for employment generation which employs 92 per cent of the work force and has remained neglected so far. The role of public sector has been recognised in providing infrastructure facilities particularly in social sector.

3. Task force gave highest priority to the services sector for employment projecting that 70 per cent of employment will be provided by the service sector. Future job creation potential in agriculture have been indicated near zero.

Agriculture will still be the highest single sector for providing employment followed by small and medium industries and the different service sectors. There is a need to diversity and strengthen agriculture.

4. Regarding special employment programmes, it viewed that they have not been effective in giving employment and entail wastage and, therefore, should be frozen at current price level.

Special employment programmes have been very effective in generating employment during slack season and, hence, their scale of operation should not be reduced.

5. Flexibility in hiring and firing has been supported by arguing that it will encourage the employers to use labour-intensive production.

Given that market is carrying excess labour and Government is following its downsizing policy, under the policy of the hiring and firing, firing will be resorted more than hiring. Relaxing provision for hiring and firing should be accompanied with social security coverage taking full care to protect the retrenched labour.

6. The task force recommended suitable amendments in the contracted labour Act.

The special group agrees with the task force’s recommendation with the qualification that it should be preceded by appropriate social security and other measures for protection of the interests of labour.

7. It recommended de-reservation of SSI within four years and an increase in the Foreign Direct Investment (FDI).

De-reservation should be done on case-by-case basis as a gradual process without giving a time limit for total phasing. Any increasing in the ceiling of FDI investment at the moment is not needed.

8. Other important recommendations include: lowering of import tariffs to the level prevailing in East Asia, allowing the agro-companies to buy, develop, cultivate and sell the degraded lands, freedom to converge the rural land into urban usage and laws to facilitate private development townships and estates.

Special group has viewed that employment issue has to be placed on a high priority and, hence, active state intervention is needed. Other recommendations include change in the credit policy of the banking system to stop the decline in the share of bank credit from 54 per cent to 37 per cent for unorganised sector coordination of civil administration with panchayats in rural areas, etc.


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5.7 TENTH FIVE YEAR PLAN AND EMPLOYMENT POLICY

5.7.1 Employment Policy in the Tenth Plan

In accordance with the report 2002 of Special Group on targeting ten million employment opportunities, Tenth Five Year Plan has shifted the focus in Employment Policy from the organised sector to the unorganised sector.

The Planning Commission has estimated the total backlog of unemployed in the year 2002 to be around 35 million. To this will be added 35.2 million as net additions to the labour force during the Tenth Plan. This estimate is based on the assumption that labour force is expected to increase at the rate of 1.8 per cent per annum. Thus, the total requirement of employment in the Tenth Plan will be of the order of 70.2 million. The Tenth Plan aims to provide gainfully high quality employment to the additions of the labour force (i.e., 35 million). However, it aims to provide gainful employment in excess of the net additions to the labour force. For this purpose, employment policy clearly states that depending merely on the growth rate per se to take care of the employment requirement will not be sufficient to generate 50 million jobs. A sustained growth rate of 8 per cent per annum visualised in the Tenth Plan document will generate 29.7 million (or say around 30 million) employment opportunities. This would not be enough to take care of even the net additions to the labour force of the order of 35 million. There will be a shortfall of about 5 million jobs. To take care of the situation and to reduce the backlog of unemployed, the Tenth Plan aims at special programmes to generate employment of the order of 19.3 million. Thus, at the end of the Tenth Plan in 2007, the backlog of unemployed is likely to be of the order of 21 million. Unemployment rate which has been estimated at 9.21 per cent in 2001-02 will decline to 5.11 per cent in 2006-07 (Ruddar Datt, 2003).

In order to fulfil the objectives of providing gainful employment opportunities to the entire additions to labour force during the Tenth Plan and beyond, improvement in the quality of employment of an average work has been considered essential. For that, the aggregate demand for labour need to be enhanced. Further, in the short-term perspective, growth will have to be supplemented by increasing the employment content of growth.

The labour intensive sectors for generation of additional employment opportunities identified in the Tenth plan are: Agriculture and allied activities, Food processing, Rural non-farm activities/industries including khadi and village industries, Small and medium enterprises, services sector – Health, Nutrition, Education, Information Technology, etc.

Agriculture and Allied Activities

Economic reforms had largely bypassed agriculture. But the Tenth Plan recognises the crucial role of agriculture for employment generation. There is a need for the state to assume a pro-active role through appropriate programmes to improve public investment in agriculture. The main labour-intensive areas in which state intervention is required are:

• Diversification of agriculture, animal husbandry, floriculture and horticulture, farm management programmes. Agri-clinics and seed production are other potential areas for employment generation.

• Regeneration of degraded forests, minor irrigation and watershed development are highly labour-intensive activities.


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• Food processing industry offers additional employment opportunities.

The following initiatives can be taken in this regard:

i) Stepping up of public investment in irrigation, powers and roads;

ii) Private and cooperative sector participation in the marketing of agricultural produces;

iii) Adjusting minimum support price for foodgrains and other commodities so as to promote diversification of agriculture;

iv) More labour intensive crops like pulses and oil seeds;

v) Greater attention to rain water harvesting and increasing the irrigation potential through scientific watershed development; and

vi) Better utilisation of land and water.

Rural Non-farm Activities/Industries including Khadi and Village Industries and Small and Medium Enterprises

The rural non-farm sector, small and medium enterprises, village industries and informal sector are important provider of employment. The focus of the programmes for weaker sections, women, unemployed youth, migrant workers, construction workers, bonded labour, child workers, etc. has been the development of such activities. The Government has also been providing support through various plans for the development of economic and commercial infrastructure⎯micro-credit, various welfare funds, vocational training, apprenticeship, rural infrastructure for electricity, transport and enterprises to these units. All these activities fall in the category of ‘unorganised sector’.

Khadi and Village Industries Commission (KVIC) has been the major institution catering to the unorganised sector. It would be important to improve the effectiveness of KVIC.

Small and Medium Enterprises (SMEs) should not be restricted to manufacturing sector only, but should also include service sector. Fiscal incentives in the form of remission of excise and income tax, preference in State Government purchases, credit support, technology development should be linked with the criterion of employment generated. Cluster approach to development should be adopted so that locations which have high labour intensity can be encouraged.

A number of programmes for the benefit of SMEs exist, such as: (i) Credit for modernisation, (ii) Credit guarantee for tiny units without collateral, (iii) Market development assistance through industry associations, (iv) Local infrastructure development, and (v) Testing laboratories for product quality. If all these programmes could be focussed at a particular cluster, the returns in terms of better productivity, higher income of workers and better quality of jobs will be really very high.

Credit for the Informal Sector – Micro-Credit

Organised sector banking has not seriously addressed itself to the needs of micro-credit by the informal sector. Banking sector need to be encouraged to reach out to the enterprised in the informal sector. For that, banking practices and procedures need to be reviewed to enable banks to adopt a more protective approach to lending for economically viable activities in the informal sector. The co-operative credit structure can play a major role in extending credit to the informal sector, but it has become very weak in most


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states. A study conducted by Pricewaterhouse Coopers, a firm of Chartered Accountants, revealed that:

i) 63 per cent of the total credit availed by the rural poor is used for consumption purposes and only 37 per cent of the total credit is put to production use.

ii) The overall share of organised sector in credit flow to the rural poor is around 16 per cent.

Non-availability of credit for consumption needs from the organised sector; Very high rates of interest charged to borrowers; Rigidity of terms and conditions for a loan from the organised sector; Delay in sanction of loans by the organised sector; and Very high rate of defaults under Government are the important reasons, according to the study, for distortion in the use of credit.

Self-Help Groups (SHGs) have emerged as another important mechanism for meeting the credit needs of the informal sector.

Service Sector

Service sector include health and nutritional services, educational, vocational training, information-technology, housing, real estate development and construction, road transport and road construction, distributive and retail trade etc. Employment in health and nutritional services will be generated by expanding health care facilities equipped with adequate medical and pera-medical staff. 1.7 million jobs will be created in the process of meeting the target of providing a primary school within one km.

Vocational training as a part of entrepreneurial activity can provide the employment opportunities. Information Technology (IT) as estimated will contribute to approximately 0.2 million jobs per year and around million at the end of tenth plan as additional direct employment.

Regarding employment generation in housing, real estate development and construction, the plan document states: “Both the large mechanised activities and the small and medium ones have their own respective roles and will survive along side. In the area of bridges, major irrigation and dam construction, high-rise buildings etc., the large mechanised construction activities will be unavoidable. But, at the same time, in the areas like rural road building, low cost housing, minor irrigation, etc., the small construction units with minimum improvement in mechanisation can serve the purpose and fulfil the need for generating more jobs.”

Road transport and allied activities provide employment to around 15 million persons and has the potential of 3 to 4 million additional employment opportunities during the tenth plan period.

Trade, hotels and restaurants are estimated to provide employment to about 41 million persons.

5.7.2 Evaluation of the Employment Policy Tenth Plan Employment Policy focuses on the unorganised sector for employment generation which, at present, accounts for nearly 93 per cent of total employment and which is likely to be the major source of employment generation in future as well. The success of the Employment Policy will depend upon:


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• Firstly, the extent to which the country can realise the 8 per cent GDP growth target of the Tenth Plan.

• Secondly, the various hurdles coming on the way of implementation have to be removed. The speed with which both the Centre and State governments would move in removing impediments would also determine the pace of success of the employment policy.

• Thirdly, lack of co-ordination among different ministries dealing with employment is another serious impediment. There is a need for a co-ordination committee to pursue the objectives laid down in the employment policy.

• Fourthly, resource constraint is another major impediment. The budgets of both the Centre and State governments have to make higher allocations for generating programme-based employment. Besides this, a close monitoring mechanism has to be evolved for implementation.

• Last, but not the least, is the question of seriousness and political will of the Government on the employment issue.

All these factors taken together will determine the effectiveness of the employment policy designed with good intentions.

5.8 TOWARDS AN AGENDA FOR EMPLOYMENT POLICY FRAMEWORK

Decline in the employment growth and deterioration in the quality of employment in the wake of increasing pace of globalisation need appropriate policy responses. Some of the measures are suggested below.

There are large number of vulnerable groups in India, which, it is feared will have to bear the heavy cost of globalisation unless policies and programmes are initiated to prevent a deterioration in their socio-economic conditions. These groups are:

a) The already unemployed; b) The redundant workers made jobless in pursuit of efficiency in the

organised sector; c) The working poor, self-employed as wage earners in casual and regular

jobs in the informal sector; d) Socially disadvantaged groups such as women, tribals and scheduled

castes; and e) Persons located in backward areas with underdeveloped infrastructure

facilities.

The different strategies of employment are to be followed for various target groups.

1) For those who are already unemployed, macro economic policy needs to be formulated and implemented in such a way as to deploy national and local resources for creating large-scale employment opportunities in the growth process. Three elements to a strategy to expand employment can be considered:

• Redistribution of income in favour of low income groups; • Creation of public investment; and • Provision of incentives to private investment.


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Investment in agriculture and necessary infrastructure in terms of roads and electrification would play a crucial role in employment generation. Efforts need to be made to create productive employment in agriculture and not treating it as a residual sector for the surplus labour. Development of agriculture in backward regions has very high potentiality for employment generation. The potential for indirect employment in the form of agro-industries and other allied activities like food processing, dairy development, etc. have a high potential for employment. All these have a large export potential as well as possibility of expanding domestic market. Concerted policy and action plan is needed to effectively tape this potential. Adequate investment, suitable technological upgradation and proper marketing arrangements are needed to develop them.

Along with agriculture, the non-farm sector has potential for employment generation in rural areas. Adequate credit facility, technology, marketing and other support services need to be provided for developing various sub-sectors of non-farm sector in rural areas.

2) Increasing number of workers are being engaged as contract and temporary workers in the organised sector. The Government enforcement machinery and trade unions have the responsibilities to safeguard the interests of such vulnerable workers. With intensification of reform process, the employers would demand more flexibility in adjusting the workforce in the face of global competition and increasing number of workers are likely to be declared as redundant. In a poor country like India, adequate separation benefits to workers should be assured. Utmost care is to be taken while undertaking labour market reforms so that labour is not put to disadvantage. There is a need to make minimum wages more comprehensive for the organised sector workers. Retraining and re-deployment along with counseling should form an equally important agenda of the National Renewal Fund. Training, skill development and vocationalisation of education should be focused to take care of redundant and retrenched workers in the organised sector.

3) For irregular wage workers – casual, contract, etc. in the informal sector, the measures for generating supplementary employment are very important. The role of direct poverty alleviation and employment generation programmes become very important. These programmes need to be widened and strengthened. The National Rural Employment Guarantee Act, 2005, is expected to go a long way in addressing the employment problem of these vulnerable groups.

4) Self-employed workers including home-based workers, street vendors, etc. engaged primarily in household and micro-enterprise activities face uncertainty of the market, raw materials and credit. These workers should be given adequate access to inputs, services and marketing facilities. In addition, a large number of workers in this category need security of the work premises as well as legal recognition of their activity. There is a need for creating more supportive environment for self-employment both in rural as well as in urban areas.

5) Effective policies are needed to abolish the gender discrimination in the labour market. Gender differentials in skill and expertise levels and gender biases operating in the labour market have to be removed to enhance levels of utilisation of the female labour force.

6) Independent producers/service providers, marginal farmers, forest dwellers, pavement dwellers in the urban slums, etc. need to be provided


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with a proper mix of insurance scheme, measures to provide them some capital, effective steps towards lessening the uncertainties of frequent loss of income and measures towards providing supplementary sources of income and employment.




1) How the employment strategy as recommended by taskforce was distinct from that of special group?

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2) Which measures would you like to suggest to generate employment opportunities for those already unemployed?

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5.9 LET US SUM UP The population of any area, region or country is made up of three components: employed, unemployed and non-workers. Employed and unemployed together make up the labour force. Three reference periods (i.e. a year, a week and a day) identify the nature and extent of employment and unemployment in the economy. Based on these reference periods, three approaches are adopted in estimating the status of employment and unemployment – Current Daily Status (CDS), Current Weekly Status (CWS) and Usual Principal Status (UPS).

The unemployment ratios in terms of all these three measures have increased from 1993-94 to 1999-2000. The unemployment rates are significantly higher in the younger age groups of 15-29 years particularly very high among the educated persons compared to those with lower levels of education.

In post-liberalisation period, the employment growth has come down from 2.04 per cent in 1983 – 1993-94 to 0.98 per cent in the period of 1999-2000. The growth rate of employment is less than the growth rate of labour force indicating an increase in the unemployment rate. Due to increasing capital intensity, the employment elasticity has considerably declined over the years. The quality of employment which is reflected from increasing size of unorganised sector in employment, rising number of casual and contract workers and lower productivity of employment has deteriorated over a period.

For taking the appropriate measures for generation of employment opportunity, the Planning Commission constituted a task force which recommended focus on reform process and increasing growth rate for removal of unemployment. Subsequently, special group was set up to suggest the measures for employment generation. This group emphasised on agriculture


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and unorganised sector and treated employment generation as a target variable.

On the line of recommendation of the special group, Planning Commission framed the employment policy for Tenth Five Year Plan. However, the fate of this policy will depend on various factors like – realisation of 8 per cent GDP growth rate target, removal of implementation related hurdles and the political will of the Government on employment. In the wake of globalisation, in order to protect the vulnerable groups, the different strategies of employment need to be followed.

5.10 EXERCISES

1) Distinguish between labour force and work force. How are the employed workers identified and enumerated in India? Also examine the dimensions of unemployment in India.

2) State the various dimensions of deterioration in the quality of employment in India. Also examine the policy implications of slowdown in employment growth in recent years.

3) Critically evaluate the employment policy embodied in the Tenth Five Year Plan. Also state the conditions necessary for the success of this policy.

5.11 KEY WORDS Underemployment: Underemployment means people who are employed for only part of a day or part of the week and unemployed for the remainder of the day or the week. This is underemployment that is visible.

Incidence of Unemployment: It is the share of the total unemployed persons in total labour force, expressed in percentage terms.

Human Capital Endowment: Human Capital Endowment is the capability, innate and acquired, of a person to earn income for living, which is over and above the costs involved in carrying out that effort.

Own-account Worker: Own-account worker is another name for self-employed workers.

Usual Principal Status Activity (UPS): An activity on which, a worker is engaged for a relatively longer period during one year, preceding the date of survey.

Employment Elasticity: The ratio of employment growth to the growth of National Income.

5.12 SOME USEFUL BOOKS Dev, Mahendra, Sharma, Alakh N. & Suryanarayanan, S.S. (1997); Economic Reforms, Employment, Poverty and Safety Nets – Report on a Project Sponsored by Friedrich Ebert Stiftung, Indian Society of Labour Economics & Institute for Human Development, New Delhi. (mimeo)

Datt, Ruddar (2003); Economic Reforms, Labour and Employment, Deep & Deep Publications Pvt. Ltd., New Delhi.

————, (2001); Report No. 458(55/10/2) – Part I & II, on the Sixth Quiquennial Survey on Employment & Unemployment in India, 1999-2000


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(55th Round), National Sample Survey Organisation, Department of Statistics, Ministry of Statistics and Plan Implementation, New Delhi.

————, (2002); Report of the Special Group on Targeting 10 Million Employment Opportunities Over the Tenth Plan Period, Planning Commission, New Delhi.

————, (2002); Tenth Five Year Plan (2002-07), Volumes I & II, Planning Commission, New Delhi.

Planning Commission (2002); Report of Special Group on Targeting Ten Million Employment Opportunities Per Year, p.2.

Planning Commission, Tenth Five Year Plan (2002-07), Vol. I, p. 146.

Suryanarayanan, S.S. (2004); Poverty and Unemployment Problem (Unit-14), Poverty and Human Development (Block-5) of BLD-101, Political Economy of Labour in India, IGNOU, New Delhi.

Sharma, Alakh N. (2004); Globalisation, Labour Market and Poverty: Emerging Perspective in India, D.T. Lakadawala, Memorial Lecture, 8th Conference of IEA, Varanasi.



1) Employment and Unemployment are measured by four criteria viz., (i) Usual Principal Status (UPS), (ii) Usual Principal and Subsidiary Status (UPSS), (iii) Current Weekly Status (CWS) and (iv) Current Daily Status (CDS).

2) Yes, because it gives the estimate of the extent of underutilisation of the labour force in terms of person-days. It is, therefore, made up of both open unemployment and visible underemployment.

3) One who participates in any economic activity is a worker. One who is not available for any work is a non-worker. Unemployed is a worker who seeks or looks for work or is available for work.


1) It will widen the rural-urban divide, increase the hardships of the rural poor, reduce the saving rate in rural areas and underlines the need for employment generation in non-farm activities.

2) No, the decade of 1990s has witnessed high growth without corresponding growth and employment.

3) Increasing share of unorganised sector in employment, higher proportion of casual workers in employment, rising number of working poor, etc.


1) See Section 5.6

2) See Section 5.8

Documents

This course material is designed and developed by Indira ...egyanagar.osou.ac.in/slmfiles/MAEC_08_Block_01.pdf · equation models. You might have learnt all these techniques in MEC-003