National Income refers to the money value of all the goods and services produced in an economy in one accounting year. The Growth of National Income during the planning period is as follows:--
*Some figures are rounded off.
The Net National Product has risen in the following manner
The growth of PCI is as follows:--
The Central Statistical Organisation has Classified the economy in three main sectors such as Primary Sector, Secondary Sector, Tertiary Sector.
Primary Sector involves activities such as agriculture, forestry, fishing, mining and sericulture.
Secondary Sector involves activities such as manufacturing, construction, electricity, gas and water supply.
Tertiary Sector involves trade, transport, communication, insurance, banking and defence, etc.
New sectoral distribution of income:
There has been a change in the share of the national income over the planning period.
From the above table we observe that India was basically an agrarian country. In 1951 as 59% of the National income was contributed by the primary Sector . However, the share of Primary Sector in the National Income has come down to 26% in 2001.
The Indian industrial sector contributed only 13% of the National Income in 1951. However, it has risen to 24% in 2001. This is because of the various industrial policies introduced by the government over the planning period.
The Contribution of the service sector was 28% of the National income in 1951. However this has risen to 51% in 2001.
Conclusion: India was known as an agrarian country at the time of independence because agriculture was the major source of livelihood. But over the planning period, the importance has shifted from primary sector to the tertiary sector which has helped for a faster growth of Indian Economy.
4.Full Employment/Reduced Employment:
Generally a person who is not gainfully employed in any productive activity is called unemployed. Unemployment is a complex phenomenon and takes many forms. The Important forms are:
- Frictional Unemployment: Frictional unemployment is a temporary phenomenon. It may result when workers are temporarily out of work while changing jobs. It may also result when the work is suspended due to strikes or lockouts or due to imperfect mobility of labours.
- Structural Unemployment: Due to Structural changes in the economy, structural unemployment may result. It is caused by a decline in demand for production in a particular industry, and consequent disinvestment and reduction in its manpower requirement
- Seasonal Unemployment: There are some industries and occupations such as agriculture, some agro-based industries like sugar mills and rice mills, in which production activities are seasonal in nature. So they offer employment for only a certain period of time in a year. People engaged in such type of work may remain unemployed during the off-season. We call it seasonal unemployment.
- Cyclical Unemployment: During the contraction phase of a trade cycle in an economy, aggregate demand falls and this leads to disinvestment, decline in production and unemployment. Capitalist biased, advanced countries are subject to trade cycles. Trade cycles especially recessionary and depressionary phases causes cyclical unemployment in these countries.
The backlog of unemployment at the beginning of FYP-1 was 3.3 million to which were added 9.0 million new entrants during this period. The Plan provided additional employment to 7.0 million, thus leaving a back log of 5.3 million at the beginning of the FY-2. In the subsequent plans, the back log has been continuously increasing, since the new jobs created during each plan period invariably fell short of new entrants to the labour force. As per the estimates the back log of unemployment at the beginning of the FYP-9 was estimated to be of the order 34-35 million. The labour force was projected to increase by about 36 million during 1997-2002. Thus, the total number of persons requiring employment would be 70 million over the period 1997-2002. The tenth Plan aims at creating 50 million jobs during the plan.
Unemployment among Particular Categories
- Urban and rural Differences : Unemployment rates are traditionally higher in urban areas than in rural areas, partly because the incidence of disguised employment is lesser in urban areas than in rural areas and whatever unemployment is there it is mainly open unemployment.
Unemployment among Males and Females(Percent of labour force)
- Male-Female differences: Table shows males and female unemployment rates. Female unemployment rates are significantly higher than male unemployment though the difference has narrowed down over time.
- Age differences: Unemployment rates are significantly higher in the younger age groups.
- Educational differences: A very important feature of the unemployment is that the rate of unemployment is typically much higher among the educated than those with lower levels of education.
- Inter-State differences: There are wide variations in the unemployment rates among different states. Generally, high rate of unemployment have been observed in states where-
- The ratio of agricultural workers to cultivate is very high
- There is a relatively high rate of urbanisation
- The pressure on agricultural land is high
- The labour force participation rate among women is high
- High school and university education is more widespread
5. Healthy balance of Payments:--
It is a systematic record of all the economic transactions between one country and the rest of the world in a given period. Balance of trade differs from balance of payments in that the former excludes capital transactions, payments for services and shipment of gold. Balance of payments includes trade balance and in addition the balance of the invisibles as mentioned earlier.
Trends in India’s Balance of Payments:
A country like India, which is on the path of development generally experiences a deficit balance of payments situation. This is because such a country requires imported machines, technology and capital equipments in order to successfully launch and carry out the programme of industrialisation. Also since initially it has only primary goods to offer as exports, it generally has an unfavourable balance of payments position. As pace of development picks India has to have ‘maintenance imports’ although India has now more sophisticated goods to offer as exports. But the situation remains the same i.e. deficit of balance of payments.
We find that there has been significant improvements in the structure of India’s balance of payments since the economic crisis of 1991. Comparing the pre-crisis with the post crisis data we find that exports grew at an annual average of 7.6% during 1980-81 to 1991-92 and at an annual average of 10% during 1992-93 to 2000-2001. Similarly, imports grew at 13.7% annum during 1992-93 to 2000-2001 compared with just 8.5% growth rate during 1980-81 - 1991-92 . Moreover, the current account deficit, as percentage of GDP has declined from 1.9% during pre-crisis period to around 1% during post-crisis period and during 2001-03 we had surplus in the current account.
Trade Deficit: The trade deficit is large and has widened due to high oil prices and increased non-oil imports. Nevertheless, India’s vulnerability to an external crisis remains limited due to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of external debt, and buoyant exports of services.
Inflation refers to a persistent upward movement in the general price level. It results in a decline of the purchasing power. Inflation can broadly of the following types:-
- Demand Pull inflation: In a market there is interaction between the flow of money and flow of goods and services. When more money chases relatively less quantity of goods and services the excess of demand relative to supply pushes up the prices of goods and services. Such inflation as a result of increased money expenditure is called demand pull inflation.
- Cost Push inflation: Often the demand pull inflation precedes the cost push inflation. When the former sets in there is an increasing demand for factors of production, the prices of these also rise, leading to rise in general prices.
Sharp increase in international oil prices from late 2003, along with considerable volatility, posed considerable challenge to macroeconomic stability. Average headline world price of Indian basket of crude petroleum increased by 44.5%, from US$37.3 per barrel in April-November 2004 to US$53.9 per barrel in April-November 2005, and was US$58.10 per barrel on February 13, 2005. In India , inflation, measured by a point-to-point increase in the Wholesale Price Index (WPI) declined from 5.7% on April2, 2005, to a low of 3.3% on August 27, 2005. Despite increasing thereafter, prices have remained at comfortable levels with the WPI- inflation at 4.0% on February 11, 2006 vis-à-vis 5.1% on February 12, 2005. Growth in broad money (M3) at 12.2% at end March 2005 was lower than both the 14.0% projected by the RBI in its Annual Policy Statement for 2004-05 and 16.7% observed at end March 2004.
The year 2005-2006 started with an inflation rate of 5.7 per cent on April 2, 2005, while was followed by a softening trend until August 27, 2005 when it reached a trough of 3.3 per cent. While the rate rose steadily thereafter, it remained below 5 per cent. Average WPI inflation decelerated from 10.6 per cent in the first half of 1990s to 4.7 per cent during 2001-2002 to 2004-2005. The downward secular trend in inflation observed since the beginning of reforms in 1991 came under threat due to rapid rise in international price of crude and petroleum products. Annual average WPI inflation in the fuel group was 9-10 per cent both at the end of 2004 and 2005. Nevertheless there was successful containment of the inflationary pressure with the overall annual inflation rate declining from 6.5 per cent at end 2004 to 4.7 per cent at end 2005.
Effects of Inflation are as follows:
- Economic consequences: Inflation has its effect on the propensity to save or the capacity to save. With price rise faster than income, the savings of the people are reduced.
- Social consequences: During inflation, the real income of wage-earners are reduced. To raise their wages, they resort to strikes. Industrial unrest occurs and the wage earners suffer, but the richer classes gain. There is thus a transfer of wealth from the poor to the rich which is harmful to the society.
7. Demand Side and Supply Side Policies:--
Demand Side and Supply Side Policies also known as Fiscal/Budgetary Policy and Monetary Policy which deals with Aggregate Demand and Aggregate Supply in the economy respectively.
Fiscal/Budgetary Policy:-- Fiscal policy is also known as Tax policy in India. Tax structure is classified into two types:
- Direct Tax: Those taxes which are levied & borne by the same individual are called as Direct taxes i.e. the burden of tax falls on the same person on whom the tax is levied.
- Indirect Tax: Those taxes which are levied but not borne by the same person are called as Indirect Tax that is government levied the tax on one individual on one company bared by a different individual.
TAX STRUCTURE IN INDIA
Direct Tax Indirect Tax
1. Direct corporate tax 1. Imposition of Central excise duties
2. Income Tax 2. Customs Duty
3. Reforms in export tax 3. Entertainment tax
4. Expenditure tax 4. Sales tax
5. Capital Gain tax 5. Service tax
6. Tax on wealth and gifts
The Indian fiscal structure is highly unfavourable for the common man. Various taxes are imposed in the form of Direct as well as Indirect Tax govt. needs to rethink on its tax structure policies as India has its highest tax rates in Asia.
The objectives of fiscal policy in India are:
- Overall economic development.
- Basis of social Justice.
- Justifying regional development.
- Employment Generation.
- Control in inflation.
- Total foreign exchange increases.
- Infrastructure development.
- Very high growth of National Income.
- Encourages capital formation.
- Sectoral development.
The public debt consists of loans, bonds, provident funds, small savings and such other deposits of public. Similarly, the external debt is also rising. Hence the Govt. needs to keep a strong vigil on its debt obligations.
Fiscal deficit : The fiscal deficit which is the gap between total government expenditure and revenue receipt is projected to 4.3 per cent of GDP for 2005-06. The projected fiscal deficit as a percentage of GDP for 2004-05 is less than the revised estimates of 4.5 per cent for the year 2004-05.
Monetary Policies : Monetary policy is the one employed by the State through is central bank to control the supply of money as an instrument of achieving the objectives of general economic policy.
RBI is the central Bank, it controls the banking system in India. The Monetary Policy of Reserve Bank of India is as follows:
Functions of RBI
The RBI has taken the following measures to control credit in India.
- General Credit Control.
- Selective Credit Control.
- General Credit Control Measures: Regulation of Cash Reserve Ratio that is the CRR was brought from 15% in 1991 to 4.5% in 2003, as per the Narsimham Committee Recommendations. Bank rate is set at 6%p.a. in 2003, which is charged by the RBI to the commercial banks for their borrowings from RBI. Imposition of Statutory Liquidity Ratio(SLR) and Introduction of Open Market Operations.
- Selective Credit Control Measures: Provision of minimum margin requirements was introduced. The RBI issue directives for the functioning of all types of banks, e.g. CRR, SLR, interest rates etc. Credit Ceilings has been introduced and authorities have Moral suasion i.e. RBI can take strict legal actions against banks who do not work as per the norms set up by RBI.
8. GDP Growth in India:--
Gross domestic product (GDP) is the money value of all final goods and services produced in the domestic territory of a country during an accounting year. GDP at Constant Prices and at Current Prices: GDP can be estimated at current prices and at constant prices. If the domestic product is estimated on the basis of the prevailing prices it is called gross domestic product at current prices. On the other hand, if GDP is measured on the basis of some fixed prices, that is prices prevailing at a point of time or on some base year it is known as GDP at constant prices or real gross domestic product.
GDP at Factor Cost and GDP at Market Price: GDP at factor cost is estimated as the sum of net value added by the different producing units and the consumption of fixed capital. Conceptually, the value of GDP whether estimated at market price or factor price must be identical. This is because the final value of goods and services (i.e. market price) must be equal to the cost involved in their production (factor cost). GDP at market price includes indirect taxes and excludes the subsidies given by the government. Therefore, in order to arrive at GDP at factor income we must subtract indirect taxes from and add subsidies to GDP at market price.
GDP (F.C.) = GDP (M.P.) – IT + S
Where IT = Indirect taxes.
S = Subsidies.
Economics deals with the laws and principles which govern the functioning of an economy and its various parts. An economy exists because of two basic facts. Firstly, human wants for goods and services are unlimited and secondly, productive resources with which to produce goods and services are scarce.
Indian Economy is thus a very mixed one and needs to be improved a lot on various fields such as unemployment, balance of payments, etc.