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Monday, March 29, 2010

MAJOR CHALLENGES BEFORE THE INDIAN ECONOMY


This chapter deals with the three major challenges that Indian economy is facing today. They are poverty, unemployment and price rise.
POVERTY
It is a situation in which a person is unable to get minimum basic necessities of life, i.e.. food, clothing and shelter for his or her living.In economic terms they are called poverty ridden and are people living below poverty line (BPL).
MASS POVERTY:When a large section of the people in an economy are deprived of the basic necessities, that economy is said to be in mass poverty.
MEASUREMENT OF POVERTY:
Since it is the responsibility of the state to remove poverty , it has to take certain steps.
-developing an appropriate mechanism to identify the poverty – ridden people.
-estimate the total number of poverty-ridden persons with the help of that mechanism.
In the first approach, expenditure incurred by a family on various items is used.
In the second , the income earned by a family is used.
EXPENDITURE METHOD:The total minimum food requirement is measured in calories and then converted into equivalent money value i.e in rupees.A minimum amount for the additional items has also been added to the money value of food requirements.This total value is considered as poverty line.All those families, which spend less than the poverty line, are considered as Below Poverty Line (BPL) families.
In India minimum food requirement for a person in rural areas (2400calories) is more than the person living in urban (2100 calories) areas.
INCOME METHOD:All those families whose total income in a month is less than the poverty line as fixed by the govt, are considered to be below poverty line(BPL).
POVERTY LINE AND POVERTY IN INDIA
-in 1999-2000, the poverty line in rural areas was fixed at Rs.328 per capita per month and in urban areas it was Rs.454.The difference is because the essential goods in urban areas are costlier than in rural areas.
-a quarter of the population in India is now living below poverty line.
POVERTY AND OCCUPATION:
-the poverty ridden families include the unemployed,the landless,the agricultural and casual labourers, the tribals and the disabled or the physically challenged.
-the casual workers, the unemployed daily wage earners, domestic servants, rickshaw pullers, hotel and restaurant workers are belonged to the urban poor.
CAUSES OF POVERTY
-during the British rule they discouraged the traditional industries and textile industry.Millions suffered. Even after 50 years of Independence India, the large section of people engaged in handicraft industries are in a poor condition.
-excessive dependency on agriculture leads to low levels of income for the rural masses.They do not have enough land and machinery, they are landless labourers and people without work. Land reforms were not implemented properly in rural areas.
-social factors like illiteracy, large size of family, law of inheritance and caste system are responsible for poverty.
-poverty alleviation programmes have failed to make considerable progress in removing poverty due to corruption and inefficiency.



REMOVAL OF POVERTY:
- govt has taken efforts to develop the heavy industries and green revolution which would lead to rapid economic development.Introduction of Trickle down method.the benefit to a particular section of a society would trickle down to other section across the country.
:land reform methods: such as zamindari system, security of tenant farmers against eviction, fixation of rents, fixation of ceilings on land holdings and distribution of surplus land among small and landless farmers were undertaken by the govt.
-cottage and small scale industries were encouraged which employ more people than machines.
Income distribution measures were introduced to reduce the gap between the rich and the poor.(a)taxing the rich and the middle classes (b)on the luxuary commodities .(c)reducing the prices on essential goods to lower income group.
POVERTY ALLEVIATION PROGRAMMES (PAP)
Govt has adopted Poverty Alleviation Programme to bring down the poverty level. Most of them aim at providing employment or improvement of the asset-base of the poverty-ridden families.
SWARNAJAYANTI GRAM SWAROJGAR YOJANA (SGSY):
-to help the existing poor families to come above the poverty line.
-this is a centrally sponsored scheme.
-families below poverty line are provoded with financial assistance.
JAWAHAR GRAM SAMRIDHI YOJANA (JGSY):
-to generate employment for those men and women who do not get sufficient days of employment in rural areas.
-creating community assets as social forestry, soil conservation, minor irrigation projects and renovation of village wells, rural roads, dispensaries, schools, panchayat ghars, bus stands, etc.
-they target only families those are below poverty line.
PRIME MINISTER ROZGAR YOJANA(PMRY) AND SWARNAJAYANTI SHAHARI ROJGAR YOJANA (SJSRY):
-         aimed at the welfare of the educated unemployed in urban areas.
-         Self employment to the educated unemployed particulary in urban areas.
-         The age group of 18 to 35 are expected to benefit.
-         Persons belonging to weaker sections are given priority.
OTHER PROGRAMMES IN RURAL AREAS:
-         Employment Assurance Scheme(EAS) and Pradhanmantri Gramodaya Yojana(PMGY) were launched in 1999 and 2000 ’01.
-         Create wage employment for families below poverty line
-         Improving the quality of life of people in rural areas.

UNEMPLOYMENT
A situation in which a section of people , who are able and willing to work but do not find gainful work is referred to as unemployed.
TYPES OF UNEMPLOYMENT;unemployment is of three types:
DISGUISED UNEMPLOYMENT:
-         it is a situation which more people are engaged in an activity than the required ones.The people who are actually engaged in such an activity appear to be employed but are not fully employed.
-         This problem is acute in rural areas.
Eg:a work can be completed with 2persons but if there are 6 persons do the same work , the additional 4 persons are considered as disguised unemployed.
-         it is also known as underemployment.
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(b)SEASONAL UNEMPLOYMENT:
-         during off-season there is unemployment of people engaged in such types of work or activities which cater to the seasonal demand.eg.agriculture in India is a seasonal activity as it depends on monsoon.
(c)STRUCTURAL UNEMPLOYMENT:
-         the mismatch of available capital and the size of the labour force creates persistent unemployment both in agriculture and industry.Lack of resource to provide employment.
OTHER TYPES OF UNEMPLOYMENT:
When there is unemployment due to reduction of demand for goods, it is referred as CYCLICAL UNEMPLOYMENT.
If unemployment occurs owing to changes in technology, it is referred to as TECHNICAL UNEMPLOYMENT.
These types of unemployment are harmless and prevail for short durations only.
MAGNITUDE OF UNEMPLOYMENT IN INDIA:
There are 2 ways by which the magnitude of unemployment is measured in India.
-         first one is through conducting sample surveys and population censuses.
Unemployment in rural areas have increased.
-         The second one is the information provided by employment exchanges.
In 2001, about 420 lakh job-seekers were registered with employment exchanges about 26% were women.
POPULATION GROWTH AND UNEMPLOYMENT:
- when the number of people increases in a country much faster than the increase in employment opportunities, that situation may lead to unemployment.
-         the rapid population growth has created an army of labour force.
-         Population on primary sector is already very high.
-         The responsibility of creating more jobs should be shared by both secondary and tertiary sectors.
STRATEGIES TO REDUCE UNEMPLOYMENT
The govt has undertaken many special programmes to generate employment opportunities. The major ones among them are:
RURAL WORKS PROGRAMME:
-         xonstruction of civil works of permanent nature in rural areas.
INTEGRATED DRY LAND AGRICULTURAL DEVELOPMENT:
-         permanent works like soil conservation, development of land and water harnessing are undertaken.
NATIONAL RURAL EMPLOYMENT PROGRAMME:
-         to create community assets for strengthening rural infrastructure like drinking water wells, community works, irrigation wells, rural roads, schools etc.
The Rural Landless Employment Guarantee Programme aims at generating gainful employment, creating productive assets in rural areas and improving the overall quality of rural life.
SKILL DEVELOPMENT:
-         a skilled labour is one who has proper training and education to work in a particular field.
-         Training and education increase the productivity of workers.
-         Educate and provide specialized training to the labour force
-         To ensure continous employment of labour
-         Able to absorb new technologies at work.
-         To compete with labour force of the other developed countries.
With a view to impart shills through training, the govt of India has taken many steps.
-         The Central Board Of Workers Education (CBWE) formed in1958 is creating understanding and enthusiasm among workers.
-         There are around 4300 Industrial Training Institutes(ITI) to produce specialized workers.
-         Various ministries of the govt of India are providing vocational Education and Training which has introduced vocational education in the school system and there is a provision for vocational education after class X.
Problems associated with these steps are
-         restructuring and reorientation of ITI courses with the changing system.
-         Industry-institute interaction continues to be weak.
-         Vocational system in schools has to be modified.
ENTREPRENEURIAL DEVELOPMENT:
Growth of employment involves
-         setting up of new businesses
-         expertise and organizing ability
-         training and implementing schemes which are necessary to promote self-employment.
-         Low cost capital provided by the Govt to small enterprises and self-employed persons to develop their entrepreneurial ability.
-         Giving technical and professional help in running the business.
-         Banks providing credit facilities at concessional rates.
-         All the above have helped in expansion of India’s industries and business into newer domains and regions.

WORLD LABOUR MARKET AND INTERNATIONAL MIGRATION

-         Labour market is an imaginary situation in which a worker or a group of workers provide their labour to employers in exchange for some payment.
-         Types of labour market are construction labour market( construction activity) Agricultural Labour Market ( agricultural activity) and world Labour market, where people migrate from country to country.
-         Rural people migrate from villages to urban areas or region to region in search of better opportunities.
-         Highly skilled people migrate from country to country this is also called brain drain.
-         Brain drain and migration of skilled workers to other countries reduces the availability of workers in the country but also results in additional income for the country.
-         Globalisation has resulted in great demand for the highly skilled especially in the IT field.
-         The migration of skilled labour to developed countries have created demographic changes and threat to local population and hence these countries create barriers to avoid such flow of people.

PRICE RISE

We observe that over a period of time the costs of goods gradually increase why? Such price rise are measured by an index.

In India, there are two index numbers (a) Wholesale price index and consumer price index and about 460 goods are included in the index.
-What is a price index: It is a tool to measure the price rise.
-         How it is measured? The average price of all the goods and services are selected for the 1st year and considered as a base year and given an index of 100. During the next year if the average price rises by 25% over previous year then the price index for the 2nd year is 125 and so on
-         The consumer price index includes those items, which are consumed generally by workers of all categories such as agricultural labourers, industrial workers etc.
-         The consumer price includes goods such as food items, clothing and other essentials.

CAUSES OF PRICE RISE


-         When people have more income on hand, the demand for goods and services increase. If the supply of these goods and services are not adequate there is a shortage and results in price increase of these goods and services.
-         When the cost of production goes up because of increase in price of raw materials.
-         Some people with an aim to make quick profit hoard the goods and create an artificial demand and then they sell the goods at a higher price. This is called hoarding and black marketing.

 

 

 

WHY REGULATION OF PRICES


-         Generally moderate price rise is regarded good for an economy.
-         When the producers want to raise their standard of living, they will demand higher price for their products. This will lead to an increase in the cost of production and thereby price rise. Finally the consumers have to pay higher price. If the benefit of increased price will go to the workers then this is good for the economy.
-         Regulation is needed when traders make more profit and do not share it with their workers by way of increased wages etc. Some times the traders profit through the essential commodities such as milk, rice, wheat etc. Here the Govt interferes to regulate the price rise.

STEPS TAKEN BY THE GOVT TO CONTROL PRICE RISE
-         Monetary measures: Whenever there is price rise Reserve Bank of India reduces the money circulation in the economy. This reduces the tendency of the consumer to spend, results in less demand for goods and thereby lowers the price.
-         Fiscal Measures: By imposing high taxes on high- income groups and many consumable goods. When people have less money then they will spend less and this results in price decline.
-         Public Distribution system. By supply of essential goods such as rice, wheat, oil etc and controlled rates through the PDS –Public Distribution System to the poor people. These prices are less than the market prices. The cost of price difference is borne by the Govt and is known as subsidy.
-         . Administered Price Mechanism; In order to prevent hoarding and to provide basic essentials at reasonable price government fixes the price and asks the traders to sell them at that rate fixed by govt. Law enacted to this effect is the essential commodity act 1955.Those overriding the law will be penalized. Subsidies under this measure is borne by the government.Until recently petrol, diesel, LPG, cement were kept under administrative price control , but now they are free from it. Essential drugs and fertilizers still belong to Administrative Price Mechanism.
-         Government takes different measures to regulate the prices but sometimes it becomes difficult like in the year 1998 the price of onions rose to great extent that India was forced to import it.

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