Economic Survey of India

1947-48 to 2008-09

Contents

Author's Note on the Book vii-xvi

1. Indian Economy Since Independence: An Overview 1-241.1 Economic Scene on the Eye of Independence1.2 From Regulations and Controls to Economic Liberalisation1.3 Human Resources1.4 Economic Planning1.5 Agriculture1.6 Industry1.7 Infrastructure Development1.8 Fiscal Policy1.9 Money and Prices1.10 Banking and Finance1.11 Employment and Labour Welfare1.12 Human Development and Social Security1.13 Environment1.14 Foreign Trade

2. Indian Agriculture: Major Developments and Initiatives 25-752.1 Nature and Importance of Agriculture in the Indian Economy

2.1.1 Agriculture in the Constitution of India2.1.2 Role of Agriculture in the Indian Economy2.1.3 Use Distribution of India's Geographical Area2.1.4 Cropping Pattern in Indian Agriculture

2.1.4.1 Classification of Agricultural Crops2.1.5 Subsistence Nature of Farming2.1.6 Small-sized Agricultural Holdings

2.1.6.1 Reasons for Small Holdings2.1.6.2 Disadvantages of Small Holdings2.1.6.3 Farm Size and Productivity

2.1.7 Low Productivity of Indian Agriculture2.1.7.1 Causes of Low Productivity

xviii # Economic Survey of India: 1947-48 to 2008-09

2.2 Land Reforms2.2.1 Aspects of Land Reforms

2.2.1.1 Abolition of Intermediaries2.2.1.2 Tenancy Reforms2.2.1.3 Security of Tenure2.2.1.4 Regulation of Rents2.2.1.5 Ownership Rights2.2.1.6 Ceiling on Land Holdings2.2.1.7 Consolidation of Holdings

2.2.2 Critical Appraisal of Land Reforms in India2.2.2.1 Lack of Political Will2.2.2.2 Indifferent Attitude of Bureaucracy2.2.2.3 Legal System Protecting Right to Property2.2.2 A Absence of Pressure from Rural Poor2.2.2.5 Absence of Up-to-date Land Records

2.2.3 Recent Plans on Land Reforms2.2.3.1 Eighth Five Year Plan (1992-97)2.2.3.2 Ninth Five Year Plan (1997-02)2.2.3.3 Tenth Five Year Plan (2002-07)2.2.3.4 Approach Paper to Eleventh Five Year

Plan (2007-12)2.3 Agricultural/Rural Credit

2.3.1 Credit Needs of the Indian Farmers2.3.2 Sources of Rural Credit

2.3.2.1 Co-operative Societies2.3.2.2 Micro Finance2.3.2.3 Kisan Credit Cards (KCCs)2.3.2.4 Moneylenders

2.4 Marketing of Agricultural Produce2.4.1 Present System of Marketing2.4.2 Measures to Improve Agricultural Marketing2.4.3 Inter-Ministerial Task Force on Agricultural Marketing2.4.4 Salient Features of the Model Act for State Agricultural

Produce Marketing (Development and Regulation) Act, 20032.5 New Agricultural Strategy/Green Revolution

2.5.1 Scope and Achievements of High Yielding Variety (HYV)Programme

2.5.2 Problems Created by Green Revolution2.5.2.1 Inter-regional Inequalities

Contents xix

2.5.2.2 Inter-personal Inequalities2.5.2.3 Inter-crop Imbalances2.5.2.4 Fluctuating Output2.5.2.5 Neutrality to Scale2.5.2.6 Social Costs

2.6 Agricultural Price Policy, Food Subsidy and PublicDistribution System2.6.1 Minimum Support Prices2.6.2 Food Subsidy2.6.3 Public Distribution System (PDS)

2.6.3.1 Targeted Public Distribution System (TPDS)2.7 Recent Initiatives in Indian Agriculture

2.7.1 National Agriculture Policy, 20002.7.2 Protection of Plant Varieties and Farmer's

Rights Legislation2.7.3 Development of Food Processing Industry2.7.4 Agricultural Exports and Imports

2.7.4.1 Agricultural Exports2.7.4.2 Agriculture-export Zones2.7.4.3 Agricultural Imports2.7.4.4 Protecting Domestic Agriculture2.7.4.5 Vishesh Krishi Upaj Yojana

2.7.5 Oilseeds/Edible Oils: Widening Shortfall2.7.6 Policy Initiatives for New Employment Opportunities2.7.7 Crop Diversification Measures

2.7.7.1 Emphasis on Horticultural Crops2.7.7.2 Agricultural Diversification in the 2005-06

Union Budget2.7.8 Recent Initiatives to Boost Plantation Sector2.7.9 Marine Fishing Policy, 2004

2.7.9.1 Policy Objectives2.7.9.2 Main Provisions of the Policy

2.7.10 National Commission on Fanners2.7.11 Eleventh Five Year Plan (2007-12) on Agriculture

3. Year-wise Review of Agricultural Developments in India:1947-48 to 2008-09 76-126

xx Economic Survey of India: 1947-48 to 2008-09

4. Indian Industry: From Controls and Regulations toLiberalisation and Privatisation 127-1864.1 Legal Framework for Industrialisation

4.1.1 Constitutional Provisions4.1.2 Industrial (Development and Regulation) Act, 19514.1.3 Monopolies and Restrictive Trade Practices (MRTP)

Act, 19694.1.4 FERA and FEMA4.1.5 Competition Act, 2002 .

4.2 Post-Independence Industrial Policy4.2.1 Industrial Policy Resolution, 19484.2.2 Industrial Policy Resolution, 1956

4.2.2.1 Categorisation of Industries4.2.2.2 Other Features

4.2.3 Industrial Policy Statements 1973,1977 and 19804.2.4 Industrial Policy, 1950-80: A Critique

4.2.4.1 Expansion of Public Sector4.2.4.2 Regulation and Controls of Private Sector4.2.4.3 Absence of Internal Competition4.2.4.4 Absence of Foreign Competition

4.2.5 Disillusionment and Rethinking4.2.6 Pressure for Industrial Liberalisation

4.2.6.1 Internal Factors4.2.6.2 External Factors

4.2.7 New Economic Policy and IndustrialLiberalisation, 1985

4.2.8 Industrial Policy Statement, 19914.3 Public Sector Enterprises

4.3.1 Objectives of Public Sector Enterprises4.3.2 Organisation of Public Sector

4.3.2.1 Departmental Undertakings4.3.2.2 Government Companies4.3.2.3 Public Corporations4.3.2.4 Holding Companies,

4.3.3 Poor Performance and Rethinking4.3.4 Industrial Policy Statement, 1991 on Public Sector

Contents xxi

4.3.5 Public Sector Disinvestment Commission4.3.5.1 Classification of Industry Groups4.3.5.2 Objectives and Strategy4.3.5.3 Loss-making PSUs4.3.5.4 Profit-making PSUs4.3.5.5 Criteria for Disinvestment4.3.5.6 Use of Disinvestment Proceeds

4.3.6 Disinvestment/Privatisation in Action4.3.7 Supreme Court Judgement, September 16,20034.3.8 Public Sector at the State Level4.3.9 Future of Public Sector

4.4 Small-scale Industries4.4.1 Introduction

4.4.1.1 Modern Small Industries4.4.1.2 Traditional Industries

4.4.2 Arguments for Small-scale Industries4.4.2.1 High Employment Potential4.4.2.2 Widely Dispersed Entrepreneurial Base4.4.2.3 Relatively Low Capital Investment4.4.2.4 Regional Balanced Development4.4.2.5 Export Potential

4.4.3 Problems of Small Industries4.4.3.1 Technological Obsolescence4.4.3.2 Inadequate and Irregular Supply of Raw Material4.4.3.3 Imperfect Knowledge of Market Conditions4.4.3.4 Inadequate Availability of Finance and Credit4.4.3.5 Lack of Infrastructural Facilities4.4.3.6 Deficient Managerial and Technical Skills

4.4.4 Policy Measures to Help Small Industries4.4.4.1 Reservation of Items for Exclusive Production by

Small-scale Industries (SSI)4.4.4.2 Excise Duty Concessions4.4.4.3 Priority in the Disbursement of Loans by the

Financial Institutions4.4.4.4 Other Concessions

4.4.5 Recent Policy Initiatives for Promoting Small Industries4.4.6 Small-Scale Industries in the 2006-2007 Union Budget4.4.7 Micro, Small and Medium Enterprises Development

(MSMED) Act, 2006: Main Provisions

xxii Economic Survey of India: 1947-48 to 2008-09

4.4.8 Conclusion4.5 Industrial Relations and Restructuring of Labour Laws

4.5.1 Industrial Relations: Post-Independence Trends4.5.1.1 From Laissez Faire to State Intervention4.5.1.2 First National Commission on Labour, 19694.5.1.3 Declaration of Emergency, 19754.5.1.4 Post-Emergency to 19904.5.1.5 Post-liberalisation Period (1991 onwards)

4.5.2 Contract Labour4.5.2.1 Meaning and Forms of Contract Labour4.5.2.2 Contract Labour (Regulation and Abolition)

Act, 19704.5.2.3 Employers' Viewpoint4.5.2.4 Workers' Viewpoint4.5.2.5 Issues in Regulating Contract Labour

4.5.3 Industrial Disputes Act, 19474.5.4 National Commission on Labour, 20024.5.5 Labour Reforms: A Touchy Issue

4.6 Industrial Sickness4.6.1 Causes of Industrial Sickness

4.6.1.1 External Causes4.6.1.2 Internal Causes

4.6.2 Measures to Help Sick Industrial Units4.6.3 Government Policy Regarding Nationalisation of

Sick Industrial Units

5. Year-wise Review of Industrial Developments in India:1947-48 to 2008-09 187-258

6. India's Fiscal Policy: From Fiscal Adjustments toFiscal Accounting 259-3036.1 Central Government Budget

6.1.1 Annual Financial Statement6.1.2 Revenue Budget

6.1.2.1 Revenue Receipts6.1.2.2 Revenue Expenditure

Contents xxiii

6.1.3 Capital Budget6.1.3.1 Capital Receipts6.1.3.2 Capital Expenditure

6.1.4 Various Measures of Budget Deficit andTheir Significance6.1.4.1 Overall Deficit (or Budgetary Deficit)6.1.4.2 Fiscal Deficit6.1.4.3 Revenue Deficit6.1.4.4 Primary Deficit6.1.4.5 Monetised Deficit

6.1.5 Fiscal Responsibility and Budget Management Act(FRMBA), 2003

6.2 Trends in Combined (Centre and States) Tax Revenues6.2.1 Trends in Tax-GDP Ratio6.2.2 Trends in the Relative Significance of Direct and

Indirect Taxes6.2.2.1 Reversal of Roles

6.3 Trends in Central Taxes6.3.1 Direct and Indirect Taxes6.3.2 Composition of Direct Taxes

6.3.2.1 Income Tax6.3.2.2 Wealth Tax

6.3.3 Composition of Indirect Taxes6.3.3.1 Union Excise Duties6.3.3.2 Service Tax6.3.3.3 Customs Duties

6.4 Trends in State Taxes6.4.1 Direct and Indirect Taxes

6.4.1.1 Composition of Direct Taxes6.4.1.2 Composition of Indirect Taxes

6.4.2 Local Finance6.5 Public Expenditure in India

6.5.1 Classification of Public Expenditure in India6.5.1.1 Structure of Revenue Expenditure6.5.1.2 Structure of Capital Expenditure

6.5.2 Factors Responsible for Increase inPublic Expenditure

6.5.3 Public Expenditure Policy6.6 Public Debt in India

xxiv Economic Survey of India: 1947-48 to 2008-09

6.6.1 Rationale for Government Borrowings6.6.2 Constitutional Provisions Pertaining to Public

Borrowings in India6.6.3 Instruments of Government Borrowings in India6.6.4 States' Indebtedness6.6.5 Recent Trends in Central Government Liabilities6.6.6 Debt Restructuring Suggested by the Twelfth

Finance Commission6.7 Centre-State Financial Relations

6.7.1 India: A Federal Polity6.7.2 Rationale for Constitutional Arrangements6.7.3 Sharing of Central Taxes6.7.4 Centralisation of Revenues and the Need for Transfers6.7.5 Mechanism of Central Transfers to the States6.7.6 Transfer of Resources through the Finance Commission

6.7.6.1 From Itemised Sharing to Global Sharing

7. Year-wise Review of Fiscal Developments in India:1947-48 to 2008-09 304-374

V: Morteil&iiMees-in IndiaW ym$&

8. Monetary Management and Price Policy in India:Controlled Expansion with Economic Stability 375-3988.1 Monetary Policy

8.1.1 Objectives8.1.2 Monetary Policy-Fiscal Policy Interface8.1.3 Measures of Money Supply in India8.1.4 Reserve Bank of India's Monetary Policy8.1.5 Monetary Policy Reforms Since 1991

8.1.5.1 Ways and Means Advances (WMA)Replace Treasury Bills

8.1.5.2 Reactivation of the Bank Rate8.1.5.3 Deregulation of Interest Rate8.1.5.4 Deregulation of Credit

8.2 Credit Policy in India8.2.1 Allocation of Credit between Government and the

Private Sector

Contents xxv

8.2.2 Inter-sectoral Allocation of Institutional Credit8.2.3 Inter-regional Allocation of Credit

8.3 RBI's Internal Group on Liquidity Adjustment Facility8.3.1 Recommendations Regarding Day-to-day Liquidity

Management8.3.2 Recommendations Regarding Sterilisation

8.4 Changing Monetary Policy Paradigm in India8.5 Recent Challenges8.6 Price Rise Defined8.7 How is Price Rise Measured?8.8 Need to Monitor and Moderate Price Rise8.9 Causes of Price Rise

8.9.1 Excess of Demand8.9.2 Lack of Supply8.9.3 Other Factors

8.10 Effects of Price Rise8.11 Determinants of Price Policy8.12 Constituents of Price Policy

8.12.1 Fiscal Policy8.12.2 Monetary Policy8.12.3 Commercial Policy

8.13 Role and Coverage of Controls8.14 Role of Buffer Stock Operations8.15 Price Policy of the Government

8.15.1 Demand Side8.15.2 Supply Side

8.15.2.1 Agricultural Sector8.15.2.2 Industrial Sector

9. Year-wise Review of Money and Prices in India:1947-48 to 2008-09 399-462

apcl-Finf riQgyn India! „£*-•

10. Banking and Financial Markets in India:From Financial Repression to Financial Openness 463-50910.1 Financial System of India: An Introduction

10.1.1 Post-Independence Developments

xxvi Economic Survey of India: 1947-48 to 2008-09

10.1.1.1 Nationalisation of Imperial Bank ofIndia (1955)

10.1.1.2 Nationalisation of Life InsuranceBusiness (1956)

10.1.1.3 Nationalisation of Commercial Banks(1969 and 1980)

10.1.1.4 Nationalisation of General InsuranceBusiness (1973)

10.1.1.5 Rethinking on Government Domination ofFinancial Sector

10.1.1.6 From Financial Repression to FinancialLiberalisation (1991 onward)

10.2 Reserve Bank of India10.2.1 Functions of RBI

10.2.1.1 Sole Currency Authority10.2.1.2 Banker to the Governments10.2.1.3 Bankers' Bank and Lender-of-the-last-resort10.2.1.4 Controller of Money and Credit10.2.1.5 Controller of Foreign Exchange

10.2.2 Source of Economic Information10.2.3 Promotional Role of RBI

10.3 Commercial Banks D

10.3.1 Classification of Commercial Banks in India10.3.2 Post-Independence Developments in Commercial

Banking10.3.2.1 Pre-nationalisation Period10.3.2.2 Post-nationalisation Period

10.3.3 Banking Sector Reforms since 199110.3.3.1 Objectives of Banking Sector Reforms10.3.3.2 Contents of Banking Sector Reforms

10.4 Co-operative Banks10.5 Development Finance Institutions

10.5.1 The Changed Scenario10.6 Non-banking Financial Companies10.7 Mutual Funds10.8 Money Market

10.8.1 Meaning and Functions of Money Market10.8.2 Reserve Bank of India (RBI) and the Money Market10.8.3 Developments in the Money Market since 1991

Contents xxvii

10.9 Government Securities Market10.9.1 RBI and the Government Securities Market10.9.2 Post-1991 Measures to Promote Government

Securities Market10.9.3 Fiscal Responsibility and Budget Management

(FRBM) Act, 200310.10 Capital Market

10.10.1 Meaning and Importance10.10.2 Stock Market10.10.3 Capital Market in the Pre-reforms

(i.e. Pre-1991) Period10.10.4 Establishment of Securities and Exchange

Board of India (SEBI)10.10.5 Reforms in the Capital Market since 1991

10.10.5.1 New Capital Issues: Introduction ofFree Pricing

10.10.5.2 Disclosure Norms10.10.5.3 Transparency and Efficiency10.10.5.4 Shortening of Settlement Cycle10.10.5.5 Strengthening Regulatory Framework10.10.5.6 Derivatives Market

10.11 Insurance Market10.11.1 Nationalisation of Insurance Business

10.11.1.1 Nationalisation of Life Insurance (1956)10.11.1.2 Nationalisation of General Insurance

Business (1973)10.11.2 Reinsurance Business10.11.3 Weaknesses of Insurance Industry Prior to

Reforms of Late 1990s10.11.3.1 Low Productivity10.11.3.2 Lack of Information Technology10.11.3.3 Limited Availability of Insurance

Products10.11.3.4 Poor Quality of Insurance Services

10.11.4 Committee on Reforms in Insurance Sector(Chairman: R.N. Malhotra), 1994

10.11.5 Indian Insurance Business: Current Status10.12 Foreign Exchange Market

10.12.1 Foreign Exchange Regulation Act (FERA), 1947

xxviii Economic Survey of India: 1947-48 to 2008-09

10.12.2 Foreign Exchange Regulation Act (FERA), 197310.12.3 Foreign Exchange Management Act (FEMA), 199910.12.4 Foreign Exchange Policy Initiatives since 1991

10.12.4.1 Introduction of Liberalised ExchangeRate Management System (LERMS)

10.12.4.2 Current Account Convertibility10.12.4.3 Capital Account Convertibility (CAC)

11. Year-wise Review of Banking and FinancialDevelopments in India: 1947-48 to 2008-09 510-558

. ;; ••:"TJ^SSfvri^India's Foreign Trade -'-' . .. '" ;

12. Foreign Trade of India: From Protectionism to Openness 559-61212.1 India's Post-Independence Trade Policy

12.1.1 Partition and the Aftermath12.1.1.1 Depletion of Sterling Balances12.1.1.2 Empire Dollar Pool12.1.1.3 Devaluation of the Rupee in September 194912.1.1.4 Korean War and the Export Boom12.1.1.5 Trade Agreement with Pakistan, 1950

12.1.2 Devaluation of the Rupee in June 196612.1.3 Import Substitution: Cornerstone of Trade Policy12.1.4 Balance of Payments Crisis, 199112.1.5 Post-1991 Reforms in Foreign Trade Sector

12.1.5.1 East Asian Crisis12.1.6 Tenth Five Year Plan (2002-07) on the Role of

Foreign Trade12.1.7 Eleventh Five Year Plan (2007-12) on Trade

Liberalisation12.1.8 India's Look East Policy12.1.9 India's Share in World Trade12.1.10 Summing Up

12.2 Exports: Trends in Composition, Destination andStrategy12.2.1 Post-Independence Export Performance12.2.2 Trends in the Composition of Exports

12.2.2.1 Project Exports from India

Contents xxix

12.2.2.2 India's IT Sector12.2.2.3 Gems and Jewellery: Recent Export

Measures12.2.3 Trends in the Destination of Exports12.2.4 Export Strategy and Concerns

12.2.4.1 Reservations for Small-Scale Industries andExport Growth

12.2.4.2 Competitiveness of Exports12.2.4.3 Medium Term Export Strategy (MTES)

12.2.5 Future of India's Exports12.3 Imports: Trends in Composition and Origin

12.3.1 Trends in the Composition of Imports12.3.2 Import Intensity of Exports in India12.3.3 Trends in the Origin of Imports12.3.4 Reduction in Tariff and Non-tariff Barriers /12.3.5 Future of India's Imports

12.4 India's Export-Import (EXIM) Policy12.4.1 EXIM Policy, 1992-93 to 1996-9712.4.2 EXIM Policy, 1997-98 to 2001-02

12.4.2.1 Objectives12.4.2.2 Salient Features

12.4.3 EXIM Policy, 2002-03 to 2006-0712.4.3.1 Special Economic Zones (SEZs)12.4.3.2 Employment Generation12.4.3.3 Technology Upgradation12.4.3.4 Growth-oriented

12.4.4 Foreign Trade Policy (FTP) 2004-05 to 2008-0912.4.4.1 Objectives and Strategy12.4.4.2 Special Focus Initiatives12.4.4.3 New Export Promotion Schemes12.4.4.4 Simplification, Rationalization and

Modifications of Ongoing Schemes12.4.4.5 Simplification of Rules and Procedures and

Institutional Measures12.5 WTO and India's Foreign Trade

12.5.1 WTO: An Introduction12.5.2 Third Trade Policy Review of India at

WTO (June 2002)

xxx Economic Survey of India: 1947-48 to 2008-09

13. Year-wise Review of Developments in India's Foreign Trade:1947-48 to 2008-09 613-698

Part VIII: Time-series Data on Indian Economy' 699-716

Table 1 Gross National Product, Net National Product and Per CapitaNet National Product: 1950-51 to 2006-07 (1999-2000 series)

Table 2 Trends in the Production of Foodgrains in India:1950-51 to 2006-2007 (Million tonnes)

Table 3 Index Numbers of Industrial Production: 1981 -82 to 2006-07Table 4 Combined Tax Revenue, Breakdown between Direct and

Indirect Taxes with Percentage Shares, and Tax-GDP Ratios:1950-51 to 2006-07

Table 5 Components of Money Stock: 1970-71 to 2006-07Table 6 Wholesale Price Index: 1993-94 to 2006-07Table 7 Savings Deposits with Scheduled Commercial Banks:

1951-52 to 2004-2005Table 8 Trends in Call Money Rate, Exchange Rate, BSE

Sensex and NIFTY: 1965 to 2008Table 9 Trends in India's Trade Balance: 1971-72 to 2007-2008

Index 717-728