Test: Class 11 Economy NCERT Based - 2 - UPSC MCQ

• The portion of agricultural produce which is sold in the market by the farmers is called marketed surplus.

• A good proportion of the rice and wheat produced during the green revolution period (available as marketed surplus) was sold by the farmers in the market. As a result, the price of food grains declined relative to other items of consumption.

• The low- income groups, who spend a large percentage of their income on food, benefited from this decline in relative prices.

The green revolution enabled the government to procure sufficient amounts of food grains to build a stock which could be used in times of food shortage.

• The government provided loans at a low interest rate to small farmers and subsidised fertilisers so that small farmers could also have access to the needed inputs.

• Since the small farmers could obtain the required inputs, the output on small farms equalled the output on large farms in the course of time.

• As a result, the green revolution benefited the small as well as rich farmers. The risk of the small farmers being ruined when pests attack their crops was considerably reduced by the services rendered by research institutes established by the government.

• It is generally agreed that it was necessary to use subsidies to provide an incentive for adoption of the new HYV technology by farmers in general and small farmers in particular.

• Any new technology will be looked upon as being risky by farmers. Subsidies were, therefore, needed to encourage farmers to test the new technology. Some economists believe that once the technology is found profitable and is widely adopted, subsidies should be phased out since their purpose has been served.

• Further, subsidies are meant to benefit the farmers but a substantial amount of fertiliser subsidy also benefits the fertiliser industry; and among farmers, the subsidy largely benefits the farmers in the more prosperous regions.

• Therefore, it is argued that there is no case for continuing with fertiliser subsidies; it does not benefit the target group and it is a huge burden on the government’s finances.

• Economists have found that poor nations can progress only if they have a good industrial sector. Industry provides employment which is more stable than the employment in agriculture; it promotes modernisation and overall prosperity.

• It is for this reason that the five year plans place a lot of emphasis on industrial development.

• Industrial Policy Resolution 1956 (IPR 1956): In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted.

• This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society. This resolution classified industries into three categories.

• The first category comprised industries which would be exclusively owned by the state; the second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units; the third category consisted of the remaining industries which were to be in the private sector.

• Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. No new industry was allowed unless a license was obtained from the government.

• This policy was used for promoting industry in backward regions; it was easier to obtain if the industrial unit was established in an economically backward area. In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality.

• The industrial policy that we adopted was closely related to the trade policy. In the first seven plans, trade was characterised by what is commonly called an inward looking trade strategy.

• Technically, this strategy is called import substitution. This policy aimed at replacing or substituting imports with domestic production.

• For example, instead of importing vehicles made in a foreign country, industries would be encouraged to produce them in India itself. In this policy the government protected the domestic industries from foreign competition. Protection from imports took two forms: tariffs and quotas.

• Tariffs are a tax on imported goods; they make imported goods more expensive and discourage their use. Quotas specify the quantity of goods which can be imported.

• The effect of tariffs and quotas is that they restrict imports and, therefore, protect the domestic firms from foreign competition.

• The need to obtain a license to start an industry was misused by industrial houses; a big industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms.

• The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient. More time was spent by industrialists in trying to obtain a license or lobby with the concerned ministries rather than on thinking about how to improve their products.

• The protection from foreign competition is also being criticised on the ground that it continued even after it proved to do more harm than good. Due to restrictions on imports, the Indian consumers had to purchase whatever the Indian producers produced.

• The producers were aware that they had a captive market; so they had no incentive to improve the quality of their goods. Why should they think of improving quality when they could sell low quality items at a high price? Competition from imports forces our producers to be more efficient.

• In pre-independent India, Dadabhai Naoroji was the first to discuss the concept of a Poverty Line. He used the menu for a prisoner and used appropriate prevailing prices to arrive at what may be called ‘jail cost of living’.

• However, only adults stay in jail whereas, in an actual society, there are children too. He, therefore, appropriately adjusted this cost of living to arrive at the poverty line.

• For this adjustment, he assumed that one-third of the population consisted of children and half of them very little while the other half half of the adult diet. This is how he arrived at the factor of three-fourths; (1/6)(Nil) + (1/6)(Half) + (2/3)(Full) = (3/4) (Full).

• The weighted average of consumption of the three segments gives the average poverty line, which comes out to be three-fourth of the adult jail cost of living. In post-independent India, there have been several attempts to work out a mechanism to identify the number of poor in the country.

• For instance, in 1962, the Planning Commission formed a Study Group. In 1979, another body called the ‘Task Force on Projections of Minimum Needs and Effective Consumption Demand’ was formed. In 1989 and 2005, ‘Expert Groups’ were constituted for the same purpose.

• Categorising Poverty: There are many ways to categorise poverty. In one such way people who are always poor and those who are usually poor but who may sometimes have a little more money (example: casual workers) are grouped together as the chronic poor.

• Another group are the churning poor who regularly move in and out of poverty (example: small farmers and seasonal workers) and the occasionally poor who are rich most of the time but may sometimes have a patch of bad luck. They are called the transient poor. And then, there are those who are never poor and they are the non-poor.

• There are many ways of measuring poverty. One way is to determine it by the monetary value (per capita expenditure) of the minimum calorie intake that was estimated at 2,400 calories for a rural person and 2,100 for a person in the urban area. Based on this, in 2011-12, the poverty line was defined for rural areas as consumption worth Rs 816 per person a month and for urban areas it was Rs 1,000.

• Though the government uses Monthly Per Capita Expenditure (MPCE) as a proxy for income of households to identify the poor. State that a major problem with this mechanism is that it groups all the poor together and does not differentiate between the very poor and the other poor.

• The government has a variety of social security programmes to help a few specific groups. The National Social Assistance Programme is one such programme initiated by the central government. Under this programme, elderly people who do not have anyone to take care of them are given pension to sustain themselves.

• Poor women who are destitute and widows are also covered under this scheme. The government has also introduced a few schemes to provide health insurance to poor people.

• From 2014, a scheme called Pradhan Mantri Jan-Dhan Yojana is available in which people in India are encouraged to open bank accounts. Besides promoting savings habits, this scheme intends to transfer all the benefits of government schemes and subsidies to eligible account holders directly.

• Each bank account holder is also entitled to Rs. 1 lakh accident insurance and Rs. 30,000 life insurance cover.

• Physical and Human Capital: Both the forms of capital formation are outcomes of conscious investment decisions. Decisions regarding investment in physical capital are taken on the basis of one’s knowledge in this regard.

• The entrepreneur possesses knowledge to calculate the expected rates of return to a range of investments and then rationally decides which one of the investments should be made. The ownership of physical capital is the outcome of the conscious decision of the owner — the physical capital formation is mainly an economic and technical process.

• A substantial part of the human capital formation takes place in one’s life when she/he is unable to decide whether it would maximise her/his earnings. Children are given different types of school education and health care facilities by their parents and the society.

• What is the Difference Between the approach of Development of Human Capital and Human Development? Human capital considers education and health as a means to increase labour productivity.

• Human development is based on the idea that education and health are integral to human well-being because only when people have the ability to read and write and the ability to lead a long and healthy life, they will be able to make other choices which they value.

• Human capital treats human beings as a means to an end; the end being the increase in productivity. In this view, any investment in education and health is unproductive if it does not enhance output of goods and services.

• In the human development perspective, human beings are ends in themselves. Human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity.

• Therefore, basic education and basic health are important in themselves, irrespective of their contribution to labour productivity.

• The institutional structure of rural banking today consists of a set of multi-agency institutions, namely, commercial banks, regional rural banks (RRBs), cooperatives and land development banks.

• They are expected to dispense adequate credit at cheaper rates. Recently, Self-Help Groups (henceforth SHGs) have emerged to fill the gap in the formal credit system because the formal credit delivery mechanism has not only proven inadequate but has also not been fully integrated into the overall rural social and community development.

• Since some kind of collateral is required, a vast proportion of poor rural households were automatically out of the credit network. The SHGs promote thrift in small proportions by a minimum contribution from each member. From the pooled money, credit is given to the needy members to be repayable in small instalments at reasonable interest rates. By March end 2003, more than seven lakh SHGs had reportedly been credit linked.

• Prior to independence, farmers, while selling their produce to traders, suffered from faulty weighing and manipulation of accounts.

• Farmers who did not have the required information on prices prevailing in markets were often forced to sell at low prices. They also did not have proper storage facilities to keep back their produce for selling later at a better price.