2_Review of ECONOMICS-II(Draft 2)

the manufacturing sector has moved up to 126.5 for the appraisal quarter, its highest reading since the April-June 2007 quarter. In the last quarter of the year, the manufacturing industry showed positive results despite less than impressive performance in other sectors. 6.2.1 Growth in India’s manufacturing sector Approximately 50 sectors in India’s domestic manufacturing sector grew by 39 percent during the April – December 2010 period, achieving the “excellent growth” category. These segments are air conditioners, natural gas, tractors, nitrogen fertilizers, ball bearings, electrical and cable wires, auto components, construction equipment, electric fans and the tire industry. Twenty-two segments entered the “high growth” group, registering a growth of 17.3 percent during the first nine months of the existing fiscal. Industries such as utility vehicles, crude oil, power transformers, energy meters, alcoholic beverages and textile machinery have registered around 10-20 percent growth. Exports from Indian SEZs grew by over 68 percent (to US$12.55 billion) as compared to the corresponding period of 2009-10. Floating by India’s reaction to its super-machines, iconic American superbike maker Harley Davidson is setting up an assemblage unit at Bawal, Haryana. This will be its second establishment outside the United States, after Brazil. Field Fresh, the 50:50 JV of Bharti Enterprises and Filipino firm Del Monte Pacific Ltd formed in 2007, has started its R&D and manufacturing unit at Hosur, Tamil Nadu, with an initial establishing cost of US$26 million. Doosan Heavy Industries and Construction Co Ltd of South Korea has shown interest in setting up a power equipment manufacturing unit in Haryana to be fully owned by the overseas corporation. Pipavav Shipyard has signed a memorandum of understanding (MoU) with SAAB Dynamics AB, part of Sweden’s Wallenberg Group, for the manufacturing of products in the defense and aerospace sectors. Rieter Nittoku Automotive Sound Proof Products India Pvt Ltd, a joint venture between Rieter group of Switzerland and Nihon Tokushu Toryo Co Ltd of Japan, has invested US$15 million in a new unit at Oragadam, near Chennai. Nissan Motors and Nokia have already shown interest in increasing their unit size in India. India is quickly rising as a worldwide manufacturing hub with a huge number of companies 101 CU IDOL SELF LEARNING MATERIAL (SLM)

changing their manufacturing base to the country. Furthermore, India has the largest number of companies, outside of Japan, that have been recognized for excellence in quality. The government has issued the new “Consolidated Foreign Direct Investment Policy,” which came into effect April 1, 2010. The government is also planning to set up National Manufacturing and Investment Zones (NMIZs). Main objectives of these NMIZs are:  To promote investments in the manufacturing sector and make the country a hub for both domestic and international markets  To increase the sectoral share of manufacturing in GDP to 25 percent by 2022  To double the current employment level in the sector  To enhance global competitiveness of the sector 6.2.2 Reasons for Dissatisfaction One of the main reasons for the dissatisfaction amongst foreign investors is procedural delays. The time-intense administration and compliance measures, the bureaucratic layers and the numerous bodies from which clearances are to be obtained all add up to considerable business costs and management time, creating an issue of severe concern for investors. Most investors feel that projects handled at the state level are disorganized and unstructured in comparison to the projects handled at central level. But it is evident now that some foreign investors show dissatisfaction in only some areas, whereas FDI inflow in the manufacturing sector is upbeat and encouraging. A huge number of foreign direct investors (around 62 percent) stated that they were making profits in their current operations in India according to the FICCI survey. This is a cheering figure mainly when one views it in light of the fact that a large amount of companies that reported losses in their India operation (21 percent) belong to the category of firms that have been in service in India for less than 5 years. These results show that India is emerging as a lucrative destination in the long term 6.3 BALANCE OF PAYMENTS ACCOUNT 102 CU IDOL SELF LEARNING MATERIAL (SLM)

MEANING AND COMPONENTS The balance of payments (henceforth BOP) is a consolidated account of the receipts and pay-ments from and to other countries arising out of all economic transactions during the course of a year. In the words of C. B. Kindleberger; “The balance of payments of a country is a sys-tematic record of all economic transactions between the residents of the reporting and the residents of the foreign countries during a given period of time.” Here, by ‘residents’ we mean individuals, firms and government. By all economic transactions we mean transac-tions of both visible goods (merchandise) and invisible goods (services), assets, gifts, etc. In other words, BOP shows how money is spent abroad (i.e. payments) and how money is received domestically (i.e., receipts). Thus, a BOP account records all payments and re-ceipts arising out of all economic transactions. Components BALANCE OF PAYMENTS DEFICIT- MEANING A balance of payments deficit means the nation imports more commodities, capital and services than it exports. It must take from other nations to pay for their imports. 103 CU IDOL SELF LEARNING MATERIAL (SLM)

The nation could use its reserves of foreign exchange in order to balance any shortfall in its BoP: When the foreign exchange is being sold by the reserve bank when there is a deficit, it is known as official reserve sale. The decrease or increase in official reserves is known as the overall balance of payments deficit or surplus. The fundamental hypothesis is that the monetary authorities are the final financiers of any deficit in the BoP (or the recipients of any surplus.) Official reserve transactions are relevant under the reign of the fixed exchange rates than when exchange rates are floating. 6.3.1 Current and Capital Account Components of Balance of Payments: (1) Current Account; (2) Capital Account! A. Current Account: Current account refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period of time. Current account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers. Components of Current Account: The main components of Current Account are: a. Export and Import of Goods (Merchandise Transactions or Visible Trade): A major part of transactions in foreign trade is in the form of export and import of goods (visible items). Payment for import of goods is written on the negative side (debit items) and receipt from exports is shown on the positive side (credit items). Balance of these visible exports and imports is known as balance of trade (or trade balance). b. Export and Import of Services (Invisible Trade): 104 CU IDOL SELF LEARNING MATERIAL (SLM)

It includes a large variety of non- factor services (known as invisible items) sold and purchased by the residents of a country, to and from the rest of the world. Payments are either received or made to the other countries for use of these services. Services are generally of three kinds:  Shipping,  Banking, and  Insurance.  Payments for these services are recorded on the negative side and receipts on the positive side. c. Unilateral or Unrequited Transfers to and from abroad (One sided Transactions): Unilateral transfers include gifts, donations, personal remittances and other ‘one-way’ transactions. These refer to those receipts and payments, which take place without any service in return. Receipt of unilateral transfers from rest of the world is shown on the credit side and unilateral transfers to rest of the world on the debit side. Income receipts and payments to and from abroad: It includes investment income in the form of interest, rent and profits. Current Account shows the Net Income: Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. So, it shows the net income generated in the foreign sector. Balance on Current Account: In the current account, receipts from export of goods, services and unilateral receipts are entered as credit or positive items and payments for import of goods, services and unilateral payments are entered as debit or negative items. The net value of credit and debit balances is the balance on current account. 105 CU IDOL SELF LEARNING MATERIAL (SLM)

Surplus in current account arises when credit items are more than debit items. It indicates net inflow of foreign exchange. Deficit in current account arises when debit items are more than credit items. It indicates net outflow of foreign exchange. Components of Current Account: Credit Items Debit Items Net Credit (Credit – Debit) Visible Trade Exports Imports of Net Exports of goods of goods goods (Balance of Trade) Invisible Trade Imports of Net Exports of Exports of services services services Unilateral Transfers Transfer Net Transfer Receipts Transfer Receipts Payments Income Receipts & Income Net Income Receipts Payments Income Payments Receipts Current Receipts Current Current Account (1+2+3+4) Payments Balance B. Capital Account: Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature. Capital Account is used to: 106 CU IDOL SELF LEARNING MATERIAL (SLM)

 Finance deficit in current account; or  Absorb surplus of current account.  Capital account is concerned with financial transfers. So, it does not have direct effect on income, output and employment of the country. Components of Capital Account: The main components of capital account are:  Borrowings and landings to and from abroad: It includes:  All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side.  All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item.  Investments to and from abroad: It includes:  Investments by rest of the world in shares of Indian companies, real estate in India, etc. Such investments from abroad are recorded on the positive (credit) side as they bring in foreign exchange.  Investments by Indian residents in shares of foreign companies, real estate abroad, etc. Such investments to abroad be recorded on the negative (debit) side as they lead to outflow of foreign exchange. Change in Foreign Exchange Reserves: The foreign exchange reserves are the financial assets of the government held in the central bank. A change in reserves serves as the financing item in India’s BOP. So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side. It must be noted that ‘change in reserves’ is recorded in the BOP account and not ‘reserves’. 107 CU IDOL SELF LEARNING MATERIAL (SLM)

Balance on Capital Account: The transactions, which lead to inflow of foreign exchange (like receipt of loan from abroad, sale of assets or shares in foreign countries, etc.), are recorded on the credit or positive side of capital account. Similarly, transactions, which lead to outflow of foreign exchange (like repayment of loans, purchase of assets or shares in foreign countries, etc.), are recorded on the debit or negative side. The net value of credit and debit balances is the balance on capital account. Surplus in capital account arises when credit items are more than debit items. It indicates net inflow of capital. Deficit in capital account arises when debit items are more than credit items. It indicates net outflow of capital. In addition to current account and capital account, there is one more element in BOP, known as ‘Errors and Omissions’. It is the balancing item, which reflects the inability to record all international transactions accurately. Balance on Current Account Vs. Balance on Capital Account:  Balance on current account and balance on capital account are interrelated.  A deficit in the current account must be settled by a surplus on the capital account.  A surplus in the current account must be matched by a deficit on the capital account. 6.4 FOREIGN DIRECT INVESTMENT There are various factors that signify the importance of FDI in India some of which are listed below: 1. Helps in Balancing International Payments: FDI is the major source of foreign exchange inflow in the country. It offers a supreme benefit to country’s external borrowings as the government needs to repay the international debt with the interest over a particular period of time. The inflow of foreign currency in the economy 108 CU IDOL SELF LEARNING MATERIAL (SLM)

allows the government to generate adequate resources which help to stabilize the BOP (Balance of Payment). 2. FDI boosts development in various fields: For the development of an economy, it is important to have new technology, proper management and new skills. FDI allows bridging of the technology gap between foreign and domestic firms to boost the scale of production which is beneficial for the betterment of Indian economy. Thus, FDI is also considered an asset to the economy. 3. FDI & Employment: FDI allows foreign enterprises to establish their business in India. The establishment of these enterprises in the country generates employment opportunities for the people of India. Thus, the government facilitates foreign companies to set up their business entities in the country to empower Indian youth with new and improved skills. 4. FDI encourages export from host country: Foreign companies carry a broad international marketing network and marketing information which helps in promoting domestic products across the globe. Hence, FDI promotes the export-oriented activities that improve export performance of the country. Apart from these advantages, FDI helps in creating a competitive environment in the country which leads to higher efficiency and superior products and services. 6.5 SUMMARY A country’s BOP is vital for the following reasons: • BOP of a country reveals its financial and economic status. • BOP statement can be used as an indicator to determine whether the country’s currency value is appreciating or depreciating. • BOP statement helps the Government to decide on fiscal and trade policies. • It provides important information to analyze and understand the economic dealings of a country 109 CU IDOL SELF LEARNING MATERIAL (SLM)

with other countries. By studying its BOP statement and its components closely, one would be able to identify trends that may be beneficial or harmful to the economy of the county and thus, then take appropriate measures. Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) has been a major non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges like tax exemptions, etc. For a country where foreign investment is being made, it also means achieving technical know-how and generating employment. The Indian Government’s favourable policy regime and robust business environment has ensured that foreign capital keeps flowing into the country. The Government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others. 6.6 KEY WORDS/ABBREVIATIONS  Trade Deficit - exports less imports (when exports < imports)  Trade Surplus - exports less imports (when exports > imports)  Foreign Parent - A foreign parent (FP) is the first entity outside the host country in the affiliate’s ownership chain with at least 10 percent ownership in the affiliate.  Ultimate Beneficial Owner - The ultimate beneficial owner (UBO) is the entity at the top of an affiliate’s ownership chain. It is the entity that ultimately owns or controls the affiliate and thus ultimately derives the benefits and assumes the risks from ownership or control.  Flow - FDI flows are a measure of transactions that change FDI stock over a specific period of time. Note that FDI flows can be negative in certain cases, for example when there is divestment of a prior investment or when intercompany debt outflows exceed intercompany debt inflows. 110 CU IDOL SELF LEARNING MATERIAL (SLM)

6.7 LEARNING ACTIVITY 1. Explain the term BOP deficit __________________________________________________________________________________ __________________________________________________________________________________ 2. Note on BOP __________________________________________________________________________________ __________________________________________________________________________________ 6.8 UNIT END EXERCISES (MCQS AND DESCRIPTIVE) A. Descriptive Questions 1. Write a note on BOP components. 2. Explain the BOP deficit. 3. Discuss FDI with relevant examples. 4. Explain the components of current account. 5. Explain the components of capital account. B. Multiple Choice Questions (MCQs) 1. Balance of payments of a country includes: (a) Current account (b) Monetary account (c) Capital account (d) All of these 2. Balance of payments of a country has parts: 111 CU IDOL SELF LEARNING MATERIAL (SLM)

(a) 2 112 (b) 3 (c) 4 (d) 5 3. Invisible items in balance of payments include: (a) Foreign remittances (b) Income from tourists (c) Internet charges (d) All the three 4. The foreign direct investment includes (a) Intellectual Property (b) Human Resource (c) Tangible Good (d) Intangible Goods 5. More expansion of foreign direct investment can boost (a) Money circulation (b) Demand (c) Employment CU IDOL SELF LEARNING MATERIAL (SLM)

(d) Unemployment Answers: 1. (d) 2. (b) 3. (d) 4. (c) 5. (c) 6.9 SUGGESTED READINGS  Bajpai, P. & Bhandari, L. (2009). Social and Economic Profile of India. Hyderabad: Orient black Swan.  Datt, R. & Sundram, K.P.M. (2007). Indian Economy. New Delhi: S. Chand & Co.  Dhar, P.K. (1999). Indian Economy. Ludhiana: Kalyani Publishers.  Ghosh, A. (2004). Bhartiya Arth Vivstha. Patiala: Punjabi University.  Gill, J.S. (2004). Evolution of Indian Economy. New Delhi: NCERT.  Gupta, K.R. & Gupta, J.R. (2009). Indian Economy. New Delhi: Atlantic Publishers  Jalan, B. (2008). India's Economy in the New Millennium. New Delhi: UBS Publishers.  Misra, S.K. & Puri, V.K. (2006). Indian Economy. Mumbai: Himalya Publishing House.  Sen, R.K. & Chatterjee, B. (2008). Indian Economy. New Delhi: Deep & Deep Publications.  Singh, B. N. (2008). Economic Reforms in India. New Delhi: APH Publishers.  Singh, B.N. (2008). Indian Economy Today: Changing Contours. New Delhi: Deep & Deep Publications.  Singh, C.G. (2005). Bharti Arth Shastar. Patiala: Punjabi University.  Soni, R.N. (2008). Leading Issues in Agriculture Economics. New Delhi: S. Chand & Co.  Tandon, B. & Tandon, K.K. (1998). Indian Economy. New Delhi: Tata McGraw Hills Pub. Co.  Vasudeva, P.K. (2009). India & World Trade Organisation: Planning and Development. New Delhi: APH Publishers. 113 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 7:INDIAN TAX STRUCTURE PART-I Structure 7.0. Learning Objectives 7.1. Introduction 7.2. Financial Resources between Centre and the States 7.3. Direction and Composition of Exports and Imports 7.4. Summary 7.5. Key Words/Abbreviations 7.6. Learning Activity 7.7. Unit End Exercises (MCQs and Descriptive) 7.8. Suggested Readings 7.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the Indian Tax Structure  State the financial resources along with direction & composition of export & import 7.1 INTRODUCTION Tax structure in India is a three tier federal structure. The central government, state governments, and local municipal bodies make up this structure. Article 256 of the constitution states that “No tax shall be levied or collected except by the authority of law”. Hence, each and every tax that is collected needs to backed by an accompanying law. Tax structure in India is a three tier federal structure. The central government, state governments, and local municipal bodies make up this structure. Article 256 of the 114 CU IDOL SELF LEARNING MATERIAL (SLM)

constitution states that “No tax shall be levied or collected except by the authority of law”. Hence, each and every tax that is collected needs to backed by an accompanying law. Interestingly, the tax system in India traces its origin to the prehistoric texts such as Arthashastra and Manu smriti. As proposed by these manuscripts, the taxes paid by farmers and artisans in that era would be in the form of agricultural produce, silver or gold. Based on these texts, the foundation of the modern tax system in India was conceptualized by the Sir James Wilson during the British rule in India in the year, 1860. However, post-independence the newly-established Indian Government then soldered the system to propel the economic development of the country. After this period, the Indian tax structure has been subject to a host of changes. 7.2 FINANCIAL RESOURCES BETWEEN CENTRE AND THE STATES The Constitution of India, adopted in 1950, made a clear distinction between the financial ju-risdiction of the Central and the State Governments. Taxes to be levied by the Centre were enumerated in the Central List and comprised 20 items. Taxes to be levied and collected by the States were men-tioned in a separate list. It also consisted of 20 items. Some of the taxes levied by the Centre were, however, to be collected and revenues from those appropriated by the States, e.g., stamp duties and duties of excise on medicinal and toilet prepara-tions. Some taxes, though levied and collected by the Centre, were assigned to the States, only the cost of collection being recovered by the Centre. Examples of such taxes were the estate duty, ter-minal taxes on goods, taxes on railway fares and freights and a few others. The share of each State in the net proceeds of these taxes was to be de-cided by the passing of Acts by the Parliament. There was another group of taxes to be levied and collected by the Centre the net proceeds of which might be shared between the Centre and the States. Taxes on income other than agricultural income and excise duties mentioned in the Central List belonged to this category. 115 CU IDOL SELF LEARNING MATERIAL (SLM)

The Constitution also made provision for the setting up of a Finance Commission by the Presi-dent within two years interval or even sooner, if considered necessary. The Finance Commission was to consist of a chairman and four members to be appointed by the President. The Parliament could lay down the qualifications necessary for appointment as members of the Finance Commis-sion. The functions of the Finance Commission are the following: (i) Making recommendations to the President regarding the distribution of the net proceeds of taxes to be shared between the Cen-tre and the States; (ii) Laying down the principles for grants-in-aid of States’ revenues to be made by the Central Government from time to time; (iii) Recommending changes in the conditions of State borrowing from the Centre and in the terms of other financial agreements between the Centre and the States; and (iv) Giving its views on any other matter which may be referred to it by the President in the interests of sound finance. Rec-ommendations of the Commission were to be placed before the Parliament for consideration and approved. The First Commission was set up in Novem-ber 1951 under the Chairpersonship of Mr. K. C. Neogy. Since then, ten more Commissions have been set up. The present system of allocation of resources between the Centre and the States is governed by the recommendations of the Eleventh Finance Commission. One major avenue of transfer of Central re-sources to States is through loans and grants for the plan via the Planning Commission on the ba-sis of a formula, called Gadgil formula. Apart from the Central assistance to States and Union Terri-tory, of which 5% is grants, the Centre extends about Rs 8,000 crores of grants for the centrally sponsored schemes operated by States. Up to 1994-95 only personal income tax and Union excise duties were shareable with States in ratios proposed by the Finance Commission after assessing the revenue and expenditure require-ments of States for a five-year period and provid-ing for filling the gaps. 116 CU IDOL SELF LEARNING MATERIAL (SLM)

The Tenth Finance Commission (1995-2000) had proposed that all taxes, direct and indirect, levied by the Centre should be shared with States so that States get at least 29% of the total receipts of the Centre. It is against this background that we study the recommendations of the Tenth Finance Commission. 7.3 DIRECTION AND COMPOSITION OF EXPORTS AND IMPORTS Composition of Imports and Exports in India! The composition of foreign trade is an important indicator of the pattern of trade developed by country. By the term composition of trade we mean the structural analysis involving the various types and the volume of various items of exports and imports of the country. The composition of foreign trade of a country reflects on the diversification and specialization attained in its productive structure along with its rate of progress and structural changes. The country exporting more of primary products, viz., raw materials and importing finished manufacturing goods and capital goods can be branded as an underdeveloped country. With the passage of time a country attempts to change the pattern of trade in such a manner so that it can attain a better term of trade for its products by transforming the country from a primary producing one to a producer of finished manufactured products. Composition of Imports in India: Just at the dawn of independence, the import basket of India was mostly consisting of grains, pulses, oils, machineries, hardware’s, chemicals, drugs, dyes, yarns, paper, non-ferrous metals, vehicles etc. With the introduction of planning and with its emphasis on the development of basic, capital goods and engineering industries, the country had to import a huge quantity of capital equipment’s along with its spares known as maintenance imports. The following table shows the changes in the composition of imports in India since 1960- 61: 117 CU IDOL SELF LEARNING MATERIAL (SLM)

The above table reveals that for better analysis, the imports of the country have been broadly divided into four groups: (a) Food and live animals chiefly for food, (b) Raw materials and intermediate manufactures, (c) Capital goods and (d) Other goods. The table further shows that in 1960-61 total value of imports was Rs. 1,795 crore consisting of the share of above four groups as Rs. 286 crore (15.9 per cent), Rs. 776 crores (43.2 percent), Rs. 560 crore (31.2 per cent) and Rs. 173 crore (9.7 per cent) respectively. Again in 1970-71, total value of imports of the country was Rs. 1,634 crore and the share of the above four groups was 14.8 per cent, 54.3 per cent, 24.7 per cent and 6.2 per cent respectively. After 1970-71 total import bill of the country increased substantially due to a considerable hike in oil price by OPEC in 1973-74 and again in 1978-79. The OPEC raised the prices of oil from $ 2.50 per barrel to $ 3 per barrel in 1973 and to 11.65 per barrel in 1974 and again $ 13.00 per barrel in 1978 and $ 35 per barrel in 1979. 118 CU IDOL SELF LEARNING MATERIAL (SLM)

Due to this steep hike in the price of oil, total import bill of the country in 1980-81 increased sharply to Rs. 12,549 crore out of which expenditure on petroleum oil and lubricants (POL) only was Rs. 5,264 crore, i.e., 42 per cent of the total. During the 1970s, POL imports recorded a considerable increase of about 44.2 per cent per annum as compared to that of 23.4 per cent per annum for all imports. Besides POL, higher rate of growth of imports was recorded by pearls, precious and semi-precious stones, fertilizers, iron and steel and capital goods in order of value during 1970s. During 1980s, due to the introduction of import liberalization policy by the government, import bill of the country rose considerably to Rs. 19,658 crore in 1985-86 and to Rs. 43,193 crore in 1990- 91 and then finally to Rs. 1,22,698 crore in 1992-93. Although there was a slight fall on the import bill on POL in 1985-86 but since 1987-88, import of POL both in terms of quantity and value started to rise. Total import of POL increased from 25.6 million tonnes in 1989-90 to about 29.3 million tonnes in 1990-91 and the total import bill on POL rose sharply to Rs. 10,816 crore in 1990- 91. In 2008-2009 total import bill of the country rose to Rs. 13,74,476 crore and the bill on import of POL rose sharply to Rs. 4,19,946 crore. Following are some of the important information about the compositions of Indian imports: (a) Import expenditure on POL rose significantly from Rs. 136 crore in 1970-71 and then to Rs. 4,19,946 crores in 2008-09. Official projections say that imports of POL will further go up in the coming year since the demand for petroleum products is expected to grow from 57 million tonnes in 1992-93 to about 100 million tonnes in 2000-01 and to about 150 million tonnes by 2010-2011 A.D. (b) Imports of different types of capital goods also rose significantly from Rs. 404 crore in 1970-71 to Rs. 2,16,511 crores in 2008-09 which amounted to about 15.7 per cent of total import in 2008-09. (c) Import bill on pearls, precious and semi-precious stones also rose considerably from Rs. 25 crore in 1970-71 to Rs. 76,130 crore in 2008-09 and it amounted to nearly 5.5 per cent of total import in 2008-09. 119 CU IDOL SELF LEARNING MATERIAL (SLM)

(d) Import bill on fertilizer and fertilizer materials also rose considerably from Rs. 86 crore in 1970-71 to Rs. 59,569 crore in 2008-09 and amounted to nearly 4.33 per cent of the total imports in 2008-2009. (e) Import bill on iron and steel rose considerably from Rs. 197 crore in 1960-61 to Rs. 45,531 crore in 2008-2009 and amounted to over 3.16 per cent of total imports in 2008-09. Moreover, some other items which have been imported in India at low scale in recent years include food-grains and edible oil. Composition of Exports in India: At the dawn of independence, the export basket of the country was mostly consisting of jute, tea and cotton textiles, which jointly contributed more than 50 per cent of the total exports earning of the country. In 1950-51, these three commodities contributed about 60 per cent of the total export earnings of the country. But this export of primary products is always disadvantageous as the terms of trade always goes against the exporter country in this respect due to its inelastic demand in international markets. With the gradual diversification and growth of the industrial sector, India started to export various types of non-traditional products. Accordingly the share of jute, tea and cotton textiles in the total export earning of the country gradually declined to 31 per cent in 1970-71 and then considerably to 2.73 per cent in 2008-2009. But the share of machinery and engineering goods in India’s total export increased gradually from a mere 2.1 per cent in 1960-61 to 12.9 per cent in 1970-71 and stood at 25.8 per cent in 2008-2009. Table 7.3 shows the changes in the composition of export in India: 1. Jute was one of the most important export items initially and contributed Rs. 213 crores, i.e., about 20 per cent of the total export earnings. But its share gradually declined to 12.4 per cent in 1970-71 and then to only 0.16 per cent in 2008-09. 2. Tea was second most important item of export which contributed Rs. 187 crore (18.7 per cent of total export earnings) in 1960-61. Its share declined gradually to 9.6 per 120 CU IDOL SELF LEARNING MATERIAL (SLM)

cent in 1970-71 and then to 3.3 per cent in 1990-91 and about 0.31 per cent in 2008- 2009. 3. The share of cotton fabrics in total export earning of the country also declined marginally from 8.7 per cent in 1960-61 to 6.4 per cent in 1990-91 and 2.25 per cent in 2008-09. 4. Export of handicrafts rose considerably from a mere Rs. 73 crore in 1970-71 to Rs. 1,33,465 crores in 2008-09 which constituted about 15.8 per cent of total export earnings in 2008-09 and occupied third place. 5. Export of readymade garments has also increased considerably from Rs. 29 crore in 1970- 71 to Rs. 50,294 crores in 2008-09 which constituted nearly 5.98 per cent of total export earnings in 2008-09 and occupied fourth place. 6. Exports of machinery and engineering goods rose substantially from a mere Rs. 22 crore in 1960-61 to Rs. 2,16,856 crore in 2008-09, which constituted about 25.8 per cent of total earning in 2008-2009. It occupied first place. 121 CU IDOL SELF LEARNING MATERIAL (SLM)

Moreover, in recent years (2008-09) the exports of some other articles also increased considerably which include leather and leather manufactures (Rs. 15,931 crore—5th place), chemicals and allied products (Rs. 85,697 crore—4th place), iron ore (Rs. 21,725 crore) etc. Again the exports of the country have been broadly classified into five groups: (1) Agriculture and allied products, (2) Ores and minerals, (3) Manufactured goods, (4) Mineral fuels and lubricants, 122 CU IDOL SELF LEARNING MATERIAL (SLM)

(5) Others. The table shows that in 1970-71 total value of export was Rs. 1,535 crore and the share of the above five groups was 31.7 per cent, 10.7 per cent, 50.2 per cent, 0.84 per cent and 6.5 per cent respectively. Again in 2008-2009, the share of these five groups in the country’s export trade changed to 9.2 per cent, 4.2 per cent, 67.6 per cent, 15.1 per cent and 4.03 per cent respectively. Direction of India’s Imports and Exports! Analysis of direction of trade reflects on regional direction of country’s foreign trade from where trade is originated. It would be quite important to analyse the direction of India’s foreign trade and the transformation that has taken place in details. In the pre-independence period, the direction of India’s foreign trade was determined by the colonial spirit prevailing between India and Britain. Accordingly, India’s trade was mostly connected with Britain or its colonies or allies. After independence, this trend was continued for some years. As in 1950-51, U.K. and U.S.A. contributed about 42 per cent of India’s total export earnings and about 39 per cent of India’s import requirement was met by these two countries. At that time India had a very little trade connection with other capitalist countries like Germany. Italy, France etc. and had no trade relation with socialist countries like U.S.S.R., Poland, Czechoslovakia etc. with the passage of time, as political and diplomatic relations were gradually established with various countries. Thus, the new trade relations were developed with various countries. In the meantime, after the completion of over four decades of planning, the direction of India’s trade has already recorded a remarkable change. Thus, the direction of trade has been totally diversified. Direction of Import: Direction of India’s imports has changed remarkably in the meantime. The table 7.4(a) shows the changes in the direction of India’s imports since 1960-61. 123 CU IDOL SELF LEARNING MATERIAL (SLM)

Table 7.4 (a) shows that direction of India’s imports. If we study block wise, then it can be seen that among the five blocks (i.e., OECD, OPEC, Eastern Europe, Developing countries and other countries) although the share of OECD countries in India’s imports was all along higher, but the same share gradually declined from 78 per cent in 1960-61 to 37.8 per cent in 2003-2004. The share of OPEC in India’s total imports gradually increased from 4.6 per cent in 1960-61 to 7.2 per cent in 2003-2004. The share of Eastern European countries in India’s imports which was only 3.4 per cent in 1960-61, gradually rose to 13.5 per cent in 1970-71 but since then its share gradually declined to 1.6 per cent in 2003-2004. The share of developing countries in India’s imports gradually rose from 12 per cent in 1960- 61 to 18.4 per cent in 1990-91 and stood at 20.1 per cent in 2003-2004. The share of other countries in India’s imports also gradually increased from 2.0 per cent in 1960-61 to 33.3 per cent in 2003-2004. Now if we look at country wise figures then it can be seen that the share of U.K. in India’s imports which was 20.8 per cent (135 crore) being the highest among all the countries, gradually declined to 8 per cent in 1970-71 and then to only 4.1 per cent in 200.3-2004. The share of USA in India’s imports although remained all along highest since 1960-61 its share gradually increased initially from 18 per cent in 1950-51 to 29 per cent in 1960-61 and since then the share gradually declined to 0.4 per cent in 2003-2004. 124 CU IDOL SELF LEARNING MATERIAL (SLM)

Thus, it is found that since 1970-71 direction of trade recorded a continuous change where India’s dependence for imports from USA and U.K. gradually declined with the opening and expansion of trading relations with other countries like USSR, Japan, Germany, Belgium, Saudi Arabia etc. Another important trend that can be seen is that since 1960-61 India’s trading relations with socialist countries particularly with USSR was expanded. Accordingly, the share of U.S.S.R. in India’s imports which was only 1.4 per cent (Rs. 16crore) in 1960-61 gradually rose to 8.2 per cent (Rs. 1.014 crore) in 1980-81 and thus occupied third place. Again in 1984-85, the share of USSR rose to 10.4 per cent and thus occupied first place in India’s imports. But the share of former USSR in India’s imports gradually declined to 6.0 per cent in 1990-91 and then to only 1.2 per cent in 2003-2004. In recent years, (i.e., 2003- 2004) the other countries which have occupied a good share in India’s imports include Germany (3.7 per cent), Japan (3.4 per cent), Saudi Arabia, (0.9 per cent), Belgium (5.1 per cent), France (1.4 per cent) etc. Direction of Imports by Regions and Countries in Recent years: It would now be better to look at the direction of India’s imports by regions and countries in recent years on the basis of new classification and data prepared by Department of Commerce based on DGCI&S. 125 CU IDOL SELF LEARNING MATERIAL (SLM)

Table 7.4(b) reveals the direction of India’s imports in recent years. If we study region wise then it can be seen that among the six regions, (i.e., West Europe, East Europe, CIS & Baltic States, Asia and ASEAN, Africa and America), the share of Asia and ASEAN in India’s imports remained all along highest, i.e., 59.5 per cent in 2007-08 and then it increased to 61.9 per cent of the total in 2008-09. The share of Europe in India’s total imports was 20.5 per cent in 2007-08 which again marginally declined to 18.8 per cent in 2008-09. The share of America in India’s imports marginally declined from 11.7 per cent in 2007-08 to 10.2 per cent in 2008-09. The share of Africa in India’s imports also marginally increased from 5.9 per cent in 2007-08 to 6.2 per cent in 2008-09. Again the share of CIS and Baltic states in India’s imports which 126 CU IDOL SELF LEARNING MATERIAL (SLM)

was only 1.5 per cent in 2007-08 marginally improved to 2.2 per cent in 2008-09. Now if we look at country wise figures then it is observed that the share of U.K. in India’s imports declined from 1.9 per cent in 2007-08 to 1.0 per cent in 2008-09. The share of China PR in India’s imports increased from 10.7 per cent in 2007-08 to 10.7 per cent in 2008-09 and that of USA decreased from 8.3 per cent in 2007-08 to 6.2 per cent in 2008-09. In recent years, i.e., in 2008-09, the other countries which have occupied a good share in India’s imports include Belgium (1.9 per cent), Germany (0.8 per cent), Russia (1.4 per cent), Australia (3.61 per cent), Singapore (2.50 per cent), Japan (2.90 per cent), Korea Republic (2.9 per cent) etc. Direction of Exports: Direction of India’s exports has also recorded a remarkable change during these 4 decades of planning in the country. Table 7.5(a) shows direction of India’s exports since 1960-61. Table 7.5(a) reveals the direction of India’s exports since 1960-61. If we study this direction of exports block wise then it is found that among five blocks (i.e., OECD, OPEC, Eastern Europe, Developing countries and other countries) the share of OECD countries in India’s exports remained all along higher but its share gradually declined from 66.1 per cent in 1960- 61 to 46.4 per cent in 2003-2004. The share of OPEC countries marginally increased from 4.1 per cent in 1960-61 to 15.0 per cent in 2003-2004. But the most remarkable change in the direction of exports is noticed in respect of Eastern Europe whose share in India’s exports has increased remarkably from 7.0 per cent in 1960-61 to 22.1 per cent in 1980- 81 and then it slowly declined to 17.9 per cent in 1990-91 and then to 1.8 per cent in 2003-2004. The share of developing countries in India’s exports maintained a steady level, i.e., from 14.8 per cent in 1960-61 to 32.6 per cent in 2003-2004. 127 CU IDOL SELF LEARNING MATERIAL (SLM)

Again among the various countries, the share of U.K. in India’s total exports which was as high as 23.3 per cent in 1950-51 gradually rose to 26.9 per cent in 1960-61 (Rs. 173 crore) and occupied first place in this respect. But since then the share of U.K. declined sharply to 11.1 per cent in 1970- 71 and then to 4.7 per cent in 2003-2004 (Rs. 14,862 crore). The share of U.S.A. in India’s exports remained all along steady and accordingly the share increased from 17.4 per cent in 1960-61 to 18.6 per cent in 1987-88 and then slightly declined to 18.0 per cent in 2003-2004. Thus the share of USA in India’s exports occupied first place since 1970-71. Thus, it is found that since 1970-71, the direction of India’s exports recorded a considerable change with the diversification of exports markets for Indian goods among various countries of Eastern Europe, OPEC and other developing countries. With the development of trading relations with socialist countries the share of USSR in India’s exports increased from 4.5 per cent in 1960-61 to 18.3 per cent in 1980-81 and then to 18.4 per cent in 1985-86 and thus occupied first place in these two years. But since then its share in India’s exports declined and reached the level of 1.1 per cent in 2003-2004. In recent years (i.e., in 2003-2004) India has been able to expand its export net to some other countries. The countries which have occupied a good share in India’s exports include Japan 128 CU IDOL SELF LEARNING MATERIAL (SLM)

(2.7 per cent), African countries (3.3 per cent), Belgium (2.8 per cent), Germany (4.0 per cent) etc. Direction of Exports by Regions and Countries in Recent Years: It would also be better to look at the direction of India’s exports by regions and countries in recent years on the basis of new classification of regions and data prepared by Department of Commerce based on DGCI&S. Table 7.5(b) reveals the direction of India’s exports in recent years. If study region wise, then it can be seen that among the six regions (i.e., West Europe, East Europe, CIS & Baltic States, Asia and ASEAN, Africa and America), the share of Asia and ASEAN in India’s exports remained all along highest in recent years, i.e., 51.7 per cent in 2007-08 and then it slightly increased to 52.0 per cent in 2008-09. The share of West Europe in India’s total exports was 22.8 per cent in 2007-08 and remained at 22.8 per cent in 2008-09. The share of America in India’s exports declined marginally from 13.5 per cent in 2007-08 to 12.2 per cent in 2008-09. Again the share of Africa in India’s exports increased from 7.1 per cent in 2007-08 to 6.1 per cent in 2008-09. Again the share of CIS and Baltic States in India’s exports which was only 0.5 per cent in 2007-08 gradually declined to 0.6 per cent in 2008-09. 129 CU IDOL SELF LEARNING MATERIAL (SLM)

Moreover, if we look at country-wise figures, then it is observed that the share of U.K. in India’s exports in recent years declined marginally from 4.1 per cent in 2007-08 to 1.4 per cent in 2008-09. The share of USA in India’s exports decreased marginally from 12.7 per cent in 2007-08 to 11.5 per cent in 2008-09. The share of China P.R. in India’s exports also increased from 6.6 per cent in 2007- 08 to 5.0 per cent in 2008 09. The share of Singapore in India’s exports decreased from 4.5 per cent in 2007-08 to 4.5 per cent in 2008-09. In recent years, i.e., in 2008-09, the other countries which have occupied a good share in India’s exports include Germany (3.2 per cent), Belgium (2.4 per cent), France (1.6 per cent), Russia (0.6 per cent), Japan (1.6 per cent). 7.4 SUMMARY 130 CU IDOL SELF LEARNING MATERIAL (SLM)

Indian constitution has made a provision for the introduction of federal tax structure. The constitution has made a detail provision for the imposition of various types of taxes both the central government and the state governments. The constitution has made a provision for division of power for levying taxes between the centre and the States in most unambiguous manner. Taxes are within the purview of Central Government which account for nearly 50 per cent of its revenue, similarly taxes like sales tax and state excise duties, agricultural income tax, land revenue and entertainment tax are within the purview of State Governments. Some taxes are again levied by the Central Government and the proceeds of such taxes are divided between the Centre and State Governments. Taxes like union excise duties and income tax are within this category. The proceeds of such taxes are shared between the Centre and the States as per the recommendations of Finance Commissions. Some other taxes like stamp duty and excise duties on drugs and cosmetics are levied by the Central Government but the responsibility taxes is assigned on the state governments. 7.5 KEY WORDS/ABBREVIATIONS  Ability to Pay - The concept that taxpayers should have a tax liability consistent with their income level.  Allowances - A number on your Form W-4 used by your employer to calculate how much income tax to withhold from your pay. The greater the number of allowances, the less income tax will be withheld.  Amount Due - Your total tax bill. The amount of money you owe in taxes.  Annuity - An annual payment, such as from a retirement plan.  Deduction - An amount subtracted from your taxable income for certain expenses.  Earned Income - Money or other compensation given to you for working, whether you receive a paycheck or you are self-employed and pay yourself. 131 CU IDOL SELF LEARNING MATERIAL (SLM)

7.6 LEARNING ACTIVITY 1. Explain Indian Tax Structure __________________________________________________________________________________ __________________________________________________________________________________ 2. Explain the functions of Finance Commission __________________________________________________________________________________ __________________________________________________________________________________ 7.7 UNIT END EXERCISES (MCQS AND DESCRIPTIVE) A. Descriptive Questions 1. Explain the financial resources of Centre 2. Discuss the financial resources of State 3. State the composition of imports in India 4. Explain the composition of exports in India 5. Write a note on direction of exports & imports in India B. Multiple Choice Questions (MCQs) 1. Which of the following is not imposed by the Central Government? (a) Agricultural tax (b) Corporation tax (c) Custom duty (d) Sales tax 132 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Which of the following taxes are imposed by state governments: 1) Toll Tax 2) Tax on Income 3) Tax on Agricultural Income 4) Business Tax Select your correct answer with the help of codes given below. (a) 1 and 2 (b) and 4 (c) 1, 3 and 4 (d) 1, 2, 3 and 4 3. Consider the following statements regarding taxation: a. The tax structure is designed according to the ability of the people to pay taxes. b. The tax is levied on people in proportion to the benefit they receive from government programmes c. A progressive taxation system has larger impacts on the income of poor people than on the income of rich people Select the correct answer using the codes given below: (a) a only (b) b and c only (c) a and b only (d) a, b and c 4. _______ is the second most important item of export 133 CU IDOL SELF LEARNING MATERIAL (SLM)

(a) Jute (b) Fruits (c) Coffee (d) Tea 5. ____________ was one of the most important export items initially but the export has gradually dipped. (a) Jute (b) Fruits (c) Coffee (d) Tea Answers: 1. (a) 2. (c) 3. (a) 4. (d) 5. (a) 7.8 SUGGESTED READINGS  Bajpai, P. & Bhandari, L. (2009). Social and Economic Profile of India. Hyderabad: Orient black Swan.  Datt, R. & Sundram, K.P.M. (2007). Indian Economy. New Delhi: S. Chand & Co.  Dhar, P.K. (1999). Indian Economy. Ludhiana: Kalyani Publishers.  Ghosh, A. (2004). Bhartiya Arth Vivstha. Patiala: Punjabi University.  Gill, J.S. (2004). Evolution of Indian Economy. New Delhi: NCERT.  Gupta, K.R. & Gupta, J.R. (2009). Indian Economy. New Delhi: Atlantic Publishers 134 CU IDOL SELF LEARNING MATERIAL (SLM)

 Jalan, B. (2008). India's Economy in the New Millennium. New Delhi: UBS Publishers.  Misra, S.K. & Puri, V.K. (2006). Indian Economy. Mumbai: Himalya Publishing House.  Sen, R.K. & Chatterjee, B. (2008). Indian Economy. New Delhi: Deep & Deep Publications.  Singh, B. N. (2008). Economic Reforms in India. New Delhi: APH Publishers.  Singh, B.N. (2008). Indian Economy Today: Changing Contours. New Delhi: Deep & Deep Publications.  Singh, C.G. (2005). Bharti Arth Shastar. Patiala: Punjabi University.  Soni, R.N. (2008). Leading Issues in Agriculture Economics. New Delhi: S. Chand & Co.  Tandon, B. & Tandon, K.K. (1998). Indian Economy. New Delhi: Tata McGraw Hills Pub. Co.  Vasudeva, P.K. (2009). India & World Trade Organisation: Planning and Development. New Delhi: APH Publishers. 135 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 8:INDIAN TAX STRUCTURE PART-II Structure 8.0. Learning Objectives 8.1. Introduction 8.2. Planning Commission 8.3. Objective of five years’ plans 8.4. Summary 8.5. Key Words/Abbreviations 8.6. Learning Activity 8.7. Unit End Exercises (MCQs and Descriptive) 8.8. Suggested Readings 8.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  List the Planning Commission of India  Explain the 5-years` plan 8.1 INTRODUCTION At the time of independence of India, there was a large proportion of impoverished people in the country. Poverty alleviation and improvement of life standards of people were the major considerations of the government. Indian economy needed a direction, which was crippled by foreign subjugation. India was still a geographic expression and a nation in making. Other than the spirit of the freedom struggle, factors required for binding the people were few. So the then politicians and think tanks opted for a planned economy and a centralized planning 136 CU IDOL SELF LEARNING MATERIAL (SLM)

body to formulate a plan for socio-economic development. Thus, planning commission came into existence in March 1950 through a cabinet resolution which became a permanent body of experts. 8.2 PLANNING COMMISSION About Planning Commission The Planning Commission of India was set up by a Resolution of the Government of India in March 1950. Objectives of the government while starting PC were the following:  Promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country.  Increase production.  Offer opportunities to all for employment in the service of the community. Planning Commission of India (PC) Prime minister was the ex officio chairman of the planning commission assisted by a deputy chairman. It included 6 union cabinet ministers as its ex officio members. There was also a member secretary. The planning commission was an autonomous body, which worked closely with union and state cabinets and had full knowledge of their policies. Institutionally it was a part of the cabinet organization and the ‘demands for grants’ for the PC was included in the budget for the cabinet secretariat. Functions and Responsibilities of the Planning Commission  Make assessment of all resources of the country  Augment deficient resources  Formulate plans [Five Year Plans (FYP)] for the most effective and balanced utilization of resources and determining priorities. 137 CU IDOL SELF LEARNING MATERIAL (SLM)

 Determine the stages of plan implementation  Determine the nature of machinery required.  Indicate the factors which tend to retard economic developments.  Monitor and evaluate. Planning Commission: Positives and Achievements  PC laid emphasis on infrastructure developments and capacity building. As a result, huge investments were made in education, energy, industry, railways and irrigation.  India became self-sufficient in agriculture and made great progress in capital sector goods and consumer sector goods.  PC introduced many remarkable concepts like nationalization, green revolution etc. and transformed itself to align with new concepts like liberalization, privatization and inclusion.  Planning commission made great emphasis on social justice, governance, employment generation, poverty alleviation, health and skill development.  The transformation of India from a poor to an emerging economic power is credited to the orderly and phased manner in which planning was implemented. Planning Commission: Negatives and Problems There were many issues with planning methods followed in India. The drawbacks of the planning adopted via PC includes:  No structural mechanism for regular engagement with states.  Ineffective forum for the resolution of centre-state and inter-ministerial issues.  Inadequate capacity expertise and domain knowledge; weak networks with think tanks and lack of access to expertise outside government. 138 CU IDOL SELF LEARNING MATERIAL (SLM)

 Failed to implement land reforms.  It was a toothless body, was not able to make union/states/UTs answerable for not achieving the targets.  Designed plans with ‘one size fit for all’ approach. Hence, many plans failed to show tangible results.  Weak implementation, monitoring and evaluation. Why does India need a change from PC?  The contemporary world is governed by constitutional ethos like federalism rather than centralization.  India’s population has almost tripled to 121 Cr, and many of the Indian states are as big as European nations.  Indian economy has expanded from a GDP of 10,000 crore to 100 lakh crores (at current prices) – i.e. from a poor nation to one of the largest economies. India ranks 3rd in GDP at purchasing power parity, has surpassed Japan and is now standing just below the US and China. The new economy needs institutions which can take India forward in a global competitive environment.  Co-operative federalism and fiscal federalism will help to meet the diverse needs of different states/UTs in which planning commission had failed drastically. Plans have to be formulated by fulfilling the aspirations of states by tailoring the plans to suit their needs and requirements.  The share of agriculture in GDP has been drastically decreasing while the share of the service sector to GDP is increasing in India. From 1991, as our economy is liberalised, private firms have been playing a major role in the economy. Today we are living in a globalized world connected by modern transport, media, communications and networked international institutions and markets. With the increasing levels of development, the aspirations of people have soared from survival 139 CU IDOL SELF LEARNING MATERIAL (SLM)

to safety and surplus. So governance systems need to be transformed to keep up with the same.  Change in the economic scenario where the government is supposed to be an enabler rather than a player or provider of first and last. PS: In the next article, let’s see how the new institution, NITI Aayog can change the face of Indian Planning. 8.3 OBJECTIVE OF FIVE YEARS’ PLANS Planning plays an important role in the smooth functioning of an economy. In 1950, the Government set up the Planning Commission to create, develop, and execute India’s five- year plans. In the article, we will look at each five year plan of India and how it helps achieve the basic objectives of growth, employment, self-reliance, and also social justice. Further, it also takes into account the new constraints and possibilities to make the necessary directional changes and emphasis. Objectives of Five Year Plan of India 1. Economic Growth: Of all the objectives, economic growth has received the strongest prior-ity in all the plans. This is because the Indian economy is caught in the vicious circle of poverty due to low per capita income and the consequent low rate of saving and capital formation. This ob-jective seems to be totally justified, particularly in the context of economic stagnation during the two centuries of British rule. Economic planning in India aims at bring-ing about a rapid economic development in all sectors. The key sectors are agriculture, industry, power and transport. Through rapid economic de-velopment the country aims at increasing national and per capita incomes. Thus poverty will be re-moved and the standard of living improved. 2. Economic Equity and Social Justice: Two aspects of social justice involve the reduction of poverty and the reduction in the inequality in the distribution of income and wealth. 140 CU IDOL SELF LEARNING MATERIAL (SLM)

Growing concentration of economic power in the hands of a few people with rising national income is not desirable. In an otherwise capitalist framework, inequality in the distribution of in-come and wealth is inevitable. In India’s socio-political set-up, vast inequalities exist. Indian plans aim at reducing such inequalities so that the benefits of economic development spread to the poor. This point was not explicitly mentioned by the planners until the Fifth Plan (1973-78). The objective of removal of poverty got its clear-cut enunciation only in that Plan for the first time. 3. Full Employment: The removal of un­employment is considered to be another impor­tant objective of India’s five year plans. But, un-fortunately, it never received the priority it de-served. In the Sixth plan (1978-83) the than Janata Government gave employment a place of pride for the first time. However, the Seventh Plan (1985- 90) treated employment as a direct focal point of policy. As a result, the employment generation programme in India has received a rude shock and the number of people unemployed is mounting up plan after plan. The number of job-seekers in-creased from 34.24 lakhs as on December 1969 to 402 lakhs in December 1999. 4. Economic Self-Reliance: Self-reliance or, for that matter, self-sufficiency, refers to the elimi-nation of external assistance. In other words, it means zero foreign aid. India is typically a de-pendent economy. She is used to importing a huge quantity of food-grains, fertilizer, raw materials and industrial machinery and equipment. Obviously, India is always at a disadvantage so far as the terms of trade are concerned. This results in draining out precious foreign exchange reserves. Hence the necessity of economic self-reliance. But this ob-jective could not be realised before the launching of the Fourth Plan. The Fourth Plan (1967-73) aimed at the elimination of import of food-grains under P.L. 480 by 1971. The basic aim of the Fifth Plan was the attainment of self-reliance. To achieve this goal the Fifth Plan aimed at an increasing pro-duction of food-grains, necessary consumption goods, 141 CU IDOL SELF LEARNING MATERIAL (SLM)

raw materials and exports. While emphasizing the increase in exports, the Plan emphasised the need for establishing import-substitute indus-tries as an important factor of economic self-reliance. No doubt India has made an important ad-vance in certain important directions. First due to the increase in output of food-grains, India has achieved near self-sufficiency in food. Secondly, with the establishment of basic as well as import- substitute industries, India dependence for machin-ery, plant and other capital equipment has dimin-ished considerably. Yet much remains to be achieved. India’s external debt obligations are on the rise. In other words, unlike other objectives, the goal of self-reliance still remains partly unful-filled. 5. Modernisation: This new objective was categorically mentioned for the first time in the Sixth Plan. Modernisation means such a variety of structural and institutional changes in the eco-nomic activities that can change a feudal and co-lonial economy into a progressive and modern economy that produces various types of goods. This requires the setting up of a wide variety of industries. It also refers to an advancement of tech-nology. No doubt certain technological advance-ments have taken place in agriculture, energy, etc. But there is a real danger of this objective in the present context. The country faces an alarming unemployment problem and, hence, poverty. But modernisation will definitely arrest the employ-ment generation activities. Hence, there is a con-flict between modernisation on the one hand and removal of unemployment and poverty on the other. Short-term objectives: Besides these long-term objectives, each five year plan in India has had some short-term objec-tives. For instance, the First Plan (1951-56) stressed agricultural development, control of inflation and rehabilitation of refugees. The Second Plan (1956- 61) aimed at rapid industrial growth—especially basic and heavy industries. The Third Plan (1961- 66) emphasised an expansion of basic industries but shifted to defence. 8.4 SUMMARY 142 CU IDOL SELF LEARNING MATERIAL (SLM)

Planning Commission of India is an organization in the Government of India, which formulates India`s Five-Year Plans, among other functions. The planning commission was charged with the service of the opportunities to all for employment in the service of the community. The Planning Commission is reporting directly to the Prime Minister of India. It was established on 15 March 1950, with Prime Minister Jawaharlal Nehru as the chairman. The Planning Commission does not derive its creation from either the Constitution or statute but is an arm of the Central/Union Government. The Planning Commission was set up by a Resolution of the Government of India in March 1950. The prime objectives of the Government were to propel a rapid increase in the living standard of Indians by the productive exploitation of the country’s resources, raising production and securing opportunities for everyone for employment in the service of society. The Planning Commission was assigned the responsibility of assessing all the resources of the country, enhancing scarce resources, drafting plans for the most productive and balanced usage of resources and ascertaining priorities. Pandit Nehru was the first Chairman of the Planning Commission. 8.5 KEY WORDS/ABBREVIATIONS  Annual Planning Cycle - Process of prioritizing Program Improvement Objectives from the Program and Services Review as a basis for annual college planning. For Program Improvement Objectives that require additional resources, there will be further prioritization as a basis for resource allocation and budget development  Assessment - Strategies for measuring success in achieving: Goals and Objectives, Student Learning Outcomes, Impacts, and Program Improvement Objectives.  Program Achievement Outcome - Give broad overarching direction to the program and support for program improvement. 8.6 LEARNING ACTIVITY 1. Note on Planning Commission of India __________________________________________________________________________________ 143 CU IDOL SELF LEARNING MATERIAL (SLM)

__________________________________________________________________________________ 2. State the objectives of Planning Commission of India __________________________________________________________________________________ __________________________________________________________________________________ 8.7 UNIT END EXERCISES (MCQS AND DESCRIPTIVE) A. Descriptive Questions 1. Comment on positives & Achievements of PC 2. Explain the objectives of Five Years of India 3. State the functions of PC 4. Discuss the responsibilities of PC 5. Explain the negatives & problems of PC B. Multiple Choice Questions (MCQs) 1. Who gives the final approval to the five-year plans of India? (a) National Development Council (NDC) (b) Ministry of Finance (c) Planning Commission (now NITI Aayog) (d) President of India 2. What as the prime target of the first five-year plan of India? (a) Development of the industries (b) Development of Agriculture 144 CU IDOL SELF LEARNING MATERIAL (SLM)

(c) Development of infrastructure 145 (d) Development of ports 3. The Planning commission of India is? (a) A constitutional body (b) An independent and autonomous body (c) A statutory body (d) A non-statutory body 4. Planning commission was replaced by? (a) NITI aayog (b) Economic planning (c) Plan India (d) Finance commission 5. Planning commission was set up in __________ (a) 1947 (b) 1951 (c) 1970 (d) 1950 Answers: CU IDOL SELF LEARNING MATERIAL (SLM)

1. (a) 2. (b) 3. (d) 4. (a) 5. (c) 8.8 SUGGESTED READINGS  Bajpai, P. & Bhandari, L. (2009). Social and Economic Profile of India. Hyderabad: Orient black Swan.  Datt, R. & Sundram, K.P.M. (2007). Indian Economy. New Delhi: S. Chand & Co.  Dhar, P.K. (1999). Indian Economy. Ludhiana: Kalyani Publishers.  Ghosh, A. (2004). Bhartiya Arth Vivstha. Patiala: Punjabi University.  Gill, J.S. (2004). Evolution of Indian Economy. New Delhi: NCERT.  Gupta, K.R. & Gupta, J.R. (2009). Indian Economy. New Delhi: Atlantic Publishers  Jalan, B. (2008). India's Economy in the New Millennium. New Delhi: UBS Publishers.  Misra, S.K. & Puri, V.K. (2006). Indian Economy. Mumbai: Himalya Publishing House.  Sen, R.K. & Chatterjee, B. (2008). Indian Economy. New Delhi: Deep & Deep Publications.  Singh, B. N. (2008). Economic Reforms in India. New Delhi: APH Publishers.  Singh, B.N. (2008). Indian Economy Today: Changing Contours. New Delhi: Deep & Deep Publications.  Singh, C.G. (2005). Bharti Arth Shastar. Patiala: Punjabi University.  Soni, R.N. (2008). Leading Issues in Agriculture Economics. New Delhi: S. Chand & Co.  Tandon, B. & Tandon, K.K. (1998). Indian Economy. New Delhi: Tata McGraw Hills Pub. Co.  Vasudeva, P.K. (2009). India & World Trade Organisation: Planning and Development. New Delhi: APH Publishers. 146 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 9:NITI AAYOG 147 Structure 9.0. Learning Objectives 9.1. Introduction 9.2. Establishment and Features 9.2.1 Composition of NITI Aayog 9.2.2 Major objectives of The NITI Aayog 9.2.3 Features of NITI Aayog 9.2.4 India Knowledge Hub 9.3. Difference between Planning Commission and NITI Ayog 9.4. Summary 9.5. Key Words/Abbreviations 9.6. Learning Activity 9.7. Unit End Exercises (MCQs and Descriptive) 9.8. Suggested Readings 9.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describes in detail about the NITI Aayog  States the history & transition of Planning Commission to NITI Aayog 9.1 INTRODUCTION CU IDOL SELF LEARNING MATERIAL (SLM)

The NITI Aayog (National Institution for Transforming India), is a think tank of the Government of India established on 1 January 2015 as a replacement for the Planning Commission to give suggestions to the Governments at the central and state levels with relevant strategic, directional and technical advice across the spectrum of key elements of policy / development process. The Prime Minister of India heads the Aayog as the Ex-officio Chairperson. Currently Rajiv Kumar is the vice chairman of the NITI Aayog. 9.2 ESTABLISHMENT AND FEATURES In 2014, Prime Minister Narendra Modi announced his objective to dissolve the Planning Commission. It has since been replaced by a new institution named NITI Aayog. NITI Aayog is a Government of India policy think-tank. The assured aim for NITI Aayog’s formation is to promote involvement and participation in the economic policy-making process by the State Governments of India. It has adopted a bottom-up approach in planning which is a noteworthy contrast to the Planning Commission’s tradition of top-down decision-making. One of the important directives of NITI Aayog is to bring cooperative competitive federalism and to improve Centre-State relation. 9.2.1 Composition of NITI Aayog The NITI Aayog comprises the following:  Prime Minister of India as the Chairperson,  Governing Council comprising the Chief Ministers of all the States and  Lt. Governors of Union Territories  Regional Councils formed to address specific issues and contingencies impacting more than one state or a region. These will be formed for a specified tenure.  The Regional Councils will be convened by the Prime Minister and will comprise of the Chief Ministers of States and Lt. Governors of Union Territories in the region. 148 CU IDOL SELF LEARNING MATERIAL (SLM)

 These will be chaired by the Chairperson of the NITI Aayog or his nominee. Experts, specialists and practitioners with relevant domain knowledge as special invitees are nominated by the Prime Minister.  The full-time organizational framework will comprise of, in addition to the Prime Minister as the Chairperson. 9.2.2 Major objectives of The NITI Aayog  To evolve a shared vision of national development priorities, sectors and strategies with the active involvement of States in the light of national objectives. The vision of the NITI Aayog will then provide a framework ‘national agenda’ for the Prime Minister and the Chief Ministers to provide impetus to.  To promote cooperative federalism through structured support initiatives and mechanisms with the States on a continuous basis, recognizing that strong States make a strong nation.  To develop mechanisms to formulate credible plans at the village level and aggregate these progressively at higher levels of government.  To ensure, on areas that are specifically referred to it, that the interests of national security are incorporated in economic strategy and policy.  To pay special attention to the sections of our society that may be at risk of not benefitting adequately from economic progress.  To design strategic and long term policy and programme frameworks and initiatives, and monitor their progress and their efficacy. The lessons learnt through monitoring and feedback will be used for making innovative improvements, including necessary mid-course corrections.  To provide advice and support partnerships between key stakeholders and national and international like-minded Think Tanks, as well as educational and policy research institutions. 149 CU IDOL SELF LEARNING MATERIAL (SLM)

 To create a knowledge, innovation and entrepreneurial support system through a collaborative community of national and international experts, practitioners and other partners.  To offer a platform for resolution of inter-sectorial and inter-departmental issues in order to accelerate the implementation of the development agenda.  To maintain a state-of-the-art Resource Centre, be a repository of research on good governance and best practices in sustainable and equitable development as well as help their dissemination to stake-holders.  To actively monitor and evaluate the implementation of programmes and initiatives, including the identification of the needed resources so as to strengthen the probability of success and scope of delivery.  To focus on technology up-gradation and capacity building for implementation of programmes and initiatives. 9.2.3 Features of NITI Aayog NITI Aayog is developing itself as a State-of-the-art Resource Centre, with the necessary resources, knowledge and skills, that will enable it to act with speed, promote research and innovation, provide strategic policy vision for the government, and deal with contingent issues. NITI Aayog’s entire gamut of activities can be divided into four main heads:  Design Policy & Programme Framework  Foster Cooperative Federalism  Monitoring & Evaluation  Think Tank and Knowledge & Innovation Hub Cooperative Federalism NITI Aayog has been constituted to actualize the important goal of cooperative federalism 150 CU IDOL SELF LEARNING MATERIAL (SLM)