General Studies Economics Final

Sree Media Education
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Indian
Economy
PLANNING IN INDIA
Introduction
The philosophy behind economic planning recognizes that markets and price system alone cannot ensure welfare of the citizens of a state. While individuals are the best judges of what is good for them, the sum total of such judgement need not be the best option for the society as a whole. Moreover, areas like infrastructure require large investments without immediate tangible returns and therefore do not attract private investment. This requires the state to step in either directly as in the past or through private-public partnership, which is the principle behind the build-operate-transfer (BOT) type of infrastructure development. Finally, the government provides for some goods called public goods, such as the quality of environment and national defences which can be enjoyed by one person without depriving others of similar enjoyment. The credit for concertising ideas on national planning goes to Sri M.Visvesvaraya, the visionary engineer and statesman of Mysore who published his Planned Economy for India in 1934, which was a blue-print for a ten-year programme of planned economic development for India. Indian National Congress set up a National Planning Commission as far back as 1938 with Jawaharlal Nehru Chairman. Over the next decade, there were several initiatives. The most important were: A Plan for Economic Development in India (1944), popularly known as the Bombay Plan which gave priority to the development of basic industries, while at the same time seeking the doubling of agricultural production and of per capita income within a 15 years framework. The Peoples Plan drafted by Shri M N Roy which had a 10-year period and which sought to give greatest priority to agriculture. It advocated the nationalization of all agricultural production and distribution. The Gandhian Plan drafted by Sriman Narayan emphasized economic decentralization with primacy to rural development through the development of cottage industries.
Types of Planning
Some of the important types of planning (not mutually exclusive) are described below: Imperative planning involves centralized planning and implementation as opposed to indicative planning which only lays down the broad goals, strategies and guidelines for achieving the goals. Fixed term plans are drawn up for a particular period (five years in India) whereas a rolling plan will be more flexible in its targets and allow extension of implementation period. Structural planning refers to a strategy, which involves the need to change existing institutions or creating new ones. On the other had, functional planning seeks to achieve the objectives within the existing institutional framework (i.e., without changing existing laws, for instance).
Apex planning or centralized planning envisages only a central institution while multilevel planning allows for decentralized planning. The Panchayati Raj institutions seek to strengthen multi-level planning.
A Review of Five Year Plans

First Plan (1951-56) Highest priority to agriculture, irrigation and power projects 44.6% of total public sector outlay of Rs. 2069 crores (subsequently increased to Rs. 2378 crores) on agriculture, irrigation and power. Transport and communication received 26.4% and industry only 2.8% Rate of investment targeted at 7% of national income National income grew by 18% and per capita income by 11% Food production went up by 20% Second Plan (1956-61) Targeted a 25% increase in national income through rapid industrialization. Actual achievement was only 20% Adopted the socialistic pattern of society as the goal Rate of investment planned to be raised from seven percent to 11% of national income. National Income increased by almost 20% but per capita income rose only by eight per cent. Large industries including steel plants (Durgapur, Bhilai and Rourketa) were set up. The locomotive factory at Chittaranjan and Coach Factory at Perambur were other major projects of this period. Third Plan (1961-66) Emphasis on basic industries continued but agriculture and allied sectors (irrigation and power) were allocated 35% of the outlay. A series of crises China war (1962) Nehrus death (196) marred the smooth implementation of the plan. Growth rate of only 2.2% achieved as against a target of 5% per annum Inflation (36%) ate up much of the achievement; Rupee devaluation (1966) Annual Plans (1966-69) after the disastrous experience of the Third Plan, a plan holiday was declared for three years. All available resources were mobilized for building a buffer stock and for stepping up food production learning from the experience of near-famine years (1965-66). Favourable monsoon and technological break-through in wheat popularly known as green revolution reduced the inflationary pressure. Nationalisation of banks was another major step during this period. Fourth Plan (1969-74) Emphasis on growth with distributive justice. Substantial increases in the outlay for family planning (Rs. 278 crores from Rs. 25 crores in third plan). Poor achievement of targets national income grew by 3.3% per annum; per capital income by 1.2% per annum; agricultural production by 2.8%; industrial production by 3.9%.
Fifth Plan (1974-79) Twin objectives of poverty eradication and attainment of self-reliance. A National Programme for Minimum Needs including elementary education, safe drinking water health care, shelter for landless, and slum up graduation. A growth rate of 5.2% (against a target of 4.4%) achieved. Agricultural production increased by 4.2% - the highest so far Moderate inflation of 2.1% per annum during he Emergency years (1975-1977) The Janata Government terminated the Plan in 1978. Sixth Plan (1980-85) Janata Government had adopted a Sixth Plan (1978-83), which was conceived as rolling plan. Mrs. Gandhis Government in 1980 abandoned this and a new sixth plan was drafted. Poverty alleviation given the top priority. Schemes for transferring skills (TRYSEM) and assets (IRDP) and providing slack season employment (NREP). Actual growth of national income was higher at 5.3% (against a target of 5.2%) Increase of 16% per annum in real investment in fixed asset by private sector. Poverty declined from 48.3% in 1977-78 to 37.4% in 1983-84 Seventh Plan (1985-90) Strong emphasis on creation of productive employment on farm as well as rural subsidiary occupations. Stress on increasing the production of food grains, oilseeds, sugar, textiles, domestic fuel and housing Outward-looking strategy with exports receiving high priority. Tempo of domestic and external liberalization has tened The plan also had a 15-year perspective (1985-2000) for removal of poverty, providing for basic needs, achieving universal elementary education and total access to health facilities. Average annual growth rate during the plan period was 5.6% (target fiver percent) Agriculture grew at 4.1% against a target of four percent. Manufacturing industries achieved a growth rate of 8.8% (target 8%) There was a severe short fall in the mining sector (5.6% against a target of 13%) Social sector performance fell far short of targets especially in housing for the landless, elementary education, and general poverty alleviation. Eighth Plan (1992-97) The plan was launched in 1992 after the plan holiday during economically and politically difficult days of 1990-91 and 91-92. The acceptance of liberation and the need for market forces to play a greater role. Employment generation to be speeded up to achieve full employment by 2000 Total literacy to be achieved in the 15-35 age group by covering an additional 110 million people Restructuring the systems of economic management through public sector reforms, including selective disinvestment.
The English Plan was to walk on two legs one leg of alleviating poverty and removing unemployment and the other leg providing a safety net for those who will be affected by the structural adjustment programme. The plan had thus built in the human face element of adjustment. Ninth Plan (1997-2002) The development strategy emphasized the role for markets and the need for government to intervene to ptomote a degree of competition through suitable legislation. Licence Raj was to be ended. The plan emphasized co-operative federalism. It also stressed the importance of infrastructural development. The plan was indicative in nature, focusing on policies. It also provided a 15-year perspective. It aimed to achieve a growth rate of eight percent per annun in the medium term and a rate of 6.5percent during the plan period (97-02) Tenth Plan Annual 8.1 percent GDP growth during 2002-07 Annual FDI flows of 7.5 billion US dollars Public sector outlay at Rs. 15,92,300 crore States and UT outlay at Rs. 6,71,009 crore Literacy rate to increase to 75 percent by 2007 Maternal mortality Rate to be reduced to 45 in 2007 and 25 by 2012 Reduction in gender gaps in literacy ad wage rates by at least 50 percent by 2007 Cleaning of major polluted river stretches Reduction in Government dis-savings to -0.5 percent Increase in tax-GDP ratio to 10.3 percent by 2007
Approach Paper to 11th Plan

Planning Commission recently approved the approach paper to the Eleventh Five Year Plan beginning in 2007-08. It has clearly set an ambitious target of achieving ten per cent economic growth by the last year of the plan-that is 2011-12. Prime Minister Manmohan Singh, who chairs the full planning commission, said that two areas that require immediate attention were Agriculture and infrastructure. The industry and services sectors in the country are doing well clocking double-digit growth. Agriculture sector It is the agriculture sector, which needs a thrust as the growth rate has virtually stagnated in the sector. If the GDP growth is to be pushed up by 1-2 per cent, it is the agriculture, which has to grow by at least 4 per cent annually on a sustained basis. As over 60 per cent of the population is still dependent on agriculture, it is important that rural India grows rapidly to ensure growth is all inclusive and that gap between rural and urban areas, rich and poor are narrowed down. There has been emphasis on the need for vocational education and skill development to ensure greater employment. The current agrarian crisis can be tackled only if the centrality of state intervention was recognized howsoever inefficient may be. Food security and stability of essential commodity prices are equally important and the approach paper seems to have adopted kid-glove approach in dealing with the issue.
The country would have to move towards single common market for farm produce. There is also the need to encourage food processing industries and a separate action plan is needed to boost this sector. Nearly 35-40% of fruits and vegetables produced in the country go as waste.
Employment Generation It proposes to create 70 million new work opportunities. Infrastructure It proposes to provide electricity connections to all villages and below poverty line household by 2009 and round the clock power by the end of the plan and telephone connectivity to every village by November 2007 and broadband connectivity to all villages by 2012. Fiscal Sector The approach paper estimates that the gross budgetary support for the Plan (Centre and states combined) would have to increase by 2.5 percentage points of GDP above the Tenth Plan period. The issue of Fiscal Prudence The Approach paper has also recognized the difficulties posed by the rigid FRBM (Fiscal Responsibility and Budget Management) targets to rein-in on fiscal and revenue deficits. It had even suggested a postponement of the FRBM targets for a period of two years. It has also suggested that the focus on wiping out revenue deficits by 2009 should be abandoned as a number of items of expenditure that contribute to human capital formation are listed as revenue expenditure. Public Private Partnership It is for this reason that the Approach Paper advocated an aggressive effort to promote public private partnership in infrastructure projects due to scarcity of public resources.
Tenth Plan: Features The Tenth Plan has a number of new features: Firstly, the Plan recognises the rapid growth in the labour force over the next decade. The Tenth Plan, therefore, aims at creating 50 million job opportunities during the period, by placing special emphasis on employment intensive sectors of agriculture, irrigation, agro-forestry, small and medium enterprises, information and communication technology and other services. Secondly, the Plan addresses the issue of poverty and the unacceptably low levels of social indicators. Thirdly, Tenth Plan has adopted a differential development strategy. It is also for the first time that statewise growth and other monitorable targets have been worked out in consultation with the States. This Plan is the recognition that Governance is perhaps one of the most important factors for ensuring that the Plan is realised. The Plan has laid down a perspective list of reforms in this connection. Finally, considering the present market-oriented economy, the Tenth Plan has dwelt at length about the policies that would be necessary and the design of key institutions. The Tenth Plan not only includes a carefully crafted medium term macroeconomic policy stance, both for the Centre and the States, but also lays out the policy and institutional reforms that are required for each sector.
Changing nature of planning In a federal democracy like ours, the principal task of planning is to evolve shared vision among not only the federal units but also among other economic agents, so that the efforts of all the actors become convergent towards the national priorities. While the growth process can be made the responsibility of the corporate sector to a greater degree, its direction and distribution are to be steered by planned public intervention, so that regional imbalances are reduced and socio economic inequities are set right. For example, directing the growth of the large industry into the backward areas and technology-intensiveareas to realise national goals. The nature of instruments available to planners in the implementation has changed. The planning process has to focus on the need for planning for policy, so that the signals that are sent to the economic system induce the various agents to grow in a manner that is consistent with national goals. In particular, investment patterns would be determined by sectoral policies. For example, phasing in rupee convertibility over almost a decade, so that the necessary changes and adjustments can be made. Given the federal nature of the Indian context, the role of planning is to develop a common policy stance for the Centre and the States. Also, the task of federal policy coordination is central to Indian planning. For example, the need to invite foreign investment in infrastructure areas like power need centre-state coordination as the
necessary legislation and administrative changes involve both. Lastly, planning at the grass root level, that is participatory, is very crucial for improving the delivery systems and proper use of resources. The role of the Government is thus to facilitate participatory planning.
With the change in the role of the State, the function of planning for the development of the country also is undergoing change, particularly since the commencement of the economic reforms in 1991 in India. There has been a national debate about the relevance of planning in the changing context of economic liberalization. In the new context of the economic reforms, the following changes are evident: Government only indicates targets and facilitates growth unlike earlier when the Government directed the process, thus reducing the Governmental role reflected in the indicative model of planning adopted since the 8th five year plan (1992-97). The physical control of the Government over the economic process is gradually being replaced with fiscal controls. Integration of Indian economy with the global economy as the import controls and tariffs are being relaxed and reduced; rupee convertibility being brought in phases; FDI is being invited on liberal terms and so on. Increasing role for the market and the consequent increase in the role of the private sector. The public sector units will be confined to select socially relevant and infrastructure areas and given greater autonomy in their functioning. The role of the government will be in the area of creating an enabling milieu.
In the context of such a situation, the planning model needs to be changed to achieve building of social infrastructure for human development; protection of ecology, regenerating environment and natural resources; protecting the vulnerable sections; and bringing about balanced regional growth.
Monitorable targets for the Tenth Plan and beyond Reduction of poverty ratio by 5 percentage points by 2007 and by 15 percentage points by 2012; Decadal Population Growth to reduce from 21.3% in 1991-2001 to 16.2% in 2001-11. Providing gainful high-quality employment to the addition to the labour force over the Tenth Plan period; All children in school by 2003; allchildren to complete 5 years of schooling by 2007; Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2percent; Increase in literacy rate to 75 per cent within the plan period; Reduction of infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012; Reduction of maternal mortality ratio (MMR) to 2 per 1000 live births by 2007 and to 1 by 2012; Increase in forest and tree cover to 25per cent by 2007 and 33 per cent by 2012; All villages to have sustained access to potable drinking water within the Plan period; and Cleaning of major polluted rivers by 2007 and other notified stretches by 2012. The planning exercises are necessary as the problem of the market driven economy is that it caters to the short term needs; well-off sections;more developed regions and its sensitivity to the macro problems requiring a national effort is minimal. Further, planning is necessary for the sectors like energy, communications, transport and so on as private sector needs to be guided into the national plan. More, in the context of federal finance, the planning exercise continues to be relevant, as the resources need to be shared, augmented and sourced well. It is further observed, that the liberalization process is presently showing trends of bypassing the weaker states and (he need of planning process is to even the process of growth so that regional economic imbalances do not result from the market-driven growth. The allocation of resources for various sections of the society equitably is another important function of planning which assumes greater importance, as monopolies and oligopolies are an intrinsic part of market economies. In the era of globalisation where corporates are not expected to plan beyond the growth of a particular unit, the role of safeguarding national interests is that of planning by the State. For example, being subjected to various discriminative trade practices by EU, USA and so on, the Indianexporters have to fight sophisticated battles in the WTO for which, the legal services and information and building up bargaining power are best provided by the State.
AGRICULTURE
India ranks second worldwide in farmoutput. Agriculture and allied sectors like forestry, logging and fishingaccounted for 20% of the GDP in 2005, employed 60% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the green revolution. However, international comparisons reveal that the average yield in India is generally 30% to 50% of the highest average yield in the world. According to the advanced estimates the growth of agriculture sector during 2006-07 was 2.7%. A moderate annual average growth of 3.0% in the first six years of the new millennium starting 2001-02, notwithstanding a growth of 10% in 2003-04 and 6 per cent in 2005- 06, agriculture and allied sector has continued to be a cause of concern. The structural weaknesses of the agriculture sector reflected in low level of public investment, exhaustion of the yield potential of new high yielding varieties of wheat and rice, unbalanced fertilizer use, low seeds replacement rate, an inadequate incentive system and post harvest value addition were manifest in the lacklustre agricultural growth during the new millennium. 8.6 Low yield per unit area across almost all crops has become a regular feature of Indian agriculture National Agriculture Policy 2000 The first ever National Agriculture Policy was announced on 28 July, 2000. Over the next two decades, it aims to attain: Growth that is based on efficient use of resources and conserve our soil, water and biodiversity. Agricultural growth that is sustainable technologically, environmentally and economically. The use of biotechnology will be promoted for evolving plants which consume less water, are drought resistant, pest resistant, contain more nutrition, give higher yields and are environmentally safe. Balanced and conjunctive use of biomass, organic and inorganic fertilisers and controlled use of agrochemicals through INM and IPM will be promoted. A major thrust will be given to diversifying agriculture through Integrated Farming. Rational utilisation and conservation of the countrys abundant water resources will be promoted through Integrated Water Management practices. Agroforestry will receive a major National Rainfed Area Authority Government has decided to set up a thrust for efficient nutrient cycling, nitrogen fixation, organic matter addition and for improving drainage. Concerted efforts will be made to promote traditional practices, knowledge and wisdom to harness them for sustainable agricultural growth. The increases in the Minimum Support Price (MSP) for wheat and rice in recent years are
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such that they have begun to have inflationary effect. As the MSP is increased, partly under the influence of the big farm lobby, the open market prices also move up. Inflation results, CIP are hiked and the poor are hurt.
Since the small farmers do not have the surpluses, only the big farmers benefit and that too from the advanced states like Punjab, Mariana and western UP. The most embarrassing consequence of MSP rising irrationally is the bulging food stocks to levels almost double of what is prescribed as the minimum norm for food security i.e. more than 40 mt. Recent initiatives National Rainfed Area Authority Government has decided to set up a National Rainfed Area Authority to address the problems of rainfed areas for sustainable and holistic development of such areas including appropriate farming and livelihood system approaches. Micro-irrigation A Centrally Sponsored Scheme on micro-irrigation was launched in January, 2006 for covering a total area of 6.2 lakh ha. The scheme aims to achieve greater water use efficiency to result in enhanced productivity and better quality of produce. National Bamboo Mission Department of Agriculture and Cooperation has launched the National Bamboo Mission with 100 per cent central assistance at a total cost of Rs.568.23 crore, including an outlay of Rs.90 crore during 2006-07 (Tenth Plan) and the first four years of the Eleventh Plan. Livestock Insurance Livestock Insurance Scheme was approved in February 2006 for its implementation during the remaining part of 2005-06, and in 2006-07 on a pilot basis in 100 selected districts across the country with a total outlay of Rs. 120 crore. The scheme aims at protecting the farmers against losses due to un-timely death of animals. National Fisheries Development Board has been set up to realize the untapped potential of fishery sector with the application of modern tools of research and development including biotechnology. The Board was registered in July, 2006. National Commission on Farmers The National Commission on Farmers (NCF) chaired by Dr. M.S. Swaminathan submitted five Reports between December 2005 and October, 2006. Key recommendations of the Commission are incorporated in the Revised Draft National Policy for Farmers. These include: asset reforms covering land, water, livestock and bio resources; farmer-friendly support services covering extension, training and knowledge, connectivity, credit and insurance; assured and remunerative marketing; inputs and delivery services; and curriculum reforms in the agriculture universities. Other major initiatives recommended include bringing Agriculture in the Concurrent List of the Constitution; setting up of a National Food Security and Sovereignty Board; universalization of Public Distribution System (PDS); setting up of an Indian Trade Organization; making the Commission on Agriculture Cost and Prices into an autonomous statutory organization with MSP at least 50 per cent more than the cost of production, and launch of a Rural Non- farm Livelihood Initiative (RNFLI). RNFLI when implemented would be able to absorb higher number of people dependent on agriculture.
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Rehabilitation Package for distressed farmers A special relief package for farmers was announced for 31 districts in Andhra Pradesh, Maharashtra^ Karnataka and Kerala where there was high incidence of farmers suicides. As regards credit, the package envisages: (a) waiving of interest on overdue loans as on July 1, 2006 so that farmers have no past burden. This would make them eligible for fresh loan from the banking system. (b) The overdue loans of the farmers as on July 1, 2006 will be rescheduled over a period of 35 years with a one year moratorium, A credit flow of Rs. 21,422 crore will be ensured in these 31 districts in 2006-07. Rainfall Insurance Scheme-"Varsha Bima" AICIL introduced Rainfall Insurance Scheme known as Varsha Bima during 2004 south-west monsoon period. Varsha Bima provided for five different options suiting varied requirements of fanning community: (i) seasonal rainfall insurance based on aggregated rainfall from June to September, (ii) sowing failure insurance based on rainfall between June 15 and August 15, (iii) rainfall distribution insurance with the weight assigned to different weeks between June and September, (iv) agronomic index constructed on the basis of water requirements of crops, (v) a catastrophe option covering extremely adverse deviation of 50 per cent and above in rainfall during the season. During kharif 2006, the scheme is being implemented as Varsha Bima-2006 in and around 150 districts/rain gauge station areas covering 16 states across the country. Capital Formation in Indian Agriculture The share of the agricultural sectors capital formation in GDP declined from 2.2 per cent in the late 1990s to 1.9 per cent in 2005-06 (Table 8.19). This disturbing decline was partly due to the stagnation or fall in public investment in irrigation, particularly since the mid-1990s. However, there is indication of a reversal of this trend with public sector investment in agriculture accelerating since 2002-03. Agricultural Marketing Ministry of Agriculture had formulated a model law on agricultural marketing in consultation with State/UT Governments to bring about marketing reforms in line with emerging trends. This model Act enables establishment of private markets/yards, direct purchase centres, consumers/farmers markets for direct sale, and promotion of public-private-partnership (PPP) in the management and development of agricultural markets in the country. It also provides for exclusive markets for onions, fruits, vegetables and flowers. Regulation and promotion of contract farming arrangement has also been made a part of this legislation. A provision has also been made for constitution of State Agricultural Produce Standards Bureau for promotion of grading, standardization and quality certification of agricultural produce. Towards another Big Push to Agriculture- Second Green Revolution The urgent need for taking agriculture to a higher trajectory of 4 per cent annual growth can be met only with improvement in the scale as well as quality of agricultural reforms undertaken by various States and agencies at various levels. These reforms must aim at efficient use of resources and conservation of soil, water and ecology on a sustainable basis, and in a holistic framework. Such a holistic framework must incorporate financing of rural infrastructure such as water, roads and power.
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The Approach Paper to the Eleventh Five Year Plan has aptly highlighted such a holistic framework and suggested the following strategy to raise agricultural output: (a) doubling the rate of growth of irrigated area; (b) improving water management, rain water harvesting and watershed development; reclaiming degraded land and focusing on soil quality; (d) bridging the knowledge gap through effective extension; (e) diversifying into high value outputs, fruits, vegetables, flowers, herbs and spices, medicinal plants, bamboo, bio-diesel, but with adequate measures to ensure food security: (f) promoting animal husbandry and fishery; (g) providing easy access to credit at affordable rates; (g) improving the incentive structure and functioning of markets; and (h) refocusing on land reforms issues. National Commission on Farmers has already laid the foundation for such a framework. Programme formulation as well as their implementation in the States must be based on unique regional contexts incorporating agroclimatic conditions; and availability of appropriate research and development (R&D) backed by timely and adequate extension and finance. Vishesh Krishi Upaj Yojana The objective of the scheme is to promote export of fruits, vegetables, flowers, minor forest produce, and their value added products, by incentivising exporters of such products. Entitlement: Exporters of such products shall be entitled for duty credit scrip equivalent to 5% of the FOB value of exports for each licencing year commencing from April 1, 2004. The scrip and the items imported against it would be freely transferable. Imports allowed: Duty credit may be used for import of inputs or goods including capital goods, as may be notified, provided the same is freely importable under ITC (HS). Imports from a port other than the port of export shall be allowed under TRA (Telegraphic Release Advice) facility as per the terms and conditions of the notification issued by Department of Revenue. Cenvat/Drawback: Additional customs duty/excise duty paid in cash or through debit under Visheh Krishi Upaj Yojana shall be adjusted as CENVAT Credit or Duty Drawback as per rules framed by the Department Revenue. National Agricultural Insurance Scheme (NAIS) NA1S was introduced from Rabi 1999-2000 seasons, replacing the Comprehensive Crop Insurance Scheme (CCIS) which was in operation since 1985. It envisages coverage of all the food crops. Among the commercial/horticultural crops, eleven crops viz. sugarcane, potato, cotton, ginger, onion, turmeric, chillies, pineapple, banana, jute and tapioca are currently covered under the scheme. The premium rates are 3.5 per cent (of sum insured) for bajra and oilseeds, 2.5 per cent for other Kharif crops, 1.5 per cent for wheat, and 2 per cent for other Rabi crops or actual rates whichever is less. In the case of commercial/ horticultural crops, actual rates are being charged.
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Small and marginal farmers are entitled to a subsidy of 50% of the premium charged from them, which will be shared on 50:50 basis by the Central and State governments. The premium subsidy will be phased out over a period of 5 years. The scheme is operating on the basis ofArea Approach, i.e. defined areas for each notified crops for widespread calamities, and on an individual basis for localized calamities such as hailstorm. Kisan Credit Card Scheme The Kinas Credit Card Scheme, introduced in 1998-99, as an innovative scheme to facilitate access to short term credit by farmers. This Scheme gained popularity and its implementation has been taken up by 27 commercial banks, 378 District Central Cooperative Banks/State Cooperative Banks and 196 Regional Rural Banks throughout the country. The number of cards issued and the amount sanctioned under the scheme Has increased in each successive year since its inception to reach a total of over 435.6 lakh cards.
INFLATION Inflation is a state in which the prices of goods and services rise on the one hand and value of money falls on the other. Inflation is of two types: 1. Demand Pull Inflation: Demand Pull inflation is that inflation when rices rise due to higher Demand for goods and services over the available supply. In other words, demand pull Inflation takes place when increase in production lags behind the increase in money supply. 2. Cost Push Inflation: It is another type of inflation in which prices rise due to increased input Costs. Deflation: Deflation is that state in which the prices of goods and services fall and the value of money rises. Current Scenario The Wholesale Price Index (WPI), available weekly and going back the longest, continues to be the most popular measure for monitoring inflation. Higher food prices pushed the wholesale price index (WPI) inflation to 4.41 % for the week ended 14 July 2007, up from 4.27%... the previous week. Inflation was 4.62% in the corresponding week last year. The inflation numbers are still within the five per cent annual target of the Reserve Bank, which is due to review the monetary policy on July 31. Among the primary articles, prices of vegetables rose sharply by 7% during the week, while those of cereals rose by 0.9%. Among the primary articles, prices of vegetables rose sharply by 7% during the week, while those of cereals rose by 0.9%. Among manufactured products, rates of rice and bran oil rose by 3% each, while imported edible oil, groundnut oil, cotton seed oil and oil cakes became costlier by one percentage point.
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In the current year, increase in prices of wheat, pulses, edible oils, fruits and vegetables, and condiments and spices have been the major contributor to the higher inflation rate of primary articles. Shortfall in domestic production vis-a-vis domestic demand and hardening international prices were the major causes for the increase in prices of these commodities.
Recent Anti-Inflationary Measures The anti-inflationary policies of Government include strict fiscal and monetary discipline; rationalization of excise and import duties of essential commodities to lighten the burden on the poor; effective supply-demand management of sensitive items through liberal tariff and trade policies; and strengthening the public distribution system. The RBI has adopted a policy of monetary tightening, raising the cash reserve ratio (CRR) the share of deposits that banks park as cash with the central bank and the short-term inter-bank lending (repo) rate lo contain inflation. While the repo rate was hiked by 0.25 percentage points to 7.75 per cent in March, the CRR has been raised by 0.50 per cent in two stages this year. During 2006-07, the Government initiated a slew of measures to contain the price rise of primary commodities: State Trading Corporation tendered overseas for import of 55 lakh tones of wheat to supplement domestic availability. Permission was given to private trade to import wheat first at 5% duty from June 27, 2006 and then at zero duty from September 9, 2006 as against the normal applicable duty of 50%. Import of pulses was permitted at zero duty from June 8, 2006 and a ban on export of pulses was made with effect from June 22, 2006. Close monitoring of prices of each and every essential item on a weekly basis was put in place. Regulatory measures were initiated by the Forward Markets Commission (FMC) to contain volatility in the futures prices of wheat, sugar and pulses and ban on futures trading in some pulses was imposed to reduce speculative pressures. Reduction in duty on palm group of oils by 20-22.5 percentage points was effected in two phases, first in August 2006 and later in January 2007. Further, tariff values of these oils were frozen at levels prevailing in July 2006, thus reducing to that extent the impact of increase in international prices. On January 22, 2007, further duty cuts were announced for Portland cement, various metals and machinery items.
INDUSTRY India ranks fourteenth worldwide in factory output. Concerted efforts at industrialisation by the government, aiming at self-sufficiency in production and protection from foreign competition, for nearly four decades since independence, have encouraged a diverse (though small) industrial base. They together account for 28.4% of the GDP and employ 17% of the total workforce. Economic reforms brought foreign competition, led to privatization of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving Consumer goods.
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Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology. Highlights of CPSE performance in 2005-06 The share of CPSEs in GDP at market prices stood at 11.12 per cent in 2005-06 and 11.68 per cent in 2004-05. The cumulative investment of all CPSEs at end-March, 2006 was Rs.3, 93,057 crore. The share of manufacturing CPSEs in such investment was the highest at 51 per cent followed by service CPSEs at 40 per cent, mining CPSEs at 7 per cent. The overall growth in turnover of CPSEs was 11.86 per cent. The growth in the turnover of 'heavy engineering and construction services group was the highest at 39 per cent during the year. In terms of capacity utilization, 51 percent of all CPSEs operated at 75 percent or higher; 16 per cent at 50- 75 per cent, and the residual 33 per cent at less than 50 per cent. The accumulated losses of all CPSEs declined by Rs. 10,578 crore from Rs.83, 725 crore in 2004-05 to Rs.73,147 crore. 44 CPSEs are listed on the domestic stock exchanges. While the shares of MTNL (ADR) are listed on the New York Stock Exchange, the shares of GAIL and SAIL are listed on the London Stock Exchange, At end-March, 2006, the 239 CPSEs employed over 16.49 lakh people excluding casual workers. The comparable figures in the previous four years were 19.92 lakh, 18.66 lakh, 17.62 lakh, 17.00 lakh, respectively.
Public Sector Since the beginning of the planned process of economic development after Independence, public sector played a pre-eminent role in India. Commanding heights of the economy were to be in the hands of the public sectorbasically infrastructure areas like transport, communications, energy, steel and fertilizers. Objectives of the PSUs establish sound economic infrastructure set up industries in the backward regions and thus help bring about balanced regional development assist in ancillarization and thus the spread of the benefits of industrialization create sufficient levels of employment and set standards in labour welfare build a self-reliant economy earn ingestible resources for development prevent/reduce concentration of private economic power selling goods and services at reasonable prices so as to serve consumer, keep low
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inflation and help non-inflationary growth process Invest in areas where the private sector would not and could not like in roads, transport and so on.
Performance In the last 50 years of economic development, the public sector indeed lived upto the expectations as can be seen below: around 240 Central PSUs today (excluding some insurance, finance and other companies) provide the country with infrastructure in steel, cement, transport, communications, power and so on the record of the PSUs in supplying many goods and services like coal, drugs, transport, power, irrigation and so on is commendable though an element of subsidy is involved in the effort The PSUs are a model employer providing various facilities like education, housing and etc. By establishing industries in the poor states like MP, Rajasthan, Bihar and others, the efforts of the PSUs to reduce regional economic imbalances are not insignificant. Problem Areas The problems with the PSUs in general are: lack of sufficient autonomy due to the fact of excessive government control which is unavoidable because the resources spent are public resources The technology is obsolete due to meager or no expenditure on modernization, which is explained by the loss making nature of the units. For example, the State Electricity Boards(SEBs) the managerial efficiency is low as there is no incentive for higher efficiency partly because it is not rewarded and also because the financial package is unattractive the tenure of the chief executive is uncertain and leaves little scope for commitment and dynamism the locational disadvantages are such that some plants need to work at 125% capacity to break even, for example, some of the cement plants in central India belonging to the CCI the labour strength is in excess and the wage bill is very high In some cases the project appraisal is incomplete, for instance, in the case of Surgical Instruments Ltd (Chennai) where the technological tie-up with Russia made instruments suitable for an average Russian, with physical proportions much larger than an Indian.
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Professionalisation of PSU Boards In order to ensure and encourage efficiency in their functioning, Government has taken various steps to professionalise the Boards of CPSEs. These include provision of outside professionals in the form of part-time non- official Directors, restricting the number of Government nominated Directors to one sixth of the actual strength of the Board subject to a maximum of two, and incorporation of functional Directors upto a limit of 50 per cent of the actual strength of the Board. On the recommendations of Arjun Sen Gupta Committee, the Government, during 1987-88, introduced the concept of Memorandum of Understanding (MoU) to ensure clarity in the functioning of CPSEs, and proper Balance between accountability and autonomy for better results. The number of CPSEs signing MoUs went up from 4 in 1987-88 to 112 in 2006-07. In order to further the competitive spirit, an attempt has also been made to evaluate the performance of the CPSEs on the basis of (a) sales, (b) growth of sales, (c) net profit, (d) growth in net profit, (e) return on net worth, (f) earning Per share, and (g) dividend pay-out ratio.
Reforms With the onset of economic reforms in 1991, systemic reforms are being made to make the functioning of the PSUs better. They are: the 1991 New Industrial Policy (NIP) dereserved many areas kepi for the PSUs earlier and today only 6 areas Stand reserved the NIP 1991 made it possible to disinvest a portion of the PSU equity for a variety of purposes the NIP 1991 facilitated changes in the SICA to enable the sick PSUs to be referred to the,BIFR for revival or closure the budgetary support for the PSUs is progressively declining the liberal import of capital goods and others compels the PSUs in the manufacturing sector to perform or perish the MoU system is being improved with more than 60% of the weightage being given to the criterion of financial performance Efforts are on to privatise some of the sick units. Navaratnas that is 9 PSUs were granted financial and managerial autonomy for global competitiveness. Recently 3 more PSUs (Bharat Electronics, Hindustan Aeronautics, and Power Finance Corporation) were granted navaratna status. 97 mini-ratnas were taken up for similar reform 696 guidelines for the PSUs that have outlived their purpose were dropped.
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Strategic Sale It involves selling 51 % or more of the equity to a strategic partnerdomestic or global, so as to restructure the management towards private management control, In some cases, the government stake holding is completely liquidated, While in most others it is reduced to 26%. The Disinvestment Commission Believed that 26% stake of the Government is the minimum for the protection of national interest and to stall shareholders resolution, according to the Companies Act. Advantages: the sale of equity is independent of the state of the capital market, as the strengths of the unit along with its potential matter more FDI does not bring finances for the Government while strategic sale will it will vastly improve the market sentiment by attracting FIIs Strong signals will be sent to the foreign investor that India is serious about PSU reforms and consequently, FDI will flow to a greater extent. Another modality to divest the Government stake to 49% is being mooted In order to take precautions to ensure that the reforms do not lead to workers problems, the National Renewal Fund (NRF) was sanctioned in the 1991-92 budgets and is being continued since. Small Scale Industries An Expert Committee headed by Abid Hussain was set up to review the status of the small enterprise and government policy. It submitted its report on January 27, 1997. Some of the major issues which had an impact on small scale industries can be summarized as follows: Definition of SSI The definition of SSls has been changing continuously. Initially, values of fixed capital and number of employees were combined in defining SSls. Fixed assets were fixed at half a million rupees in 1955 and number of employees at 50, if the unit used power and 100 without use of power. Then, the employee value was removed and the definition was based on fixed assets alone. Now, it has been fixed at Rs 6 million for SSIs and Rs 7.5 million for ancillary units.
Salient Features of the Micro, Small and Meidum Enterprises Development Act, 2009.
It provides the first-ever legal framework for recognition of the concept of "enterprise" (comprising both manufacturing and services) and integrating the three tiers of these
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enterprises, viz, micro, small and medium. Under the Act, enterprises have been categorized broadly into those engaged in (i) manufacturing and (ii) providing/ rendering of services. Both categories have been further classified into micro, small and medium enterprises, based on their investment in plant and machinery (for manufacturing enterprises) or in equipment (in case of enterprises providing or rendering services) as under: Manufacturing Enterprises Micro Enterprises investment up to Rs. 25 lakh.Small Enterprises-investment above Rs. 25 lakh and up to Rs. 5 crore.Medium Enterprises investment above Rs. 5 crore and up to Rs. 10 crore. Service Enterprises: Micro Enterprises - investment up to Rs. 10 lakhSmall Enterprises - investment above Rs. 10lakh and up to Rs. 2 crore.Medium Enterprises - investment above Rs. 2 crore and up to Rs. 5 crore. The Act provides for a statutory consultative mechanism at the national level with wide representation of all sections of stakeholders, particularly the three classes of enterprises, and with a wide range of advisory functions, and an Advisory Committee to assist the Board and the Centre/State Governments. The other features include i) Establishment of specific Funds for the promotion, development and enhancement of competitiveness of these enterprises, ii) Notification of schemes/programmes for this purpose, iii) Progressive credit policies and practices, iv) Preference in Government procurements to products and sevices of the micro and small enterprises, v) More effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and vi) Simplification of the process of closure of business by all three categories of enterprises. Objectives of divestment The objectives of divestment do not refer to the process as a means of improving financial performance of the enterprises. The primary objectives were To raise resources for the budget which are essentially non-inflationary in nature? Broad-base the ownership of the enterprises which would eventually allow the enterprises to raise resources from the capital market and thereby lower their dependence on budgetary support. However, to increase efficiency, productivity and competitiveness of the sector, a number of other measures were introduced. These were policies which have focussed on Creating internal competition by eliminating entry barriers, subsidies, price distortions and preferential access to budget and bank resources; Improving the management of public enterprises by increasing autonomy and the mandate to become profit-oriented centres; and Introducing restructuring policies and establishing a social safety.
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The Government policy on disinvestment has evolved over the last decade and has been generally announced through the Budget. Disinvestment of Government equity in CPSEs began in 1991 - 92. Till 1999- 2000, disinvestment was primarily through sale of minority shares in small lots. Between 1999-2000 and 2003-04, the emphasis of disinvestment changed in favour of strategic sale. The proceeds from disinvestment from April 1991 to March 2006 amounted to Rs. 49,241.29 crore. At present, the policy is to list large, profitable CPSEs on domestic stock exchanges. The National Common Mimimum Programme (NCMP) stipulates a strong and effective public sector whose social objectives are met without prejudice to its commercial functioning. Efforts are being made to modernize and restructure sick CPSEs and revive sick industry. Only the chronically lossmaking CPSEs are being considered for closure or sell-off after payment of due compensation to the laid-off employees. Major Policy initiatives for FDI A comprehensive review of the FDI policy was undertaken last year to consolidate the liberalization already effected and further rationalize the FDI policy governing various activities. The major policy intiatives taken are:
Change of route: FDI has been allowed p to 100 per cent under the automatic route for distillation and brewing of potable alcohol, manufacture of industrial explosives, manufacture of hazardous chemicals, setting up of Greenfield airport projects, lying of natural gas/LNG pipelines etc. Increase in equity caps: FDI caps have been increased to 100 per cent and automatic route extended to coal and lignite mining for private consumption, setting up of infrastructure relating to marketing in petroleum and natural gas etc. FDI in new activites: FDI has been allowed up to 100 per cent on the automatic route in power trading and processing and warehousing of coffee and rubber. FDI has also been allowed p to 51% for single brand product entailing which requires prior approval f Government. Specific guidelines have been issued for governing FDI for single brand product retailing. Removal of restrictive conditions: mandatory divestment conditions for Business to Business ecommerce have been dispensed with. Procedural simplification: The transfer of shares from resident to non-resident including acquisition of shares in an existing company has been placed on the automatic route subject to sectoral policy on FDI. In order to boost production of cash crops through infusion of foreign funds and technical know how, agriculture & plantations was removed from the list of prohibited sectors for FDI.
Special Economic Zone (SEZ)

SEZs have been established in many countries as testing grounds for implementation of liberal market economy principles. They are viewed as instruments to enhance the acceptability and credibility of transformation policies, to attract domestic and foreign investment, and generally, for
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the opening up of the economy. With its genesis in the Export Processing Zones (EPZ), the SEZs in India seek to promote value addition component in exports. Generate employment and mobilize foreign exchange. EPZs and SEZs were employed with considerable success by China and other ASEAN countries in the 1970s and 1980s to create regional islands, where export-oriented manufacturing could be undertaken. In India, the EPZ experiment was much less of an unequivocal success; and since 1965, when the first EPZ in Kandla was set up. A total of only 11 such zones have come into existence. The Exim Policy of 1997-2002 then introduced the more comprehensive and liberal SEZ concept, after which a bill was drafted and passsed by Parliament in the form of the SEZ Act, 2005.
SEZ Act 2005 Objectives to provide for a stable and long-term fiscal policy framework with minimum regulatory intervention for such zones to attract investment, both domestic and foreign to ensure employment generation through encouraging export activities t There would be no violation of labour laws in the SEZs. It also provides for a single-window clearance mechanism for the establishment of SEZs. The objective of SEZs includes making available goods and services free of taxes and duties, bolstered by integrated infrastructure for export production and a package of incentives to attract foreign and domestic investments for promoting export- led growth.
Provisions It empowers the Union Government to specify an officer or agency for carrying out surveys or inspections to verify or ensure compliance with the provisions of the Central Act by a developer or an entrepreneur. The Act provides that SEZs could also take the form of port, airport, inland container depot, land station and land customs stations, as the case may be, under Section 7 of the Customs Act. The Act approves the setting up of an International Financial Services Centre in a SEZ. The Act provides for tax concession for 15 years in respect of newly established SEZ units that begin to manufacture or produce articles or provide services during the previous year relevant to any assessment year commencing on or after April 1, 2006. under this dispensation, units would be eligible for 100 per cent tax exemption for 5 years, 50 per cent for the next five years and 50 per cent of the ploughed back export profits for the next five years (in all 15 years). Indian SEZs to be based on India- specific model instead of adopting the model followed by any other country. Apprehensions against SEZ Some of the apprehensions against the SEZs are a) Generation of little new activities as there may be relocation of industries to take Advantage of tax concessions, b) Revenue loss, c) Large-scale land acquisition by the developers which may lead to displacement of
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d) e) f)
farmers with eager compensation, acquisition of prime agricultural land having serious implications for food security, Misuse of land by the developers for real estate and Uneven growth aggravating regional inequalities.
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BANKING SYSTEM The Indian money market is classified into: the organised sector (comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks); and the unorganised sector (comprising individual or family owned indigenous bankers or money lenders and non-banking financial companies (NBFCs)). The unorganised sector and microcredit are still preferred over traditional banks in rural and suburban areas, especially for non-productive purposes, like ceremonies and short duration loans. Non-Performing Assets (NPAs) Non Performing Assets, according to the Reserve Bank of India, are those loans advanced by the bank that have not yielded interest for 180 days and the amount of principal that needs to be repaid is also defaulted. They are also called bad debts. To any reason as irrational deployment of capital borrowed; agricultural disasters; willful default etc. The Narasimham Committee reports I and II recommended the establishment of an Asset Reconstruction Fund (ARF) to take up the task of recovery. ARCs for some banks have already been set up. NPAs are of three types: Substandard ones are those that are bad' for less than two years Doubtful ones are those that are 'bad loans' for more than two years Loss making ones is those that are non-collectible. Non-performing assets (NPAs) of the banking sector Improved industrial climate and new options available to banks for dealing with bad loans helped in recovering a substantial amount of NPAs in 2005-06. Such recoveries during 2005-06 were more than fresh accruals. Gross NPAs of SCBs, which had declined by Rs.5, 414 crore in 2004-05, fell by a further amount of Rs. 7.558 crore in 2005-06. Aggregate amount recovered and written-off increased to Rs. 28,717 crore during 2005-06 from Rs. 25,007 crore in the previous year. NPAs of SCBs, at 1.9 per cent of total assets al end-March 2006, were substantially lower than the 2.5 per cent observed a year ago. The operations of the Assets Reconstruction Company (India) Limited (ARC1L) during 2005-06 helped in NPA recovery. Monetary and Credit Policy It is the policy with the help of which the Government through its Central Bank regulates money supply and achieves price stability. The broader objectives of the monetary and credit policy are to promote investment to bring about greater rate of economic growth with the result that the accompanying benefits of employment generation; inflation management, exchange rate stabilization etc also accrue. The RBI announced the credit policy traditionally twice a year the lean season policy in April and busy season policy in October. In 1998, it became once a year, the October intervention being a review. From 1999, it is being announced only in April. Monetary and Credit Policy 2007-08 Greater emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment that supports growth momentum.
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Swift response with all appropriate measures to all situations impinging on inflation expectations and the growth momentum Renewed focus on credit quality and orderly financial markets conditions in securing macroeconomic, in particular, financial stability. Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged. Scheduled banks required to maintain CRR of 6.5 per cent with effect from the fortnight beginning April 28, 2007. GDP growth projection for 2007-08 at around 8.5 per cent. Inflation to be contained close to 5.0 per cent during 2007-08. Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent over the medium term. M3 expansion to be contained at around 17.0-17.5 per cent during 2007-08. Deposits projected to increase by around Rs.4, 90,000 crore during 2007-08. Adjusted non-food credit projected to increase by around 24.0-25.0 per cent during 200708, implying a graduated deceleration from the average of 29.8 per cent over 2004- 07. Appropriate liquidity to be maintained to meet legitimate credit requirements, consistent with price and financial stability. Overseas investment limit (total financial commitments) for Indian companies enhanced to 300 per cent of their net worth. Aggregate ceiling on overseas investment by mutual funds enhanced to US $ 4 billion. Prepayment of external commercial borrowings (ECBs) without prior Reseve Bank approval increased to US $400 million. Introduction of a credit guarantee scheme for distressed farmers
Narasimhan Committee Recommendations on Financial Reforms The Government of India constituted a 9-member committee under the chairmanship of Mr M Narasimhan, retired RBI Governor, on 14lh August 1991 for making recommendation on the existing financial system and to give suggestions for improving structure. Its recommendations were as follows: There should be no bar to new banks being set up in the private sector, provided they conformed to the start-up capital and other requirements prescribed by the RBI. The Government should indicate that there would not be further nationalisation of banks and there should not be any difference in treatment between public sector banks and private sector banks. The banking should evolve towards a broad pattern consisting of three or four large banks, including the. SBI which would become international in character; eight to ten national banks with the network of branches throughout the country engaged in universal banking; local bank whose operations would be generally confined to a specified region and lastly rural banks to cater to rural areas. There should be an Assets Reconstruction Fund (ARF) which could take over, from the banks and financial institution (FIs), a portion of their bad debts at a discount. The level of discount being determined by independent auditors on the basis of clearly defined guidelines. The ARF, according to committee should be provided with special powers for recovery, somewhat broader than those contained in sections 29 to 32 of the state financial act 1951. The capital of ARF should be subscribed by the public sector banks and financial institutions.
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The banks and the financial institutions should be authorised to recover bad debts through special tribunals and based on the valuation given in respect of each asset by a panel of at lest two independent auditors. The public sector banks with profitable operations should be allowed to tap the capital market for enhancement of their share capital. Subscribers to such issues could be mutual funds, profitable public sector undertakings and the employees of the institutions beside the general public. Licensing should be abolished and the option of opening of branches for the present should be left to the commercial judgement of individual banks. Further, the internal organisation of banks is best left to judgement of the management of the individual bank. There should be phased reduction Of CRR and SLR. A liberal view should be adopted for allowing foreign banks in the country. Both foreign and domestic banks should be treated at par. Primary targets for credits should be redefined and such credit should not be more than 10% of total credit. Computerisation of banks should be promoted. The dual control of RBI and Finance Ministry on banks should be abolished and RBI should function only as regulatory authority for banking system in the Economy. RBI representatives should not be included in the management boards of banks, only government representative should be there. Granting resources to developmental financial institutions on concessional rates of interest should be abolished in phase within next 3 years. These institutions should be allowed to mobilize resources from open market on competitive rates. Review of recruitment procedures, training and remuneration policies in public Sector Banks. Threat of action by vigilance and other investigative authorities, even in the case of commercial decisions create low morale. The committee wants this issue to be addressed. Need for professionalising and depoliticising the bank boards.
Narasimhan Committee-II, Banking Sector Reforms (1998) The major recommendations of the committee are: Merger of strong banks which have a multiplier effect on industry. It has cautioned against merger of strong banks with weak banks as this will adversely affect the asset quality of strong banks. Concept of narrow banking should be tried out to rehabilitate weak banks. If this was not successful the issue of closure should be examined. Two or three large Indian banks should be given international character. Small and local banks should be combined to states or clusters of districts in order to serve local trade, small industry and agriculture. The committee has also commented on the governments role in Public Sector Banks by observing that government ownership has become an instrument of management. Such micro-management of banks is not calculated to enhance autonomy and flexibility. Functions of the board and management need to be reviewed so that boards remain responsible for enhancing shareholders value through corporation or corporate strategy. Need to review minimum prescriptions for capital adequacy. RBI Act, Bank Nationalisation Act, Banking regulation Act and State Bank of India Act are in urgent need of review. Integration of NBFCs lending activities into the financial system.
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Review of recruitment procedures, training and remuneration policies in public Sector Banks.
Threat of action by vigilance and other investigative authorities, mishandling the case of commercial decision screate low morale. The committee wants this issue to be addressed. Need for professionalising and depoliticising the bank boards.
Proxy Banking In India Indian villages were miles away from mutual funds, insurance and even equity trading. Thanks to Internet Kiosk and the ATM duo which has made it possible for rural India. This kiosk has been set up by ICICI Bank in partnership with network n-Logue Communications in remote villages of Southern part of the country. This is known as Proxy Banking. With the help of fibre optic cables, this kiosk works on wireless in local loop technology. Reasons for setting-up of Proxy Banking 58% of rural households still do not have bank accounts. Only 21% of rural households have access to credit from a formal source. 70% of marginal farmers do not have deposit account. 87% households have no formal credit. Only 1 % rural househlods rely on a loan from a financial intermediary. The loans take between 24 to 33 weeks to get sanctioned. Consumers bribe officials to get loans approved which varies between 10 and 20% of the loan amount. Branch banking in rurals is a loss-making. Benefits to rurals Small loans given for buying buffaloes. Loans for setting up a tea shop. Life and non-life insurance provided. Weather insurance given to fanners. Insurance policies sold to farmers like groundnut, castor, soya, paddy crop, etc. The Proxy Banking is an innovative approach to rural lending and will add to the governments expanding base of kisan credit cards and the good old guidelines for agricultural lending. The Proxy Banking is an innovative approach to rural lending and will add to the governments expanding base of kisan credit cards and the good old guidelines for agricultural lending. Foreign Banks in India The foreign banks in the private sector are branches of banks incorporated in foreign countries. There are 24 such banks with 139 branches. These branches are in the main location at port towns. Most foreign banks perform essentially the same range of services as local banks, except that their focus in terms of products and customers may be different due to their limited branch network. In addition, some banks have been introducers or providers of de novo financial engineering products such as swaps, electronic fund transfers, etc.
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CAPITAL AND COMMODITY MARKET
BSE Sensex crossed the make of 14000 in January 2007 and 15000 in July 2007. Similarly Nifty crossed the mark of 4000 in January 2007 and is still roaring. The pick up in the stock indices could be attributable to (1) impressive growth in the profitability of Indian corporates, (2) Overall higher growth in the economy, (3) Global factors such as continuation of relatively soft interest rates and (4) Fall in crude oil prices in international market NSE and BSE retained the 3th and 6th position interms of transactions at the stock markets globally. Capital market is the market for long-term funds, just as the money market is the market for short-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending term funds (medium-term and long-term funds). The supply of funds for the capital market comes largely from individual savers, corporate savings, banks, insurance companies, specialized financing agencies and the government. The capital market in India can be classified into: Gilt-edged Market on Government and semi- government securities; Industrial Securities Market; Development Financial Institutions (DFI); and Non-banking Financial Companies (NBFC) The Gilt-edged Market is the market for Government and semi-government securities, which carry fixed interest rates and backed by RBI. The securities traded in this market are stable in value and are much sought after by banks and other institutions. The Industrial Securities Market is the market for equities and debentures of companies of the corporate sector. This market is further classified into (a) New Issues Markets: for raising fresh capital in the form of shares and debentures, and (b) Old Issues Market: for buying and selling shares and debentures of existing companiesthis market is commonly known as the stock market or stock exchange. The capital market is also classified into Primary Capital Market and Secondary Capital Market. The Primary Capital Market refers to the new issues market, which relates to the issue of shares, preference shares and debentures of non-government public limited companies, and also to the raising of fresh capital by Government companies and the issue of public sector bonds. The Secondary Capital Market, on the other hand, is the market for old or already issued securities. It is composed of Industrial Security Market or the stock exchange in which industrial securities are bought and sold, and the Gilt-edged Market in which the government and semi- government securities are traded.
Methods of raising capital There are three ways in which a company may raise capital in the primary market. Public issue By far the most important mode of issuing securities, a public issue involves sale of securities to the public at large.
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A company making a public issue informs the public about it through statutory announcements in the newspapers, makes application forms available through stock brokers and others, and keeps the subscription open for a period of three to seven days.
Right issue A right issue involves selling securities in the primary market by issuing rights to the existing shareholders. When a company issues additional equity capital, it has to be offered in the first instance to the existing shareholders on a pro rata (proportional) basis. Private placement In a private placement, funds are raised in the primary market by issuing securities privately to some investors without resorting to underwriting (insurance against risk by a guarantor). The investors in this case may be financial institutions, commercial banks, and other companies, shareholders of promoting companies, and friends and associates of the promoters. Group A and Group B shares The listed shares are divided into two categories: Group A shares (also referred to as cleared securities or specified shares) and Group B shares (also referred to as non- cleared securities or non-specified shares). For Group A shares, the facility for carrying forward a transaction from one account period to another is available; for Group B shares, it is not. Recommendations of Committee on Fuller Capital Account Convertibility (Tarapore Committee II) Development of Indian debt market Government Securities Market i) ii) Over time, it would be preferable to progressively increase the share of mark-to-market category. Promoting a two-way market Movement would require permitting participants to freely undertake short selling. Currently, only intra-day short-selling is permitted. This would need to be extended to short selling across settlement cycles; this would, however, require adequate regulatory/ supervisory safeguards. To stimulate retail investments in gilts, either directly or through gilt mutual funds, the gilt Funds should be exempted from the dividend distribution tax, and income up to a limit from direct investment in gilts could be exempted from tax. In line with advanced financial markets, the introduction of Separate Trading of Registered Interest and Principal of Securities (STRIPS) in G-secs should be expedited. Expanding investor base would be strengthened by allowing, inter alia, entry to non-resident investors, especially longer term investors like foreign central banks, endowment funds, retirement funds, etc. To impart liquidity to government stocks, the . As of holders of G-secs needs to be widened and repo facility allowed to all market players without any restrictions on the minimum duration of the repo; this would, however, necessitate adequate regulatory/supervisory safeguards. This will improve the incentive for a wide range of economic agents to hold G-
ii)
iv) v)
vi)
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vii)
secs for managing their liquidity needs through repose. A rapid debt consolidation process that is tax neutral, by exempting the gains arising from exchange of securities from all taxes, may be taken up. If necessary, a condition may be stipulated that gains arising from such an operation cannot be distributed to the shareholders. viii) The limit for FII investment in G-secs could be fixed at 6 per cent of total gross issuances by the Centre and States during 2006-07 and gradually raised to 8 per cent of gross issuance between 2007-08 and 2008-09, and to 10 per cent between 2009-lOand 2010-11. The limits could be linked to the gross issuance in the previous year to which the limit relates. The allocation by SEBI of the limits between 100 per cent debt funds and other FIIs should be discontinued.
Corporate Bond and Securitised Debt Market GOI, RBI and SEBI should be able to evolve a concerted approach to deal with the complex issues identified by the High Level Committee on Corporate Bond Market. ii) Institutional trading and settlement arrangements need to be put in place and investors should have the freedom to join any of the trading and settlement platforms they find to be convenient. iii) The issuance guidelines have to be changed so as to recognize the institutional character of the market. Since issuers may like to tap the bond market more frequently than the equity market and since subscribers are mainly institutional investors, issuance and listing mechanisms in respect of instruments being placed with institutional investors should be simplified by relying more on the assessment of a recognised rating agency rather than on voluminous and tedious disclosures as required by the public issues of equities. iii) Until transparent trading platforms become more popular, reliable trade reporting systems should be made mandatory. Clearing and settlement arrangements like those offered by CCIL in the case of Gsecs should be in place to ensure guaranteed settlement. v) Stamp duty at the time of bond issues as also on securitised debt should be abolished by all the state governments. vi) The FII ceiling for investments in corporate bonds of US$1.50 billion should in future be linked to fresh issuances and the present absolute limit should be retained for the year 2006-07 and be fixed at 15 per cent of fresh issuances between 2007-08 and 2008-09 and at 25 per cent between 2009-10 and 2010-11. The allocation by SEBI of the limits between 100 per cent debt funds and other FIIs should be discontinued. vii) Corporate bonds may be permitted as eligible securities for repo transactions subject to strengthening of regulatory and supervisory policies. viii) In the case of the securitised debt market, the tax treatment of special vehicles that float the securitised debt has to be materially different. Government should provide an explicit tax passthrough treatment to securitisation Special Purpose Vehicles (SPVs) on par with tax pass-through treatment granted to SEBI registered venture capital funds. ix) Securitised debt should be recognised under the Securities Contract and Regulation Act (SCRA), 1956 as tradable debt. The limitations on FIIs to invest in securities issued by Asset Reconstruction Companies should be on par with their investments in listed debt securities. PUBLIC FINANCE i)
Fiscal Policy Fiscal policy refers to the use by the government
of the various instruments such as
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taxation, expenditure and borrowing to achieve the objectives of balanced economic development, full employment etc. The Budget or the annual financial statement of the government, gives expression to its fiscal policy. In accordance with Article 112 of the Indian Constitution, the President shall cause to be laid a financial statement before both the Houses of Parliament at the commencement of every financial year of the estimated receipts and expenditure of the Government of India for that year. The Central Government has (a) Revenue budget that is to say, the estimates of receipts and disbursements on Revenue Account and (b) a Capital budget, which relates to receipts and disbursements on Capital Account. The estimates of receipts on revenue account have been grouped under two broad heading viz. tax revenue and non-tax revenue. Tax revenue has been divided into: (a) Taxes on income, (b) Taxes on property and capital transactions, and Taxes on commodities and services. Non-tax revenue has been sub- divided into: (i) Fiscal and other services, (ii) interest receipts and (iii) dividends and profits.
Capital Account Convertibility (CAC) Basically CAC implies freedom to convert local currency into foreign currency and vice versa, for any purpose whatsoever, without needing any permission from the government. The term any purpose whatsoever is important, for as of now India is convertible on the current account. This means one can import and export goods or receive or make payments for services rendered. However, investments and borrowings are restricted. Tarapore II Committee Report As per the roadmap, it detailed a road five-year time frame for government towards fuller convertibility in three phases: Phase (2006-07); Phase II (2007-08 to 2008- 9); and Phase 111 (2009-to 2010-11). Apart from Indians being able to acquire property and financial assets, and open bank accounts anywhere in the world, Indian companies will be able to borrow a billion dollars abroad every year without taking the RBI Permission. Indian companies will be allowed to invest four times their net worth abroad. It recommended the meeting of certain indicators/targets as a concomitant to the movement in: meeting RFBM targets; imparting greater autonomy and transparency in the conduct of monetary policy; reduction in the share of Government/RBI in the capital of Public Sector banks; keeping the current account deficit to GDP ratio under 3 percent etc. Mutual funds and portfolio management schemes will be able to invest upto two billion dollars in overseas stocks. Service tax - a promising source of revenue The gradual expansion of the service tax, introduced in 1994-95 to redress the asymmetric and distortionary treatment of goods and services in the tax regime, has been a buoyant source of revenue in recent years. The number of services liable for taxation was raised from 3 in 1994-95 to 6 in 1996-97, and then gradually to 99 in 2006-07.Simultaneously, the rate of tax was raised from 8 per cent to 10 per cent in 2004-05, and further to 12.0 per cent in 2006-
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07. Revenue from service tax, as the combined outcome of expanding tax net, creeping rate, and buoyant service sector growth, increased rapidly from a paltry Rs. 407 crore in 1994-95 to Rs. 14,200 crore in 2004--05.
Pension reforms in India A modern pension system will lay sound foundations of financial portfolios through which individuals will be able to obtain income support in old age. Pension funds are natural vehicles for long-term investment. Including in equity. A modern, well-regulated pension sector, populated with professional pension fund managers, will also be a highly beneficial force in Indias financial system, and improve resource flows in the form of long-term debt and equity to sound projects, particularly in infrastructure. The pension sector can also be a major customer of insurance companies for the purpose of converting a stock of pension wealth at retirement date into a flow of monthly pensions in the form of annuities. Objectives of pension reform in India Global pension reform experience over the past 10 years has shown that no one size fits all. However, the two main aims of pension systems everywhere remain the same, namely; (i) reducing poverty and eliminating the risk of rapidly falling living standards post-retirement, and (ii) the broader goal of protecting the elderly from economic and social crisis. India needs a pension system which is: self-sustainable; universally accessible, especially to the uncovered unorganised sector workers on a voluntary basis; lowcost. Efficient and available throughout the country; equitable and pro-labour and does not inhibit labour mobility; and well-regulated in order to protect the interests of subscribers. On August 23, 2003, Government decided to introduce a new restructured defined contribution pension system for new entrants to Central Government service, except to Armed Forces, in the first stage, replacing the existing defined benefit system. Subsequently, the New Pension System (NPS) was operationalised from January I, 2004 through a notification dated December 22.2003. The main features of the NPS: It is based on defined contribution. New entrants to Central Government service contribute 10 per cent of their salary and dearness allowance (DA), which is matched by the Central Government (Tier-I). Once the NPS architecture is fully in place, employees will have the option of a voluntary (Tier-II) withdrawable account in the absence of the facility of General Provident Fund (GPF). Government will make no contribution to this account. Employees will normally exit the system at or after the age of 60 years. At the time of exit, it is mandatory for them to invest 40 per cent of the pension wealth to purchase an annuity to provide for lifetime pension of the employee and his dependent parents and spouse. Remaining 60 per cent of pension wealth will be paid to the employee in lump sum at the time of exit. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, mandatory annuitisation would be 80 per cent of the pension wealth. The new system will have a central record keeping and accounting infrastructure and several fund managers to offer investment options with varying proportions of investment in fixed-income instruments and equity. The new system will also have a market mechanism (without any contingent liability)
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through which certain investment protection guarantees would be offered for the different schemes. Public Debt By Indias public debt we mean the internal and external debt of the Government of India. The most comprehensive definition of public debt would include the indebtedness of all the three levels of government and all public enterprises, to the domestic private sector and to the external sector. Borrowing from RBI is equivalent to printing (base) money. It enables the Government to obtain resources without incurring liability to repay loan or pay interest. Borrowing from RBI does not in effect entail any liability to repay, but interest is paid on the government debt held by it. Much of this interest is not re-routed to the Government of India, but is spent in various ways by RBI as allocation of its profits. We, therefore, reckon the liabilities of Government of India to RBI as part of public debt and including the interest on it as part of the interest on public debt. In the case of Government of India, the internal debts are: i. ii. Market loans defined as loans with a maturity of one year or longer at the time of issue. Treasury bills are a major source of short term funds for the Government to bridge the Gap between revenue and expenditure with the increasing demand for funds for Investment under the plans, the Government of India has resorted to heavy borrowing Through the issue of T-bills, a major part of which is held by the RBI. Special securities which comprises securities issued to International Financial Institutions And is inclusive of such items as market loans in course of repayment, special bearer bonds. Small savings which are a source of borrowing for the Government are of special Significance particularly in growth seeking, inflation-sensitive economy like India. It is the Safest form of governmental borrowing as it taps the genuine savings of the people and Provides the government with much needed support.
iii.
iv.
Any definition of external debt should keep the commonly accepted components in view. Gross international debt is the amount, at any given time, of disbursed and outstanding contractual liabilities of residents of a country to non-residents to repay principal with or without interest, with or without principal. Indias external debt stock stood at US$ 126.4 billion at end-March 2006, reflecting an increase of US$3.2 billion over the year. The wise in external debt stock during this period was brought about essentially by a wise in ECBs, NRI Deposits and short-term debt.
Value Added Tax Value Added Tax is a multi-point destination based system of taxation, with tax being levied on value addition at each stage of transaction in the production/distribution chain. VAT is a multistage sales tax with credit for taxes paid on business purchases.
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Salient features of VAT Uniform schedule of rates of VAT for all states. This would make the tax system simple and uniform and prevent unhealthy tax competition among states. The provision of input tax credit would help in preventing cascading effect of tax. The provision of self-assessment by dealers would reduce harassment. Small traders with turnover up to Rs 5 lakhs would be exempt from the provision of VAT. The zero-rating of exports would increase the competitiveness of Indian exports. Sale tax/VAT is basically a stage subject, the control Government is playing the role of a facilitation for successful. Implementation of this significant reform measure. The empowered committee of state finance ministers, constituted by the ministry of Finance, Government of India has came up with a white paper on state-level value added tax on January 17.
White Paper on State-level VAT Introduction of VAT would help avoid cascading nature of sales tax. Present multiple rates and taxes can converge into a few rates and a single VAT. Transparency in the system of tax administration through simple self-assessments and departmental audit. Rationalisation of taxes to result in lower tax burden and higher tax revenues. State VAT to have two basic rates of 4 per cent and 12.5 per cent and to cover 550 commodities. About 270 commodities will be under 4 per cent rate. 46 items, comprising of natural and unprocessed products in unorganized sector, items legally barred from location and items having social implications are exempt from VAT Gold and silver ornaments subject to a special VAT rate of 1 per cent and other commodities to attract a general VAT rate of 12.5 percent.
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EXTERNAL SECTOR Indias external economic environment continued to be supportive of growth in output and trade in 2005-06 and 2006-07 so far. The continued expansion in world output growth for a record fourth year in a row in 2007, amidst rising concerns about continuing global macroeconomic imbalances, protracted Doha negotiations, volatile international crude oil prices, and inflation, testifies to the emergence of a new phase of the external economic scenario. This new phase has been marked by robust and broad-based growth in emerging market economies, particularly with China and India together accounting for about 40% of global growth measured in purchasing power parity terms. Increasingly, India is being recognized as an important player in the global economic scenario. The robust phase of global output expansion in the recent past has been accompanied by stable growth in world trade volume; reasonable stability in world trade prices; and supportive growth in capital flows (net) to emerging market economies and developing countries. Despite persistence of high oil prices and the higher aggregate demand, inflation, both as measured by GDP deflator and consumer prices (2.3% in 2005 and 2.6% in 2006) for advanced economies and consumer prices (5.3% in 2005 and 5.2% in 2006) for emerging market economies and developing countries, has been low. While the key world economic indicators point to a virtuous phase of global economic activity that provides a conducive environment for deepening the process of development, some downside risks remain. Balance of Payments Balance of payments is the equation between the receipts and payments of a country in its transactions with rest of the world. BOP includes the current and the capital accounts. Current account comprises of the foreign trade (exports and imports) and other transactions with reference to services like travel, transport, insurance and shipping. These services are referred to as invisibles as they are not recorded at Customs unlike the exports and imports. The capital account consists of receipts and payments on capital transactions between countries. These include external assistance, investments, purchase and sale of securities, commercial borrowings, debt servicing and repayment of capital and remittances from abroad. The growing strength of Indias Balance of Payments (BoP) observed in the post-reform period since the crisis of 1991 continued in 2005-06. This growing strength was in spite of a widening of the current account deficit from US$2.5 billion in 2004-05 to US $ 9.2 billion, equivalent to 1.1 per cent of GDP, in 2005-06. With a burgeoning trade deficit, primarily on account of rising oil prices, the reversal from current account surpluses witnessed between 2001 -02 and 2003-04 to a current account deficit in 2004-05 appears to be continuing into 2006-07 so far. Rising foreign investment, both direct and portfolio, together with a sharp revival of inflows in non-resident (NR) deposits, in spite of the large repayment of India Millennium Deposits (IMD) under external commercial borrowing, maintained a strong balance in the capital account, and even after financing the current account deficit, resulted in a reserve accretion of US$15.1 billion in 2005-06. While reserve accretion in 2005-06 was lower by US$11.1 billion relative to 2004-05, because of a higher current account deficit (US$6.7 billion)
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and a lower capital account balance (US$4.4 billion), India continued to be among the top nations with high levels of reserves. Foreign Investment Foreign investment in the country is essentially of two types: Foreign Direct Investment that is made in production and services sector like in hotels, advertising, banking etc and Foreign Institutional Investment where investment takes place in the capital market like in the primary and secondary stock market. FN inflows are considered 'hot money' as there is no lock in period for their investment and Withdrawal is based on profit-loss considerations only. It is also called portfolio investment as the investment is, in a Variety of capital market instruments. FDI is found to be necessary and desirable since the 8th Five Year Plan (199297) for the following reasons: the savings-investment gap, after domestic savings are factored, needs to be filled the FDI is preferred over debt, because debt leads to many Adverse consequences like high interest rates. The end use purposes are in doubt which can be wasteful and also the debt Trap prospects cannot be ruled out. FDI will create a competitive climate domestically and bring in the best technology; marketing and managerial skills and culture etc. India is also ideally placed to attract FDI as it has 300mn strong middle class; relatively cheap skilled labour; technical personnel are in large number it can be the export base for exports to east and west Asia; the government policies have been conducive; sound and stable financial system; emphasis on infrastructural development; and irreversibility of reforms. Irreversibility of reforms.
Breakthrough in WTO talks The breakthrough in the world trade negotiations under the auspices of World Trade Organization (WTO), after intense and emotive sessions of bargaining between rich and poor (or developed and developing countries), has been greeted with cautious optimism all round. The WTO, comprising 147 member-states, has this time successfully negotiated a global trade deal after spectacular failures at Cancun, (Mexico) in September. The current Doha round will initiate fresh round of detailed trade talks on the basis of agreement reached. This could provide a big boost for the world economy and could add more than $520,000 million to the world trade by 2015. According to current estimates by the World Bank, all this may also elevate living standards of some 500 million fanners in poorer countries. The bottomline is that the richer countries have agreed to reduce agricultural subsidies to their farmers to enable agriculture produce from poorer countries to be marketed in the developed countries and in return, poorer countries have agreed to reduce import tariffs on imported goods from the developed countries. It is a delicate compromise based on consensus on both the sides of the rich and poor fence to boost global trade.
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The concessions by Europe, America and Japan - representing key developed countries will help agriculture produce from the developing countries find new markets in rich countries. This lobby was led by China, India, Brazil and South Africa. The poorer countries argued that cutting rich countries tariff on leading world commodities would be the first step in boosting their farm sectors .Earlier massive subsidies have driven down prices of agricultural crops that are the core part of the economies of developing countries. The developed countries have so far defended their policy of highly subsidised agriculture to maintain prosperity and living standards of their farmers. The developed countries have further defended their agriculture subsidy policies by suggesting that rich countries have provided technical and financial aid to the developing countries. The more advanced developing countries led by China, India, Brazil and South Africa have argued that they want more trade and less aid from richer countries and this is the first milestone in that quest. At Hong Kong, in December 2005, WTO Ministers had agreed to establish modalities for agriculture and Non-Agricultural Market Access (NAMA) by April 30, 2006, submit the draft Schedules by July 31,2006 and conclude the negotiations across all areas of the Doha Round by the end of 2006. In respect of services, all Members were to file their revised offers by July 31, 2006 and submit the draft Schedules by October 31, 2006. These deadlines were missed despite intensive negotiations. The intensive discussions through January to July 2006 had focused mainly on triangular issues of Domestic Support, Agricultural Market Access (AMA), and NAMA. In light of the impasse particularly in agriculture, and ruling out the possibility of finishing Round by the end of 2006, Members agreed to suspend the negotiations across all areas of Doha Work Programmed, and to resume them when the negotiating environment was right. the the the the
For India, the suspension has been a disappointment. It is an avoidable delay on the delivery of the development promises of the Round. India has welcomed the soft resumption of negotiations on November 16, 2006 and subsequently the full-scale resumption on February 7, 2007 on the principles that it preserves the architecture of the negotiations, inclusiveness, and the progress made so far, and leads to an outcome that is balanced, ambitious and predevelopment.
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Doha round on the verge of collapse After sitting together with developed countries to hammer out a consensus for the early launch of the Doha Round of trade talks to liberalize world trade for goods and services, India today formally broke ranks to bet its fortune on the Geneva process of negotiations of the World Trade Organisation (WTO). Highlights It is the end of the day for G-4 (the US, the EU, Brazil and India) - now it is for the full membership of WTO to take the Doha Round forward. The Potsdam conclave was the second one of the G-4 Trade Ministers since April 2007 when they had charted out aroadmap in New Delhi for meetings among themselves to engage on all crucial and contentious issues relating to the stalled Doha Round negotiations of the WTO. India has stated stance that the livelihood security of millions of Indian farmers would not be compromised on any count. India blamed the US in particular, stating that it paid an estimated $10.8 billion last year in farm subsidies and at this week's meeting proposed an increase to $17 billion. The developed countries are looking at promoting and protecting the prosperity of their farmers, whereas in India we are talking about protecting the livelihood of our farmers. G-4 meeting broke down because of the failure of the developed world to accept effective reductions in their agricultural subsidies while simultaneously seeking additional market access in the developing countries for their Agricultural products.
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India's stand on agricultural issues in WTO India, and other developing countries, have, therefore, been insisting that special and differential treatment for developing countries must be integral to all aspects, including the negotiated outcome, on agriculture under the Doha Round in the WTO. Mitigating the risks facing the low-income, resource-poor and subsistence farmers associated with price declines, price volatility and predatory competition and other market imperfections, including the huge amounts of production and Trade-distorting subsidies provided by some developed countries to their agriculture sector, remains paramount. Therefore, along with other developing countries, particularly its alliance partners in the G-20 and G-33, India has been emphasizing that the Doha agricultural outcome must include at its core: removal of distorting subsidies and protection by developed countries to level the playing field, and Appropriate provisions designed to safeguard food and/or livelihood security, and to meet the rural development needs in developing countries. Apart from appropriate policy flexibilities to enable developing country governments to help the low-income and vulnerable producers absorb or insure themselves against risks, India has also taken the stand that governments must also be able to foster stable and remunerative prices for domestic producers in order to increase productivity and gradually move away from dependence on low-productivity agriculture. To these ends, meaningful and effective instruments (Special Products and the Special Safeguard Mechanism) are important for developing countries like India. At Hong Kong, it has been agreed that Special Products and the Special Safeguard Mechanism shall be an integral part of the modalities and the outcome of negotiations in agriculture. Moreover, developing countries shall have the right to self-designate an appropriate number of Special Products, guided by indicators based on the three fundamental criteria of food security, livelihood security and/or rural development needs. These designated products will attract more flexible treatment. Developing country Members will also have the right to have recourse to a Special Safeguard Mechanism based on import quantity and price triggers, with precise arrangements to be further defined.
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India's Regional Trading Arrangements India views Regional Trading Arrangements (RTAs) asbuilding blocks towards the overall objective of trade liberalization complementing the multilateral trading system. In the past, India had adopted a very cautious and guarded approach to regionalism. Recognizing that RTAs would continue to feature prominently in world trade, India engaged with its trading partners/blocks with the intention of expanding its export market and began concluding in principle agreements and moving in some cases even towards Comprehensive Economic Cooperation Agreements (CECAs) which covers Free Trade Agreement (FTA) in goods, services, investments and identified areas of economic cooperation. Framework agreements have already been entered into with a number of trading partners with specific road maps to be followed and specified time frames by which the negotiations are to be completed. India: Status of FTAs/ RTAs India-Sri Lanka Free Trade Agreement (1SLFTA) India-Sri Lanka Free Trade Agreement, signed in December, 1998 and in operation since March, 2000, provided for tariff reduction/elimination in a phased manner on all items except the negative list and tariff rate quota (TRQ) items. While India has already completed the tariff elimination programme in March 2003, Sri Lanka is scheduled to reach zero duty by 2008. The two countries have since initiated negotiations in August 2004 on Comprehensive Economic Partnership Agreement (CEPA) which covers trade in services and investment. Agreement on S AFTA: The Agreement on South Asia Free Trade Area (SAFTA) was signed during the 12th SAARC Summit on January 6, 2004 in Islamabad. Since then, negotiations on four annexes Rules of origin, Sensitive lists, Revenue compensation for LDCs, and Technical assistance to LDCs have been completed. The tariff liberalization programme under the Agreement has been implemented from July 1, 2006. Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India: Framework Agreement on Comprehensive Economic Cooperation was signed on October 8, 2003 in Bali. The Trade Negotiating Committee (TNC) is negotiating FTA in goods. Framework Agreement for establishing Free Trade Area between India and Thailand: The Framework Agreement for establishing Free Trade Area between India and Thailand was signed on October 9, 2003 in Bangkok. The Early Harvest Scheme covering 82 items for exchange of concessions between India and Thailand has been implemented with effect from September 1, 2004. The TNC is already negotiating FTA in goods; and negotiations on services and investment are at a preliminary stage. Framework Agreement on the BIMSTEC FTA: The Framework Agreement on the BIMSTEC (Bay of Bengal initiative for Multi-sectoral Technical & Economic Cooperation) Free Trade Area was signed in February, 2004 at Phuket by Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand. The Framework Agreement provides for implementing FTA on Goods with effect from July 1,2006. Negotiations are being held by the TNC on FTA in goods, services and investment.
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Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore: India-Singapore CECA, signed on June 29, 2005, came into force on August 1, 2005. The Agreement provides for Early Harvest Scheme, fazed reduction/elimination of duties on products other than those in the negative list by India by April 1, 2009, whereas Singapore eliminated duties on all products originating from India from August 1, 2005. CECA also cover investment, services, Mutual Recognition Agreement, and customs cooperation. India-Afghanistan Preferential Trade Agreement: A Preferential Trade Agreement (PTA) between India and Afghanistan was signed on March 6, 2003. India has granted concessions on 38 products, mainly fresh and dry fruits, in return for concessions on 8 items for exports to Afghanistan. India - MERCOSUR Preferential Trade Agreement (PTA): A PTA was signed between India and MERCOSUR (Brazil, Argentina, Uruguay and Paraguay) on January 25, 2004 in New Delhi. The annexes to the PTA were signed on March 19, 2005 in New Delhi. The PTA will be operational after its ratification by the legislatures of MERCOSUR countries. Bangkok Agreement: Bangkok Agreement is a PTA signed in July 1975 among Bangladesh, Republic of Korea, Sri Lanka and India. China acceded to this Agreement in 2001. This Agreement has been renamed as Asia Pacific Trade Agreement (APTA) from November 2, 2005. Three rounds of negotiations have been concluded under this Agreement. The Third Round concessions have been implemented from September 1, 2006. Global System of Trade Preferences (GSTP): Two rounds of negotiations have been held under GSTP signed in April 1998. 44 developing countries have acceded to this Agreement. Third round of negotiations, launched in June 2004, are expected to be concluded by the end of 2007. SAARC Preferential Trade Area (SAPTA): Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka are participants in the Agreement signed in April, 1993. Four rounds of negotiations have been concluded under SAPTA. Concessions exchanged during the four rounds of SAPTA have already been implemented. India-Chile Framework Agreement on Economic Cooperation: A Framework Agreement on Economic Cooperation was signed between India and Chile on January 20, 2005. The Agreement envisages a PTA between two sides. The negotiations on PTA have been concluded, and the Agreement was signed on March 8, 2006.
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SAFTA in place from January 1, 2006 Objective The basic objective of SAFTA is to reduce extant tariffs to less than 5 per cent within the stipulated time frame of 2016 by all the participating countries with due compensation to LDCs for loss of revenues on account of tariff reduction Being undertaken by them on a phased liberalisation programme. Highlights of SAFTA Bowing to intense demand from domestic industries that cheap and lowcost suppliers from neighbouring countries would dump the domestic market by piggybacking on the concessional conduits being provided by SAFTA, it has been agreed to keep rigorous rules of origin and also two Separate sensitive lists. Under rules of origin, for according preferential access to member countries under SAFTA, the goods have to undergo substantial manufacturing process in the exporting countries. The substantial manufacturing processes are defined in terms of twin criteria of Change of Tariff Heading at four-digit Harmonised Coding System and domestic value content of 40 per cent for non-LDCs and 30 per cent for LDCs. On the two separate sensitive lists India has finalised, a longer list is for non-LDCs (Pakistan and Sri Lanka) and a shorter one for LDCs. Thus, India has kept 884 tariff lines in the sensitive list for non-LDCs and 763 tariff lines for LDCs. India's sensitive lists include mainly goods from agriculture sector, textile sector, chemicals and leathers and sectors reserved for small-scale industries. India has also given approval that MFN (Most Favoured Nation) applied rate existing on January 1, 2000 would be taken as base rate for the Purpose of tariff reduction. It has also been decided to bring out the customs notification from July 1, 2006 in order to adopt a uniform date Of tariff liberalisation programme. India's total trade with SAARC countries rose from $4,816.88 million in 2003-04 to $5,205.57 million last year, registering an increase of 8.07%.
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India-Korea Joint Task Force (JTF): Based on the recommendations of the Joint Study Group (JSG), India and Korea constituted a Joint Task Force for having negotiations on FTA in goods, services and investment. Four Rounds of Negotiations have been held so far. India-China Joint Task Force (JTF): A Joint Task Force between India and China has been set up to study in detail the feasibility of, and the benefits that may derive from the possible ChinaIndia Regional Trading Arrangement and also give its recommendations regarding its content. India-Gulf Cooperation Council (GCC) FTA: A Framework Agreement on Economic Cooperation was signed between India and GCC on August 25, 2004. The first round of negotiations on India-GCC FTA was held in Riyadh on March 21 -22, 2006 wherein the GCC side agreed to include services as well as investment and General Economic Cooperation, along with goods, in the proposed FTA. PTA/CECPA between India & Mauritius: A Preferential Trade Agreement (PTA)/Comprehensive Economic Cooperation & Partnership Agreement (CECPA) are being negotiated with Mauritius which is likely to be finalized shortly. Framework Agreement with South Africa Customs Union (SACU): A decision has been taken to enter into a Framework Agreement with the South African Customs Union (SACU). The Agreement will aim to promote expansion of trade and provide a mechanism to negotiate and conclude a comprehensive Free Trade Agreement within a reasonable time. India-Israel Preferential Trade Agreement: Negotiation process for India-Israel Preferential Trade Agreement has commenced.
FOREIGN TRADE POLICY (2004-2009) Objectives (1) To double India's percentage share of global merchandise trade by 2009. 1.5% share of global trade by 2009. (2) To act as an effective instrument of economic growth by giving a thrust to employment Generation, especially in semi-urban and rural areas. Policy Highlights Special focus on five traditional exports - agriculture, handcrafts, handlooms, leather and footwear, and Gems and jewellery so as to make exports employment oriented. A new Handicraft Special Economic Zone would be established. Absolute export sector to be exempted from service tax for cutting down export cost. New service Export Promotion Council constituted for services. Free Trade and Warehousing Zones under a new scheme has been established to make India a global trading hum. FDI would be permitted upto 100% in the development and establishment of the zones and their infrastructure facilities. Domestic Tariff Area have been exempt from service tax and all exporters with minimum
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turnover of Rs. 5 crore and good track record have been exempted from W^ furnishing Bank guarantee in any of the schemes so as to reduce their transaction costs. Liberalisation of EPCG scheme. Duty free import conditions for seeds. Ban on old machinery imports lifted. Biotechnology parks would be established in the country which would get all facilities of 100% Export Oriented Units. Three new export promotion schemes had been introduced: (a) Vishesh Krishi Upaj Yojna (b) Served from India (c) Target plus Scheme Vishesh Krishi Upaj Yojna to be introduced for boosting exports of agricultural products, export of flowers, fruits, vegetables, minor forest produce and their value added products. In the annual supple-ment of FTP (2004-09) to meet the objective of employment generatioin in rural and semi-urban areas, export of village and cottage industry prod-ucts were included in Vishesh Krishi Upal Joyna, renamed as Vishesh Krishi Gram Udyog Yojna. (B) Served from India scheme will boost export of services. Now it allows transfer of both the scrip and imported input to the group service company while, earlier, transfer of imported material only was allowed. (c) Target plus scheme, under which exporters, who achieve quantum growth in exports would be entitled to duty free credit based on incremental ex-ports substantially higher than the general annual export target. Government would promote establishment of Common Facility Centre for use by home based service provided. The exports from India are likely to generate incremental employment of 21 millions between 2004-05 and 2009-10. Thus in order to give a thrust to the manufacture of industrial products and generate employment, in the annual revision of FTP the Focus Product Scheme was formulated. The scheme allows duty-credit facility at 2.5% of FOB value of exports on 50% of export turnover of notified prod-ucts like added fish and leather products, sports goods, handloom and handicraft items, fire works etc. A number of measures announced in FTP, mid Term Review of annual policy 2006-07 to achieve the objective of making India a gems and Jewelley hub, allowing all categories of foreign exchange earnings in exchange earners foreign currency accounts. A number of procedural changes have been affected to streamline the existing provisions like enabling Information Technology enabled services to avail refund of Central Sales Tax and Interest payments on delayed refunds. Percentage share of India in world trade - 1%. Indias share in world merchandise exports grew at more than double the rate of growth of world exports since 2005. For the first time in 2005 and first eight months of 2006, Indias export growth surpassed than of China.
(a)
Annual Foreign Trade Policy 2007-08

Announced on April 19, 2007. Export target for 2007-08 at $160 billion. Introduction of two export promotion schemes incentivising high tech exports and agro processing. All services rendered abroad or export oriented services delivered in India made exempted from 12.24% service tax.
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Focus Market scheme have been extended to 16 more countries. Duty entitlement pass book scheme extended upto March 31, 2008. Vishesh Krishi Upaj Yojna extended to include items like coconut oil, potato flakes, soaps etc. Duty free import of tools, machinery and equipments for handicrafts and gems and jewellery sectors. Norms for availing the benefits under EPCG scheme for handlooms and handicrafts sector has been simplified by increasing the export obligations period to 12 years from the current 8 years. Status holder scheme revamped.
BALANCE OF PAYMENTS (BOP) Balance of payment of India is classified into - (a) BOP on current account (b) BOP on capital account (a) BOP on current account includes: (i) Visible trade relating to imports and exports. (ii) Invisible items, viz., receipts and payments for such services as shopping, insurance, banking etc. (iii) Unilateral transfer such as calamity relief package. (b) BOP on capital account shows the implications of current transactions for the countrys international financial position for instance, the surplus and the deficit of the current account are reflected in the capital account, through changes in foreign exchange reserves of country, which are an index of the current strength or weaker of a countrys international payments position, are also included in capital account. BOP on current account had been position in 1972-73, 1976-77, 2001-02, 2002-03 and 200304. As a percentage of GDP - (.7%), (1.2%), (2.3%). India went to IMF for Special Drawing Rights in 6, 5 year plan but in 2001, India became net donor to IMF. For the first time during last 40 years, net invisibles became negative in 1990-91 due to outflow of investment income. The severe drought of 1965-66 and 1966-67 compelled India to take PL480 food aid assistance on massive scale from USA in its public law assistance programme. Devaluation periods (1) 1949- Devaluation was resorted to liberate the currency from colomial control as Brilithers bad kept rupee over valued. (2) 1966- Due to sharp rise in oil prices; stagflation entire production sector was established. (3) 1991- Two step devaluation (i) June 1991 (ii) Late July Mainly due to economic crises of 1990. Gulf crises of 1989-90 had pressureved our BOP account and forex change reserves were less than $1 billion. Current Account 1. Exports (X) - Indias exports (merchandise) grew at a rate of 23.88% in 2006-07. Export performance was dominated by volume growth till 2002-03. Reversal of trend in 2003-04, with increasing contribution of higher unit value.
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2. 3.
Imports (M) - Merchandise imports grew at the rate of 29.33% in 2006-07. TRADE BALANCE (X-M)- Due to rise in both imports and exports, countrys trade deficit got burdened to a massive $64.9 billion in 2006-07 from $51.86 in 2005-06 which shows a growth of 25%, since the increase in trade deficit was more than nominal growth in GDP (15.2%) in 2006-07, as a percentage of GDP the trade deficit increased further to 7.1% of GDP from 6.4% of GDP in the year 2005-06.
The local trade gap widened for the first half If the year 2007 mainly due to rupee appreciation putting pressure on exports and higher non-POL imports. Trade gap is placed at $36.92 billion against $26.02 billion attained during April-Sept 2007. Invisibles (a) Non factor services: It includes information Technology enabled services (ITES), Health services, educational services, travel and transportation etc. Information Technology Enabled services comprises of Business Process Outsourcing (BPO) - Standing at$11 billion today and set to crose $30 billion by 2012. Indian BPO industry remains buoy and. Accounting Process Outsourcing: Outsourcing of accounting services. Legal Process Outsourcing: Outsourcing of legal services Tutorial Process Outsourcing: Includes international trade for tuitorial services under World Trade Organisation norms. First contract for TPO is received by Career Launcher. Engineering Process Outsourcing: Providing engineering services (b) Private Transfers/remit: Includes contribution made by Non-resident Indians. Private Traufers which remained the single largest component of invisibles (net) account till 200405, fell below miscellaneous receipts in 2005-06. As per the RBIs preliminary BOP dates for the first six months of the year reveal that remit Hances from Indians working abroad, which from a part of private transfers, were higher at $19 billion, up from $12.7 billion. (b) Net Investment Income: In 2005-06, investment income continued to be negative reflecting the servicing costs of capital inflows. (c) Official transfers: A very small component in invisible account, continued to decline in 200405 and 2005-06. In early 6 months of 2007 invisible receipts have in-creased at a much slowes pace mainly on account of a deceleration in the reports of both software and business services. This ominous development is once again partly attributably strong rupee and its impact on the margins of leading software exporters. In 2006-07 the software and service export is estimated at $31.3 billion which shows a robust growth of 32%. Yagos drivers were electronic and IT exports with a growth of 35%. Now with the rupee appreciation and slowdown in the US economy, the Indian IT industry will have to evolve. Innovation, New delivery Model and building business beyond borders will help the industry to survive and become a global leader. In 2005, while Indias share and ranking in world merchandise exports were 1 percent and 29 respectively, its share and ranking in world commercial services exports was 2.3% and 11 respectively. By growing faster than merchandise exports, services grow exports constituted almost 60% of merchandise exports in 2005-06.
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5. Current Account Balance: After remaining positive in 2001-02, 2002-03 and 2003-04 it turned negative in .2004-05. Due to a strong growth in invisibles, the countrys current account deficit was contained at a reasonable 1.1% of GDP in 2006-07. Indias current account deficit during second quarter (JulySeptember) 2007-08 narrowed to $5.5 billion from $6.3 billion registered during the same period of 2006. Roughly accounted 0.5% of GDP mainly due to doubled semi Hances by NRIs despite a widening trade deficit. Capital Account 6. External assistance (net) - as a percentage of total capital flows it turned negative in 2002-03 (29.4%), 2003-04 (-16%) but trend got reversed in 2004-05 it EA again became poselive EA is a debt creating flow. It is the money borrowed from outside the country at concessional rate of interest and for longer period of time, with either an aid component or initial holiday period. Such loans are also called soft loans. 7. External Commercial borrouring (ECB) - Also known as hard loans, it is the money borrowed at prevailing rate of interest and terms of repayments as per outside the country. ECB's can be divided into: 1. Short term ECB: Maturity period upto 1 year. 2. Long term ECB: More than one year maturely period Majority of ECB's is long lism. Important ECB schemes 1. India development bond scheme- Launched in 1991-92 by State Bank of India. Five yearly bonds were sold under the scheme mostly to Non-Resident Indians and Around $4 m were mobilised. These bonds were reedemed (returned back) into 1995-96. 2. Resurgent India bond scheme- Launched in financial year 1998-99 by State Bank of India in response to economic sanctions imposed by developed countries. 5 yearly bonds were sold to Non-resident Indians, Persons of Indian Origin Scheme could mobilise around $5b. India Millennium Deposit Scheme- Launched in 2000 by State Bank of India. Five yearly fixed deposit certificates were sold by State Bank of India to NRIs, PIOs & OCBs. The scheme mobilised around $5.2b. Bond redeemed in 2006. Net external Commercial borrowing remained negative in 2001-02, 2002-03 and 200304 after which it became positive. In the countrys external debt front, ECBs emerged as the single biggest contributor to capital inflavs even when FDI in the country increased nearly 80% in 2006-07. At $16 billion, ECBs accounted for over 35% of capital inflows in 2006-07. In the year 2006-07, 56% of the increase in external debt was accounted for by ECBs. Government disincentives to check unbridled external commercial borrowings have not borne. Furit Capital flows in this category have almost doubted.
3.
8. Intermational Monetary Fund (net)- India has been able to borrow from the fund from time to time to overcome her BOP difficulties, But from a borrower, India turned a net donor to IMF in 2001 and now she is not borrowing any more.
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IMF IMF is one of the furins born as a result of the Brelton Woods Agreement concluded in 1944 and thus IMF founded on Dec 27, 1945. With HQs at Washington, USA it was entrusted with the task of looking after the problems of international liquid and exchange rate stability. 31 founder members. Main Objectives (1) To help member nations tide over their balance of payment difficulties of short term and long term character. (2) To promote exchange rate stability and avoid competitive exchange rate depreciation. (3) To re-establish multilateral trade among the member countries. (4) To move in the direction of dismantling trade and tariff barriers which separate member serunders through tariff, quotas etc. Membership and subscription Any country can become a member provide (a) The country is willing (b) Willing to pay a subscription. At present IMF has a membership of around 185 nations. Article 7- If demand for a currency exceeds the available supply with the fund, fund will declare the currency to be scarce & take steps to augment the supply of the currency by other means. Article 8- Countries to open their respective Balance of payment accounts, making their currency convertible. In 1970, IMF introduced the most ingenuous plan the Special Drawing Plan or SDRs. It was unanimously approved by all countries (except Frame) in 1967 at Rio De Janeiro in Brazil & came into effect in 1970 SDRs are a form of paper gold, they are first book keeping entries and created at regular intervals by the fund and are allocated among member countries on the basis of each countrys quota. India and IMF India is a founder member of IMF and was one of the largest subscribers. India borrowed $100 million from the fund during 1948-49 but paid back the amount by 1956-57. In 1981, India borrowed a massive amount of SDR (500 million) from IMF to overcome its external BOP problems arising basically from oil imports. This was the single largest loan made by IMF a member country at that time. Due to worsening current account deficit in 1990-91, Indias ability to finance the deficit had weekened massively. India once again went to IMF for rescue. While agreeing to come to the assistance of Indias, IMF insisted that certain conditions should be ful-filled by Indias - the condition ability Clauses. (a) Of IMFs member countries. Camille Gutt of Belguim was the first Managing Director of IMF and the present one (9th MD) is Dominigne strouess Kahn of France, who assumed office on Nov 1, 2007. The contrd and managment of IMF rests in Board of Governors. The Finance Minister of India is the ex-officio member of the Governing body of IMF.
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9.
1.
2.
Non- resident deposits (net) - Savings of non-resident Indians, Overseas corporate bodies and persons of Indian origin deposited with resident Financial Institutions of India are called non-resident deposits. Indian banks offer two types of accounts called NR deposits. FCNRB- Foreign currency non-resident bank accounts. In such accounts rate of interest is also to be paid in foreign currency which is linked to London inter-bank offer rate. It increases availability of foreign funds in India due to which exchange rate of rupee remains stable. NRERA- Non resident external rupee account. It is inverted in rupee form and rate of interest kept in the unit of rupee, higher than the prevailing rate of interest in India. In the last seventeen years ending 2006-07, non resident deposits remained an important and relaluely stable source of capital flows. If a proportion of total capital flows, it had strengland in the four year period 2000-04 to above 20%, but such deposits became a source of negative flows in 2004-05. Resumption of earlier trend in 2005-06, with proportion rising to 11.5%. In the six months beginning in 2007, NRI deposits have show a trend of net outflow, reflecting lower deposit rates. However in 2006-07, they were the second most important contributor to external debt after External Commercial borrowings. Foreign Investment (net): (1) FDI (net) (2) FIIs (3) Euro Equities & others (1) FDI: (a) Greenfield FDI: FDI which results in expansion in production Capacity due to change in ownership. Eg- Greenfield airports coming up in Shamshabad (Andhra) and Devanhalli (Karnataka) (b) Brown Field FDI: FDI which results in change in managerial control without addition in production capacity.
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Other Flows (net): The remaining items that can-not be categorized into current and capital account categories since the full balance of payment account must be balance there items are(1) Errors A and Omissions: These are to take into account the difficulty of accurately recording all the wide variety of transactions that take place in accounting period. (2) Other Items which are new 13. Capital Account (net): In 2005-06 and 2006-07, capital flows into India remained strong on overall basis with capital account surplus rising simultaneously with current account deficit. Debt creating flows, particularly external assistance external commercial borrowings. NR deposits, which had turned into net one flow in 2002-03 and 2003-04, became positive flows in 2005-06. Indias capital account surplus wide wed to $33.9 billion during July-September 2007-08 from $ 8.7 billion a year earlier. Capital inflows- The aggregate of net inflows in 2006-07 and 2007-08 has propped up the Balance of payment and this time the increase is very substantial and it covered almost all Categories. Increased capital inflows can import macro-economic aggregates through exchange rates, trade & monetary variables. However the economys capacity to absorb such capital inflow as indicated by the level of current account deficit has not rises so fast as inflows. 12.
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Due to excess liquidity caused largely by capital inflows, the biggest challenge for monetary policy is the management of capital flows & attendant implications for liquidity and overall stability. Convertibility and related issues The term convertibility related to the right of a holder of a national currency to freely exchange it into each and every other national currency at the prevailing exchange rate. There are three types of exchange rate regime(1) Floating Exchange Rate Regime: There is fully convertibility on entire Balance of Payment account and exchange rate is determined by demand & supply forces and as these forces change, exchange rate allows changes. Eg- Foreign Exchange management Act entails the some characteristics of this regime. (2) Fixed Exchange Rate Regime: Exchange rate is determined and adjusted through administrative decision, without giving any say to market forces. Thus zero convertibility. Eg-Foreign exchange regulation Act- 1973 had the characteristics of fixed ex-change rate regime. The called paged exchange rate regime. (3) Mixed Regime/Managed Currency Regime: Exchange rate is allowed in a given band to adjust in accordance with changes in market forces. But of exchange rate is Trans, gressing levels then administrative body interferes to manage the market forces. A popular variety at various stages of transition has been the so called crawling peg: in such a regime, a weak and gradual depreciation of national currency against a basket of the currencies of major trade partners was preannounce (within a permissible band) and then unimplemented. Dirty Float: We allow the exchange rate basically to be determined by market forces of demand and supply for foreign exchange (clean), but we allow government intervention into foreign exchange market to, what one may call, set right the ups and downs in exchange rate movement (thus becomes dirty).
Current Account Convertibility The right to convert the local currency Payments relation to imports of goods & services. For all practical purposes, including, and most of all a international negotiations, whether a country has or has not achieved current account convertibility is judged by the fact whether the respective has accepted or not Article VIII status according to Articles of agreement of IMP. Partial convertibility of rupee was introduced in 1992-93 Under this system a dual exchange rate was Fixed under which 40% of foreign exchange was to be surrendered at the official exchange rate while the remaining 60% of foreign exchange was to be converted at a marked be termined rate. 1993-94 budgets introduced full convertibility on trade account. Dual exchange rate was dispeneed with and a unified exchange rate system introduced. India introduced current account convertibility in August 1994 and accepted obligations under Article VIII of IMF. Thus Indias balance of Payment account is partially convertible with only current account being convertible and zero convertibility on capital Account. Capital Account Convertibility It relates to the right to convert the local currency into foreign currencies for to purpose of capital transactions and transfers.
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A committee on Capital Account Convertibility was set up by RBI under the chairmanship of former RBI deputy governor S.S Tarapore to lay the road map for capital account convertibility. The 5-member committee recommended a three year time frame for complete convertibility by 1999-2000. The three crucial pre-conditions were: (1) Fiscal Consolidation (2) A Mandated Inflation (3) Strengthening of Financial System East Asian crises intervened soon thereafter leading to lack of popular enthusiasm for capital account convertibility. In response to Prime Ministers statement regarding laying out a road map on capital account convertibility based on current realities RBI constituted a committee (Chairman: S.S. Tarapore) on March 20, 2006 It detailed a broad five year time frame for movement towards fuller convertibility in 3 phases. Phase I - (2006-07) Phases II - (2007-08 to 2008-09) Phases III - (2009-10 to 2010-2011) Committee calibrated the liberalization road map to the specific contexts of prepaednessnamely, a strong macro economic framework, sound financial systems and markets and prudential regulatory and supervisory architecture. The committee recommended imposition of goods and services less on financial services, current account deficit to GDP ratio under 3 percent, meeting FRBM targets, Prohibiting FIIS from investing fresh money raised through participatory notes. Later on Finance Ministry released the 15 member expert committees report, headed by PERCY S. MISTRY that recommended full capital account rupee convertibility by 2008. Abolition of securities trans-action tax, slump duties, cutting down public debts, creation of currency spot market and rupee settled exchange traded currency derivatives market are some of the recommendations. Foreign Exchange Reserves Forex reserves can be classified into: (1) Foreign currency reserve (2) Bullion reserve (Gold) (3) Special Drawing Right held by IMF (4) Foreign Securities held by RBI Reduction in these assets will be used to finance expenditures abroad. Reductions appear as a credit item in the BOP (because their sale causes foreign exchange inflow appears as into the country). An increase in these reserves will appears as a debit because purchasing assets will cruse an outflow of foreign exchange. The continuance of the robust net capital inflows not only helped financing reining current account debit but also resulted in further accretion to exchange reserves. External Debt Indias total foreign debt rose by 22.6% to $155 billion in 2006-07 as compared to $ 126 billion in 2005-2006 as companies went overseas to borrow on account of cheaper credit.
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In rupee terms, Indias external debt stood at Rs. 6,75,857 crore, accounting for 16.4% of GDP In terms of composition, 56% of the increase was accounted for by external commercial 16% short term debt
Presently Indias foreign exchange reserves are about one and half times its total external debt. The debt service ratio- ratio of interest charges and loan repayments to export earnings showed a per-ceptible improvement, declining to 4.8% last year from 9.9% a year ago. Short term debt to GDP ration rose to 1.3%./ short term debt to total debt rose to 7.7% short term debt to foreign exchange assets to 6.2% short term debt rose mainly due to rising imports and import related trade credits. World Bank & IMF developed joint by a centralised database system called Quarterly External Debt Statistics (QEDS) prescribing certain standard formats of debt data reporting. India joined it in November 2006. According to Govt. Of India report on Indias external debt, India. India was seventh in position among the to ten debtor countries in 2005 with total external debt $123.12 billion. China > Russia > Brazil > Turkey > Mexico > Indo-nesia > India> Argentina> Polled> Hungary ( Total external debt in decreasing order) Dumping With its diversified manufacturing and export base, India has been one of the major users as well as one of the major targets of anti dumping measures in the world. According to an investigation initiated by top ten users of anti dumping measures, 19952006. India reported the highest anti dumping initiations with 20 new initiations followed by European Union and Australia.
INTERNATIONAL ORGANISATION
IBRD IBRD, popularly known as World Bank, owes its birth to the deliberations of United Nations Monetary and Financial Conference which met at Bretton woods, New Hampshire and the World Bank and the turn IMF were established world Bank was established in 1945 with HQ at Washington. While the IMF provides short term loans to correct disequilibrium in Balance of payment, World Bank Provides long term loans(i) To assist the reconstructions and reconstruction and development of terry tones of member nations destroyed or disrupted by wars (ii) To assist and encourage the development of less developed member countries. (iii)To promote private foreign investment by means of Guarantees or participation in loans and investment made by private investors & to supplement private investment by its own trances. (iv) To promote long range balanced growth of international trade and maintenance of equilibriums in the BOP of all members countries. Any country is eligible for membership of WB if it subscribes to its charter under Banks Articles of Agreement Only those countries which are members of IMF can be
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considered for membership of W.B. All the powers of control and management are vested in Board of governor.
India and WB India is a founder member of Bank. She presided at the annual general meeting of the Bank held in Paris in 1950. By 1958, India had become the single largest borrower of the bank. A consortium of countries and international institutions interested in assisting India has been formed under the auspices of WB and is commonly known as Aid India club, now renamed India Development Forum. Affiliates of WB (1) International Development Association (IDA) IDA was started in 1960 as an affiliate of WB to make soft loans for long periods and low rate of interest. These loans were given for creating Social Capital such as construction of roads & bridges, slum clearance & urban development etc. (2) International Finance Corporation (IFC) set up in 1955 to invest in private productive enterprises in association with private investors and without government guarantee of repayment. IFC stimulates productive investment of private capital, both foreign & domestic. As per the data released by World Bank, India has become the largest borrower of World Bank group institutors accounting $3 75 billion (15% of the total lending by all) in 200607. WB also provided $ 700 million to the health sector in India. This lending witnessed a whopping 170% increase & highest loan sanction made by WB in the history of its engagement with India. IFC - the private sector lending affiliate of WB has decided to fund 4000 MW ultra mega Power Project to be developed by Tata Power at Maunder in Gujarat. WB has given approved to fund Rs. 7000 crore to build eight proposed hydel power project in Himachal Pradesh. WB to provide $ 944 million for strengthening rural credit cooperative project, vocational education training project and additional credit. For Karnataka community based water tank management project. World Banks report entitled Global Economic Development: Technology Diffusion in the developing world presents the view that India is likely to witness further moderation in eco. Growth with GDP slepping to 8.4% in 2008 but may marginally improve to 8.5% in 2009. West Bengal government has sought a loan of $ 300 million from WB for minor irrigation schemes over 2, 3,500 acres form land. The world Bank has approved $ 65 million additional aid for Andhra Pradeshs Rural Poverty Reduction Project, a programme that has improved the lives of 5-7 million women since its inception in 2008. Miga: Multilateral Investment guarantees Agency Established in 1988. It supports and encourages foreign investment in developing countries WB President.
World Intellectual Property Organisation (WIPO) WIPO was established by WIPO Convention signed at Stockholm on July 14, 1967 and came into force on April 26, 1970. Its headquarters in Geneva, Switzer-land. It is responsible for promoting the progressive development and harmonization of
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Intellectual Property legislation, standards and procedures among member states. It aims to promote intellectual property into national development policies and programmes and develop international intellectual property laws and standards. It creates and disseminates a wealth of public outer each material to increase understanding of how to protect and benefit from the resulting intellectual property. It provides services to enable users to file international applications for patents and international registration for trademark designs & appellations of origin. With 184 countries as members and 250 organisations currently accredited as observers at WIPO meetings. In 1886, copyright entered international arena with Berne connection for protection of literacy and Artistic works. Kamil Idris is the Director General of WIPO Protection of Intellectual Property rights is guided by Paris Convention.
World Trade Organisation Genesis: General agreement on Tariff and Trade set up in 1947 to provide a framework for the conduct of trade relation by reducing trade barriers in inter-national trade and thus providing a set of rules of conduct. Eight rounds of GATT were conducted initiating in Geneva in 1947. The eighth round known as Uruguay Round was announced in Marrakesh meeting in 1994 with signing of Final act by GATT members. It paved the way for setting up of WTO. WTO agreement came into force from Jan 1, 1995 GATT was not, really an org. It was just a legal arrangement while WTO is a new international organisation set up as a permanent body and de-signed to play the. Role of a watchdog in the sphere of trade in goods and trade in services, preign investment, and intellectual property rights etc. The highest body is the Ministerial Conference. Jain agreement of WTO is agreement on agriculture agreement on trade in textiles and clothing or Multifibre Arrangement which calls for phasing out import quotas on textiles & clothing by 1 January, 2005. Agreement on Trade related investment means uses calls for introducing national treatment of foreign investments and removed of quantitative restrictions. Agreement on Trade Related Intellectual Property Rights, agreement on services etc. There is a dispute settlement Body, seeks to plug the loopholes and thus provide security and predictability to the multilateral trading system. It has now been made mandatory to settle a dispute within 18 months. Subsidies (1) Green Box: None distorting in terms of production and trade direct income support Unlinked to productions saving environment. (2) Blue Box: Less trade distorting because white the directly links production to subsidies, They also set limits on production Eg - By quotas. (3) Amber Box: Most trade distorting, primarily by encouraging excessive productions. Doha Round of Negotiations Fourth Ministerial meet took place at Doha in 2001. It entails certain features: (1) Doha declaration announced the launch of a new round of negotiations to be concluded by Jan 1, 2005 called Doha Round. (2) Doha declaration stated that aim would be substantial improvements in market access, reduction of and ultimately phasing out all trade distorting subsidies(3) TRIP and Public Wealth: The agreement can and should be interpreted & implemented in a manner suppositive of WTO members right to protect public health.
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(4) Environment & labour issues: Negotiations on environment issues were agreed to and labour issues were to be left to ILO. (5) Greater access for industrial products of developing countries. The three issues under basic issue of agriculture are (1) Trade distorting subsidies (2) Export Competition (3) Market excess It is estimated that EU and US provide subsidy of nearly $ 1 billion a day. In 205, the level of trade distorting support to agriculture in US was $ 19.7 billion & on the other hand, it demanded huge concessions from developing countries in terms of reduced tariff and enhanced market access for both agricultural & non - agricultural products and services. It the mini- Ministerial meet in Geneva in 2006, EU had agreed to reduce average form Tariffs by 51% this was a significant step forward. But US is not particularly bothered about arriving at an agreement. US has still not repeated its 30 and super 30 provisions which enable imposition of sanctions against countries mat harm its trade business. Continues to provides priority states for patent rights on first to invent basis rather for patent rights on, first of invent basis rather than first to file basis to invent basis rather than first to file basis adopted by all other countries. As a consequence of pressure from developing nations US & EU relented and accepted a number of issues. Irritants for developing nations. (1) It was agreed that developing countries need not source their essential medicines & drugs at high cost from western MNCs which hold patents. (2) Reduction and elimination of tariffs in non-agriculture goods & other barriers, mainly on products that are important to developing countries is an-other gain. (3) With regards to services, it is hoped that India would gain by increasing access for banking, insurance and other companies and increasing opportunities for people to work in other countries. (4) US agreed to review anti dumping rules. (5) WTO appointed a 9 member committee to which key issues of TRIPS had been refereed to. India s Brazil made its members. The Govt, of India passed an order on December 26, 2004 for the amendment in the patent act in context with agreement of WTO thus Product Patent systems has been declared effective for Jan 1, 2005. (6) India felt some relief through non-Agreement market access on industrial imports -a Swiss formula presented by EU. In the Hong Kong Ministerial meet it was decided to eliminate export subsidies in agriculture by 2013. Duty free, quote free market access for all LDCs products to all developed countries. In cotton, expose subsidies to be eliminated by developed countries in 2006 and trade distorting domestic subsidies to be reduced more ambitious by & over a short period of time. As a part of commitment to WTO, India has made its patent law consistent from January 1, 2005. It includes expending product patent regime to food, drugs, chemicals agro chemicals & biotechnical product.
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WTO CONFERENCES Singapore First Second Geneva Third Seattle Fourth Doha Fifth Cancun Sixth Hongkong Head - Pascal hamy United Nations conference on Trade Development (UNCTAD) Genesis: The Cairo Conference of the developing countries held in July 1962 on the problems of economic development passed the Cairo Declaration on Developing countries calling for conference on Trade & Deputed and constituting on International Trade Organisation which would consider vital questions relating to international trade of poor nations. First UNCTAD was organised in Geneva from March to June 1964. UNCTAD was established as a permanent organ of UN General Assembly which defines the functions, activities and membership of UNCTAD. Trade and Development Board is the policy making body of UNCTAD. The main purpose of creating UNCTAD is to pro-mote speedy development of underdeveloped countries by solving the problems of the sluggish expansions of their export trade, deficits in their external BOP and excessive burden of foreign debt etc. UNCTAD II was organised in 1968 in New Delhi. In 2005, UNCTAD launched Development India which is a comprehensive review of global trade and development performance, integrating key factors & indicators like international finance, trade performance, human capital and physical infrastructure. In a recent report India has been ranked at 86 m place while US first. According to Trade and Development Report 2006, released by UNCTAD, India has become the tenth largest developing economy in terms of overseas investment received with $ 5.5 billion in 2004 while china tops the list. India did not figure among the top ten developing countries with the largest FDI inward Stock. According to UNCTADs world Investment Report, India has emerged as the second most attractive location after China for Global FDI in 2007. India was the 4 largest suspecting of FDI during 2005-06. UNCTAD has projected Indias economic growth for 2007-08 to be 8.5%, whereas chinas growth at 10.5% during same fiscal. According to a survey conducted by world Economic Forum, India has been ranked 48m in Global Competitiveness Index 2008-08. US topping the list. India ranks 69th in Global Economic Freedom India in 2005 according to Economic Freedom Index in 2005 according to Economic Federation of World Report 2007 released by commerce minister of India Kamal Nath.
Asian Development Bank (ADB) ADB is a multinational development financial instillation established for the purpose of lending funds, promoting investment and providing technical assistance for promoting the economic and social progress of its developing member countries in Asia and Pacific region.
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ADB with its HQ at Manila (Philippines) started its operation in 1966. India is the third largest subscriber of ADB - after Japan and China.
South Asia Free Trade Agreement (SAFTA) Agreement on SAFTA was signed during the 12th SAARC Summit on January 6, 2004 in Islamabad. Negoliations Completed on: (1) Rules of Origin (2) Sensitive lists (3) Revenue Compensation for LDCs (4) Technical assistance to LDCs The tariff liberalisation programme under the agreement has been implemented from July 1, 2006. Asia Pacific Economic Cooperation APEC was established in 1989 for the independent economic development of the countries of Asia-pacific regions. Members - 21 India is not a member of APEC and further has to wait for its membership till 2010. HQ- Singapore Director - Piamsak Maria (Chile) Summit was held at Australia and the recent one, i.e. 19th summit was also hosted by Australia (SYDNEY). Outcome (1) Sydney declaration on climate change (2) Energy security and clean development (3) Setting specific goals on reducing energy intensity and increasing forest cause in the region by atleast 20 million hectares by 2020. (4) Stand-alone statement on Doha round of WTO negotiation was also issued reaffirming leaders support for multilateral trading system. APEC countries represent 56% of world GDP & nearly half of the Global trade. Next APEC summit to be held in PERU (2008) Establishment - The five important industrialized countries formed G-5- Germany, Japan, Britain, France & US In 1976, Canada and Italy joined G-5 and it became G7. On 10 July, 1994, Russia joined G7 and finally present G-8 formed. 33rd G-8 summit took place in HELLIGEN DAMN (Germany). Key Issues (1) Grow & Responsibility was the central theme (2) Climate protection & thus common goals for the reduction of green house gases. (3) Helping Africa by increasing official developments assistance by 2010 & by US $ 25 billion each year. (4) Fair investment Promotion by 2009. For the first time developing countries like India, China, Brazil was invited in the 29th summit held at France. 2008 Summit to be held in Japan.
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Group of 20 (G-20) (i) Block of developed and developing nations established in 199 as a response both to the financial crises of late 1990s and a growing recognition that key emerging markets were not adequately included in the case of global economic discussion & governance. (ii) MD-IMF & President- WB and Chairman of International. Monetary and Financial Committee of IMF and WB also Participate in G-20 meetings ex-offices basis. (iii) G-20 chair rotates between member nations. For 2006 it was Australia, 2007- South Africa.
SOCIAL SECTOR Various studies on poverty indicate that while growth in per capita income is a necessary condition for poverty reduction, it is by no means sufficient. It is also important to focus on creating an enabling environment for the poor to participate in, and benefit from, the growth process. The pro-poor public policies include creation of employment opportunities and enhancing the level of health, education and skill of the poor.
Plan and Non-plan expenditure of the central government for social services such as education, health, family welfare, water supply. Housing etc has more than doubled from Rs 18240 crore in 1995-96 to Rs 74,439 crore in 2005-06. However, trend witnessed in the total plan and non-plan expenditure on the social sector by both centre and states indicate that there had been a continuous decline of the share of social sector in total expenditure since 2000-01.
In the last two decades there is a significant decline in proportion of people living below poverty line, from 51.5% in 1977-78 to 26.1% in 1999-2000. In absolute terms, the number of the poor declined from 328.9 million in 1977-78 to 260.3 million in 19992000. Though poverty has declined at the micro-level, there are wide rural- urban and interstate disparities in the improvement pattern. Significant declines in the incidence of poverty were witnessed in Andhra Pradesh, Gujarat, Haryana, Punjab, Karnataka, Kerala, West Bengal, and Maharashtra. Tenth Plan also focus on specific sectors which provide greater opportunities for the poor to participate in the growth process. Plan allocation has been enhanced in areas of health, education, sanitation etc. There has been decline in the rate of growth of employment Command Daily Status (CDS) during the 1990s. (2.7 per cent per annum in 1983-94 to 1.07% per annum in 1994-2000.
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On the other hand, employment growth in all the sub-sectors within services, such as trade, hotels, transport, communication, and financial and business services, (except community social and personal services having negative growth rate) exceeded 5% per annum. There are larger inter-state differentials in unemployment during the period 1993-94 to 1999-2000; growth in employment was the highest in Haryana (2.43%), followed by Gujarat (2.3%), while Kerala recorded the least growth of employment 0.07%. National Population Policy, 2000 provides a policy framework for advancing goals ad prioritizing strategies during the next decade to meet the reproductive and child health needs of the people of India, and to achieve net replacement levels of total fertility rate by 2010. Among the major states, the states of Kerala and Tamil Nadu have already achieved the replacement of fertility viz. Total Fertility Rate (TFR) of 2.1 while the states of Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Orissa, Punjab and West Bengal, having a TFR in the range, of 2.2 to 3 arcs in the direction of achieving the replacement level of fertility. The Empowered Action Group (EAG) has been set up to raise performance (social) indicators of laygard states. The EAG states arc Bihar Chhattisgarh, Jharkhand, MP, Orissa, Rajasthan, Uttaranchal, and Uttar Pradesh. These states TFR range between 4 to 4.8, and crude birth rates and death rates arc also high.
Poverty Alleviation Programmes SGSY (Swarnajayanti Gram Swarojgar Yojana) Launched: April 1, 1999 SGSY = IRDP (Rural Debt) + DWCRA (Women & Children) + TRYSEM (Rural Youth) + MWS (wells) + GKY(farmer) + SITRA (Artisans) Cost sharing basis- 75:25 Self Employment programme, focusing on poverty alleviation Promotes self help group; development of micro enterprises (asset creation) through bank credit and government subsidy) 50% benefit to SCs and STs; 40% for women, and 3% for disabled SGRY (Sampoorna Grameen Rojgar Yojana) Launched in September 2001 Cost sharing basis- 87.5:12.5 SGRY=SGRY+JGSY(villagework) + EAS (employment), from April 1,2002 To provide wage employment in rural areas; ensuring of food security; creation of durable community; social and economic infrastructure Implementation through Panchayati Raj system. PMGY (Pradhan Mantri Gramodaya Yojana) Launched in 2000-01 Lunched in all states & UT's in order to achieve the objective of sustainable human development at the village level.
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Village level development in 6 crucial areas: Primary health, primary education, rural shelter, rural drinking water, nutrition and rural electrification Some of its areas got impetus through the Bharat Nirman Scheme.
PMGSY (Pradhan Mantri Gram Sadak Yojana) Launched on 25th December 2000 To provide road connectivity by good quality all weather roads to 1.60 lakh Unconnected Habitations with a population of 500 persons or more in the rural areas (250 in the case of hilly area) by the end of the Tenth Plan period (2007). Source for funding of PMGSY is the diesel cess, 50% of which is earmarked for PMGSY Estimated cost, Rs 60,000 crore Bharat Nirman Yojana has also taken the road construction objective. Pradhan Mantri Gramodaya Yojana (Gramin Awaas) Launched: April 2000 Sustainable habitat development in rural areas; to meet housing needs of poor. Pradhan Mantri Gramodaya Yojana - Rural Drinking Water Project A minimum of 25% of the total allocation to be utilized on projects/schemes for water conservation/harvesting/recharge/source development in respect of areas under Desert Development Programme/Drought Prone Areas Programme. Rural drinking water schemes are being done under the Rajiv Gandhi Drinking Water Mission. SJSRY (Swarna Jayanti Shahri Rozgar Yojana) Launched in December 1997 Cost sharing basis- 75:25 Two special schemes run (I) The Urban Self Employment Programme (2) Urban Wage Employment Programme SJSRY (Swarna Jayanti Shahari Rojgar Yojana) is a rationalised (merged) version of the erstwhile schemes of Urban Basic Services, NRY (Rozgar) and PMs Integrated Urban Poverty Eradication Programmes. Gainful employment to the urban unemployed poor through encouraging the setting up of self-employment ventures or provision of wage employment. 30% women, 3% disabled; SC/STs on the strength of local population
I AY (Indira Awaas Yojana) The Indira Awaas Yojana (IAY) launched in 1996 Cost sharing basis- 75:25, Construction of houses and money to be given to poor. Criteria of allocation of funds to states /UTs has changed from poverty ratio to equally reflect the poverty ratio and housing shortage in the states. Similarly, criteria for allocating funds to districts changed from poverty ratio to equally reflect SC/ST population and housing shortage. (minimum 60% to SCs/STs) Rs 20,000 for normal areas; Rs 22,000 for hills/difficult areas
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Samagra Awaas Yojana 1999-2000 On pilot project basis in one developmental block each in 25 districts of 24 states. Integrated provision of shelter, sanitation and drinking water with special emphasis on technology transfer, human resource development and habitat improvement with peoples participation. Food for Work Programme Launched in February 2001 Augmenting food security through wage employment in drought affected rural areas in 8 states: Gujarat, Chhattisgarh, Himachal Pradesh, MP, Maharashtra, Orissa, Rajasthan and Uttaranch Programme further extended till March 31, 2002in respect of notified Natural Calamity Affected Districts. Antyodaya Anna Yojana Launched in the year 2000 2 crore poorest families out of BPL families under TPDS (targeted) are identified. 35 kg of foodgrains are to be made available to each eligible family at highly subsidised rates. Wheat to be supplied @ Rs. 2 per kg Rice to be supplied @ Rs. 3 per kg Rs 3500 crore subsidy on this scheme Annapurna Launched in 1999-2000 100% Centrally sponsored To meet requirement of the senior citizens. 10 kgs. Of foodgrain per person per month supplied free of cost. Jai Prakash Rojgar Guarantee Yojana (2002) The scheme seeks to provide guaranteed employment to unemployed in the most distressed districts of the country. (Operational modalities are being worked out.) Employment on demand within 15 days, and a minimum guarantee of 100 days employment. Valmiki Ambedkar Awaas Yojana (VAMBY) Launched in year 2001 The scheme seeks to ameliorate the conditions of urban slum dwellers living below the poverty line that do not possess adequate shelter. Nirmal Bharat Abhiyan is a component of the scheme to provide a healthy and enabling urban environment through community toilets. Integrated Child Development Scheme (ICDS) The ICDS scheme is the worlds largest publicly funded programme for early childhood. Since its inception in 1975, the scheme continues to be the flagship scheme towards promoting the over all development of the young children (0-6 years) - especially the girl child, and expectant and nursing mothers all over the country through its holistic package of six basic services - health check up, immunization, referral services, supplementary nutrition, pre-school education and health and nutritional education through a single window delivery.
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Kishori Shakti Yojana (KSY) As a part of ICDS programme, KSY was launched in 2000-01 for adolescent girls in the age group of 11-18 years. The scheme aims at breaking the inter-generational life cycle of nutritional and gender disadvantages and providing a supportive environment for self development by promoting awareness on health, hygiene, nutrition, home management, child care, and training to improve/ upgrade vocational skills. Jawaharlal Nehru National Urban Renewal Mission (JNNURM) JNNURM, which is for a seven year period from 2005-06, has two main components Basic Services to the Urban Poor (BSUP) Programme and Integrated Housing and Slum Development Programme (IHSDP). BSUP was launched to assist cities and towns in taking up housing and infrastructural facilities for the urban poor in 63 selected cities in the country. IHSDP for taking up housing and slum up gradation programmes in non-BSUP cities was launched along with BSUP in December 2005. National Rural Employment Guarantee Scheme (NREGS) With the NREG Act being passed in September, 2005, the NREGS was implemented from February 2, 2006 in 200 identified districts of the country with the objective of providing 100 days of guaranteed unskilled wage employment to each rural household opting for it. The ongoing programmes of SGRY and National Food for Work Programme (NFFWP) have been subsumed under NREGS in these districts. NREGS will cover all districts of the country within five years. The NREGS, a demand-driven scheme, has its focus on works relating to water conservation, drought proofing (including afforestation/tree plantation), land development, flood control/protection (including drainage in waterlogged areas) and rural connectivity in terms of all-weather roads. National Rural Health Mission (NRHM) NRHMis the main vehicle for giving effect to the mandate of the NCMP. Operationalized throughout the country, its special focus is on 18 States with weaker health infrastructure and health status indicators. Provision of accessible, affordable, accountable, effective and reliable primary health care facilities especially to the poor and vulnerable sections of the population, bridging the gap in rural health care services through creation of a cadre of Accredited Social Health Activists (ASHA), improved hospital care, decentralized planning, ensuring population stabilization, intersectora convergence and maintaining gender balance constitute the basic features of the NRHM. The Mission envisaged selection of a trained female community health worker called ASHA in each village in the ratio of one per 1000 population in all 18 high-focus States and in tribal and under-served areas of other States. ASHA would reinforce community action for universal immunization, safe delivery, and newborn care, prevention of waterborne and other communicable diseases, nutrition and sanitation. ASHAs would work in close coordination with the Anganwadi Workers (AWW). ASHAs would also provide immediate and easy access for the rural population to essential health supplies like Oral Rehydration Solution (ORS), contraceptives, set often basic drugs, and a health communication kit developed for villages.

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