Class X - Understanding Economic Development

CONTENTS

Foreword iii

A few introductory words for teachers v

Chapter 1

Chapter 4

Chapter 2

Chapter 3

Chapter 5

Suggested Readings 90

D E V E L O P M E N T 2

SECTORS OF THE INDIAN ECONOMY 18

MONEY AND CREDIT 38

GLOBALISATION AND THE INDIAN ECONOMY 54

CONSUMER RIGHTS 74

/book_publishing/NEW BOOK 2007/class10/Understanding Economic Development/Development K-I.pdf

/book_publishing/NEW BOOK 2007/class10/Understanding Economic Development/Sectors K-II.pdf

/book_publishing/NEW BOOK 2007/class10/Understanding Economic Development/Money and Credit K-III.pdf

/book_publishing/NEW BOOK 2007/class10/Understanding Economic Development/Globalisation and India K-IV.pdf

/book_publishing/NEW BOOK 2007/class10/Understanding Economic Development/Consumers K.pdf

NOTES FOR TEACHERSNOTES FOR NOTES FOR NOTES FOR NOTES FOR NOTES FOR THE THE THE THE THE TEACHERTEACHERTEACHERTEACHERTEACHER

CHAPTER I : DEVELOPMENTCHAPTER I : DEVELOPMENTCHAPTER I : DEVELOPMENTCHAPTER I : DEVELOPMENTCHAPTER I : DEVELOPMENT

Development has many aspects. Thepurpose of this chapter is to enablestudents to understand this idea. They haveto understand that people have differentperspectives on development and there areways by which we can arrive at commonindicators for development. To do this, wehave used situations that they can respondto in an intuitive manner; we have alsopresented analysis that is more complex andmacro in nature.

How can countries or states becompared using some selected developmentindicators is another question thatstudents would read about in this chapter.Economic development can be measuredand income is the most common methodfor measuring development. However, theincome method, though useful, has severalweaknesses. Hence, we need newer waysof looking at development using indicatorsof quality of life and environmentalsustainability.

It is necessary for you to expect thestudents to respond actively in theclassroom and on a topic such as the abovethere would be wide variation in opinionand possibility of debate. Allow students toargue their point of view. At the end of eachsection there are a few questions andactivities. These serve two purposes: first,they recap the ideas discussed in thesection and second, they enable betterunderstanding of the themes discussed by

bringing the learners closer to their real-lifesituations.

There are certain terms used in thischapter that would require clarification— Per Capita Income, Literacy Rate,Infant Mortality Rate, Attendance Ratio,Life Expectancy, Gross Enrolment Ratio,and Human Development Index. Thoughdata pertaining to these terms areprovided, these would need furtherexplanation. You may also need to clarifythe concept of purchasing power paritythat is used to calculate per capita incomein Table 1.6. It is necessary to keep inmind that these terms are used as an aidto the discussion and not something tobe memorised.

Sources for Information

The data for this chapter is taken from reportspublished by the Government of India(Economic Survey), United NationsDevelopment Programme (Human DevelopmentReport) and World Bank (World DevelopmentIndicators). These reports are being publishedevery year. It may be interesting to look upthese reports if they are available in your schoollibrary. If not, you may log on to the websitesof these institutions (www.bugetindia.nic.in,www.undp.org, www.worldbank.org). Data isalso available from the Reserve Bank’sHandbook of Statistics on Indian Economy,available at www.rbi.org).

22222 UUUUUNDERSTNDERSTNDERSTNDERSTNDERSTANDINGANDINGANDINGANDINGANDING E E E E ECONOMICCONOMICCONOMICCONOMICCONOMIC D D D D DEVELEVELEVELEVELEVELOPMENTOPMENTOPMENTOPMENTOPMENT

DDDDDEVELOPMENTEVELOPMENTEVELOPMENTEVELOPMENTEVELOPMENT 33333

The idea of development or progresshas always been with us. We haveaspirations or desires about what wewould like to do and how we wouldlike to live. Similarly, we have ideasabout what a country should be like.What are the essential things that werequire? Can life be better for all? Howshould people live together? Can therebe more equality? Developmentinvolves thinking about thesequestions and about the ways inwhich we can work towards achievingthese goals. This is a complextask and in this chapter we shallmake a beginning at understandingdevelopment. You will learn moreabout these issues in greater depthin higher classes. Also, you will findanswers to many of these questionsnot just in economics but also in yourcourse in history and political science.This is because the way we live todayis influenced by the past. We can’tdesire for change without being awareof this. In the same way, it is onlythrough a democratic politicalprocess that these hopes andpossibilities can be achieved inreal life.

DEVELOPMENTDEVELOPMENTDEVELOPMENTDEVELOPMENTDEVELOPMENTCHAPTER I

“Without me they cannot develop...in this system I cannot develop!”


Let us try to imagine whatdevelopment or progress is likely tomean to different persons listed inTable 1.1. What are their aspirations?You will find that some columns arepartially filled. Try to complete thetable. You can also add any othercategory of persons.

Category of Person

Landless rural labourers

Prosperous farmers from Punjab

Farmers who depend only onrain for growing crops

A rural woman from a landowning family

Urban unemployed youth

A boy from a rich urban family

A girl from a rich urban family

An adivasi from Narmada valley

WHAT DEVELOPMENT PROMISES —DIFFERENT PEOPLE, DIFFERENT GOALS

Having filled Table 1.1, let us nowexamine it. Do all of these personshave the same notion of developmentor progress? Most likely not. Eachone of them seeks different things.

They seek things that are mostimportant for them, i.e., that whichcan fulfil their aspirations or desires.In fact, at times, two persons orgroups of persons may seek things

TABLE 1.1 DEVELOPMENTAL GOALS OF DIFFERENTCATEGORIES OF PERSONS

Developmental Goals / Aspirations

More days of work and better wages; local school is able toprovide quality education for their children; there is no socialdiscrimination and they too can become leaders in the village.

Assured a high family income through higher support prices fortheir crops and through hardworking and cheap labourers; theyshould be able to settle their children abroad.

She gets as much freedom as her brother and is able todecide what she wants to do in life. She is able to pursue herstudies abroad.

YOU WANT A CARCARCARCARCAR? THE WAY OUR COUNTRY ISSET UP ALL YOU CAN HOPE FOR IS MAY BE TO

ONE DAY OWN THE RICKSHAW YOU PULL!

which are conflicting. A girl expectsas much freedom and opportunity asher brother, and that he also sharesin the household work. Her brothermay not like this. Similarly, to getmore electricity, industrialists maywant more dams. But this maysubmerge the land and disrupt thelives of people who are displaced – suchas tribals. They might resent this andmay prefer small check dams or tanksto irrigate their land.

So, two things are quite clear: one,different persons can havedifferent developmental goals andtwo, what may be development forone may not be development forthe other. It may even bedestructive for the other.

A demonstrationmeeting against

raising the heightof Sardar

Sarovar Dam onNarmada River

INCOME AND OTHER GOALS

If you go over Table 1.1 again, youwill notice one common thing: whatpeople desire are regular work, betterwages, and decent price for their cropsor other products that they produce.In other words, they want moreincome.

Besides seeking more income, one-way or the other, people also seekthings like equal treatment, freedom,security, and respect of others. Theyresent discrimination. All these areimportant goals. In fact, in some cases,these may be more important than

more income or more consumptionbecause material goods are not allthat you need to live.

Money, or material things that onecan buy with it, is one factor on whichour life depends. But the quality of ourlife also depends on non-materialthings mentioned above. If it is notobvious to you, then just think of therole of your friends in your life. Youmay desire their friendship. Similarly,there are many things that are noteasily measured but they mean a lotto our lives. These are often ignored.

THOSE PEOPLETHOSE PEOPLETHOSE PEOPLETHOSE PEOPLETHOSE PEOPLEDON’T WANT TO

DEVELOP!


1. Why do different persons have different notions of development? Which of the followingexplanations is more important and why?

(a) Because people are different.

(b) Because life situations of persons are different.

2. Do the following two statements mean the same? Justify your answer.

(a) People have different developmental goals.

(b) People have conflicting developmental goals.

3. Give some examples where factors other than income are important aspects of our lives.

4. Explain some of the important ideas of the above section in your own words.

LET’S WORK THESE OUT

However, it will be wrong to concludethat what cannot be measured is notimportant.

Consider another example. If youget a job in a far off place, beforeaccepting it you would try to considermany factors, apart from income,such as facilities for your family,working atmosphere, or opportunityto learn. In another case, a job maygive you less pay but may offer regularemployment that enhances yoursense of security. Another job,however, may offer high pay but nojob security and also leave no time foryour family. This will reduce yoursense of security and freedom.

Similarly, for development,people look at a mix of goals. It istrue that if women are engaged in paidwork, their dignity in the householdand society increases. However, it isalso the case that if there is respectfor women there would be moresharing of housework and agreater acceptance of womenworking outside. A safe and secureenvironment may allow more womento take up a variety of jobs or runa business.

Hence, the developmental goalsthat people have are not only aboutbetter income but also about otherimportant things in life.

If, as we have seen above, individualsseek different goals, then their notionof national development is also likelyto be different. Discuss amongyourselves on what India should dofor development.

Most likely, you would find thatdifferent students in the class have givendifferent answers to the above question.In fact, you might yourself think ofmany different answers and not be toosure of any of these. It is veryimportant to keep in mind that

different persons could havedifferent as well as conflictingnotions of a country’s development.

However, can all the ideas beconsidered equally important? Or, ifthere are conflicts how does onedecide? What would be a fair and justpath for all? We also have to thinkwhether there is a better way of doingthings. Would the idea benefit a largenumber of people or only a smallgroup? National development meansthinking about these questions.

NATIONAL DEVELOPMENT


Discuss the following situations:

1. Look at the picture on the right. What shouldbe the developmental goals for such an area?

2. Read this newspaper report and answer thequestions that follow:


If even the idea of what constitutesdevelopment can be varied andconflicting, then certainly there can bedifferences about ways of developing. If

you know of any suchcontroversy, try to find out

arguments advanced by differentpeople. You may do so by talking todifferent persons or you may find it fromnewspapers and television.

(i) Who are the people who benefitedand who did not?

(ii) What should be the developmentalgoal for this country?

3. What can be some of the developmental goals for your village, town or locality?

ACTIVITY 1

A vessel dumped 500 tonnes

of liquid toxic wastes into

open-air dumps in a city and

in the surrounding sea. This

happened in a city called

Abidjan in Ivory Coast, a

country in Africa. The fumes

from the highly toxic waste

caused nausea, skin rashes,

fainting, diarrhoea etc. After a

month seven persons were

dead, twenty in hospital and

twenty six thousand treated

for symptoms of poisoning.

A multinational company

dealing in petroleum and

metals had contracted a local

company of the Ivory Coast to

dispose the toxic waste from

its ship.


You might ask — if development canmean different things, how come somecountries are generally calleddeveloped and others under -developed? Before we come to this,let us consider another question.

When we compare different things,they could have similarities as well asdifferences. Which aspects do we useto compare them? Let us look atstudents in the class itself. How dowe compare different students? Theydiffer in their height, health, talentsand interests. The healthiest studentmay not be the most studious one.The most intelligent student may notbe the friendliest one. So, how do wecompare students? The criterion wemay use depends on the purpose ofcomparison. We use different criterionto choose a sports team, a debateteam, a music team or a team toorganise a picnic. Still, if for somepurpose, we have to choose thecriterion for the all-round progress ofchildren in the class, how shall wedo it?

Usually we take one or moreimportant characteristics ofpersons and compare them basedon these characteristics. Ofcourse, there can be differences aboutwhat are important characteristicsthat should form the basis ofcomparison: friendliness and spirit ofcooperation, creativity or markssecured?

This is true of development too.For comparing countries, theirincome is considered to be one ofthe most important attributes.Countries with higher income are

more developed than others with lessincome. This is based on theunderstanding that more incomemeans more of all things that humanbeings need. Whatever people like,and should have, they will be able toget with greater income. So, greaterincome itself is considered to be oneimportant goal.

Now, what is the income of acountry? Intuitively, the income of thecountry is the income of all theresidents of the country. This givesus the total income of the country.

However, for comparison betweencountries, total income is not such anuseful measure. Since, countries havedifferent populations, comparing totalincome will not tell us what an averageperson is likely to earn. Are people inone country better off than others in adifferent country? Hence, we comparethe average income which is the totalincome of the country divided by itstotal population. The average incomeis also called per capita income.

In World Development Report2006, brought out by the WorldBank, this criterion is used inclassifying countries. Countries withper capita income of Rs 4,53,000 perannum and above in 2004, are calledrich countries and those with percapita income of Rs 37,000 or less arecalled low-income countries. Indiacomes in the category of low-incomecountries because its per capitaincome in 2004 was just Rs 28,000per annum. The rich countries,excluding countries of Middle Eastand certain other small countries, aregenerally called developed countries.

HOW TO COMPARE DIFFERENT COUNTRIESOR STATES?


Country

Monthly incomes of citizens in 2007(in Rupees)

I II III IV V Average

Country A 9500 10500 9800 10000 10200

Country B 500 500 500 500 48000

assured of being its fifth citizenbut if it is a lottery that decidesour citizenship number thenperhaps most of us will prefer tolive in country A. Even thoughboth the countries have identicalaverage income, country A ispreferred because it has moreequitable distribution. In thiscountry people are neither veryrich nor extremely poor. On theother hand most citizens incountry B are poor and oneperson is extremely rich. Hence,while average income is usefulfor comparison it does not tell ushow this income is distributedamong people.

1. Give three examples where an average is used for comparing situations.

2. Why do you think average income is an important criterion for development? Explain.

3. Besides size of per capita income, what other property of income is important incomparing two or more societies?

4. Suppose records show that the average income in a country has been increasingover a period of time. From this, can we conclude that all sections of the economyhave become better? Illustrate your answer with an example.

5. From the text, find out the per capita income level of middle-income countries asper WDR 2006.

6. Write a paragraph on your notion of what should India do, or achieve, to become adeveloped country.


Average IncomeAverage IncomeAverage IncomeAverage IncomeAverage IncomeWhile ‘averages’ are useful for comparison, they also hide disparities.

Will you be equally happy to live in both thesecountries? Are both equally developed? Perhapssome of us may like to live in country B if we are

For example, let us consider two countries, A andB. For the sake of simplicity, we have assumedthat they have only five citizens each. Based ondata given in Table 1.2, calculate theaverage income for both the countries.

TABLE 1.2 COMPARISON OF TWOCOUNTRIES

COUNTRY WITH NO RICH AND NO POOR COUNTRY WITH RICH AND POOR

WEMADE THE

CHAIRSAND WE

USETHEM.


WEMADE THE

CHAIRSAND HE

TOOKTHEM.


When we looked at individualaspirations and goals, wefound that people not onlythink of better income butalso have goals such assecurity, respect for others,equal treatment, freedom etc.in mind. Similarly, when wethink of a nation or a region,we may, besides averageincome, think of other equallyimportant attributes.

INCOME AND OTHER CRITERIA

What could these attributes be?Let us examine this through anexample. Table 1.3 gives the per capitaincome of Punjab, Kerala and Bihar.Actually, these figures are of PerCapita Net State Domestic Product atCurrent Prices for 2002-03. Let usignore what this complicated termexactly means. Roughly we can takeit to be per capita income of the state.We find that of the three, Punjab hasthe highest per capita income and

TABLE 1.4 SOME COMPARATIVE DATA ONPUNJAB, KERALA AND BIHAR

TABLE 1.3 PER CAPITA INCOMEOF SELECT STATES

State Per Capita Incomefor 2002-03 (in Rs)

Punjab 26000Kerala 22800Bihar 5700

State Infant Mortality Rate Literacy Rate (%) Net Attendance Ratioper 1,000 (2003) (2001) for Class I-V (1995-96)

Punjab 49 70 81

Kerala 11 91 91

Bihar 60 47 41

Explanation of some of the terms used in this table:

Infant Mortality Rate (or IMR) indicates the number of children that die before the age of oneyear as a proportion of 1000 live children born in that particular year.

Literacy Rate measures the proportion of literate population in the 7 and above age group.

Net Attendance Ratio is the total number of children of age group 6-10 attending school as apercentage of total number of children in the same age group.

Bihar is at the bottom. This meansthat, on an average, a person inPunjab earned Rs 26,000 in one yearwhereas, on an average, a person inBihar would earn only aroundRs 5,500. So, if per capita incomewere to be used as the measure ofdevelopment, Punjab will beconsidered the most developed andBihar the least developed state of thethree. Now, let us look at certain otherdata pertaining to these states givenin Table 1.4.


PUBLIC FACILITIES

What does this table show? Thefirst column of the table shows that inKerala, out of 1000 children born alive11 died before completing one year ofage but in Punjab the proportion ofchildren dying within one year of birthis 49, which is nearly five times more.On the other hand, the per capitaincome of Punjab is much more thanKerala as shown in Table 1.3. Justthink of how dear you are to yourparents, think of how every one is sohappy when a child is born. Now, tryto think of parents whose children diebefore they even celebrate their firstbirthday. How painful it must be tothese parents? Next, note the year towhich this data pertains. It is 2003.So we are not talking of old times; it is56 years after independence when ourmetro towns are full of high-risebuildings and shopping malls!

How is it that the average person inPunjab has more income than theaverage person in Kerala but lagsbehind in these crucial areas? Thereason is — money in your pocketcannot buy all the goods andservices that you may need to livewell. So, income by itself is not acompletely adequate indicator ofmaterial goods and services thatcitizens are able to use. For example,normally, your money cannot buyyou a pollution-free environment orensure that you get unadulteratedmedicines, unless you can afford toshift to a community that already hasall these things. Money may also notbe able to protect you from infectiousdiseases, unless the whole of yourcommunity takes preventive steps.

The problem does not end withInfant Mortality Rate. The last columnshows that more that half of thechildren in Bihar do not even get togo to school. This means that if youwent to school in Bihar more than halfof your class would be missing. Thosewho could have been in school are notthere! If this had happened to you,you would not be able to read whatyou are reading now.

Actually for many of the importantthings in life the best way, also thecheapest way, is to provide these goodsand services collectively. Just think –will it be cheaper to have collectivesecurity for the whole locality or foreach house to have its own securityman? What if no one, other than you,in your village or locality is interestedin studying? Would you be able tostudy? Not unless your parents couldafford to send you to some privateschool elsewhere. So you are actuallyable to study because many otherchildren also want to study andbecause many people believe that thegovernment should open schools andprovide other facilities so that allchildren have a chance to study. Evennow, in many areas, children,

particularly girls, are not able toachieve secondary level schoolingbecause government/society hasnot provided adequate facilities.

Most babies do not get basic health care


ACTIVITY 2

(a) The literacy rate for all age groups, including young and old, is _____ for ruralmales and _____ for rural females. However, it is not just that these manyadults could not attend school but that there are _____ who are currently not inschool.

(b) It is clear from the table that _____ % of rural girls and _____% of rural boys arenot attending school. Therefore, illiteracy among children in the age group 10-14 is as high as _____% for rural females and _____% for rural males.

(c) This high level of illiteracy among __________ age group, even after more than60 years of our independence, is most disturbing. In many other states alsowe are nowhere near realisation of the constitutional goal of free and compulsoryeducation for all children up to the age of 14, which was expected to be achievedby 1960.

Study Table 1.5 carefully and fill in the blanks in the following paragraphs. For this,you may need to make calculations based on the table.

1. Look at data in Table 1.3 and 1.4. Is Punjab ahead of Bihar inliteracy rate etc. as it is in terms of per capita income?

2. Think of other examples where collective provision of goodsand services is cheaper than individual provision.

3. Does availability of good health and educational facilities dependonly on amount of money spent by the government on thesefacilities? What other factors could be relevant?

4. In Tamil Nadu, 75 per cent of the people living in rural areas usea ration shop, whereas in Jharkhand only 8 per cent of ruralpeople do so. Where would people be better off and why?


TABLE 1.5 EDUCATIONAL ACHIEVEMENT OF RURALPOPULATION OF UTTAR PRADESH

Category Male Female

Literacy rate for rural population 52% 19%

Literacy rate for children in age group 10-14 years 68% 39%

Percentage of rural children aged 10-14 attending school 64% 31%

Kerala has a low Infant MortalityRate because it has adequateprovision of basic health andeducational facilities. Similarly, insome states, the Public DistributionSystem (PDS) functions well. If some

PDS shop, i.e. ration shop, does notfunction properly in such places, thepeople there are able to get theproblem rectified. Health andnutritional status of people of suchstates is certainly likely to be better.


HUMANHUMANHUMANHUMANHUMAN DEVELOPMENTDEVELOPMENTDEVELOPMENTDEVELOPMENTDEVELOPMENTREPORTREPORTREPORTREPORTREPORT

Once it is realised that even thoughthe level of income is important, yetit is an inadequate measure of thelevel of development, we begin tothink of other criterion. There couldbe a long list of such criterion butthen it would not be so useful. Whatwe need is a small number of themost important things. Health andeducation indicators, such as theones we used in comparison ofKerala and Punjab, are among them.Over the past decade or so, healthand education indicators have cometo be widely used along with incomeas a measure of development. Forinstance, Human DevelopmentReport published by UNDP comparescountries based on the educationallevels of the people, their healthstatus and per capita income. Itwould be interesting to look atcertain relevant data regarding Indiaand its neighbours from HumanDevelopment Report 2006.

TABLE 1.6 SOME DATA REGARDING INDIA AND ITS NEIGHBOURSFOR 2004

Country Per Capita Life Literacy rate Gross enrolment HDI rank inIncome expectancy for 15+ yrs ratio for three the world in US$ at birth population levels

Sri Lanka 4390 74 91 69 93India 3139 64 61 60 126Myanmar 1027 61 90 48 130Pakistan 2225 63 50 35 134Nepal 1490 62 50 61 138Bangladesh 1870 63 41 53 137

NOTES1. HDI stands for Human Development Index. HDI ranks in above table are out of 177 countries in all.

2. Life expectancy at birth denotes, as the name suggests, average expected length of life of a person atthe time of birth.

3. Gross Enrolment Ratio for three levels means enrolment ratio for primary school, secondary school andhigher education beyond secondary school.

4. Per Capita Income is calculated in dollars for all countries so that it can be compared. It is also done ina way so that every dollar would buy the same amount of goods and services in any country.

ACTIVITY 3One way to find out if adults are undernourished is tocalculate what nutrition scientists call Body MassIndex (BMI). This is easy to calculate. Take the weightof the person in kg. Then take the height in metres.Divide the weight by the square of the height. If thisfigure is less than 18.5 then the person would beconsidered undernourished. However, if this BMI ismore than 25, then a person is overweight. Doremember that this criterion is not applicable to growingchildren.

Let each student in aclass find out the weightand height of three adultpersons of differenteconomic backgroundssuch as constructionworkers, domesticservants, office workers,business-persons etc.Collect the data fromall the students andmake a combined table.Calculate their BMI. Doyou find any relationshipbetween economicbackground of person andher/his nutritional status?


Isn’t it surprising that a smallcountry in our neighbourhood, SriLanka, is much ahead of India in everyrespect and a big country like ourshas such a low rank in the world?Table 1.6 also shows that thoughNepal has half the per capita incomeof India, yet it is not far behind Indiain life expectancy and literacy levels.

Many improvements have beensuggested in calculating HDI andmany new components have been

Whichever way we definedevelopment, suppose for the presentthat a particular country is quitedeveloped. We would certainly like thislevel of development to go up furtheror at least be maintained for futuregenerations. This is obviouslydesirable. However, since the secondhalf of the twentieth century, a numberof scientists have been warning thatthe present type, and levels, ofdevelopment are not sustainable.

Example 1: Groundwater in IndiaExample 1: Groundwater in IndiaExample 1: Groundwater in IndiaExample 1: Groundwater in IndiaExample 1: Groundwater in India“Recent evidence suggests that the groundwater is underserious threat of overuse in many parts of the country. About300 districts have reported a water level decline of over 4 metresduring the past 20 years. Nearly one-third of the country isoverusing their groundwater reserves. In another 25 years,60 per cent of the country would be doing the same if the presentway of using this resource continues. Groundwater overuse isparticularly found in the agriculturally prosperous regions ofPunjab and Western U.P., hard rock plateau areas of centraland south India, some coastal areas and the rapidly growingurban settlements.”

(a) Why ground water is overused?

(b) Can there be development without overuse?

SUSTAINABILITY OF DEVELOPMENT

added to the Human DevelopmentReport but, by pre-fixing Human toDevelopment, it has made it very clearthat what is important indevelopment is what is happening tocitizens of a country. It is people, theirhealth, their well being, that is mostimportant.

Do you think there are certainother aspects that should beconsidered in measuring humandevelopment?

LET’S UNDERSTAND WHY

THIS IS SO THROUGH THE

FOLLOWING EXAMPLE:

“We have not inheritedthe world from ourforefathers — we haveborrowed it from ourchildren.”


Groundwater is an example ofrenewable resources. These resourcesare replenished by nature as in thecase of crops and plants. However,even these resources may beoverused. For example, in the case ofgroundwater, if we use more thanwhat is being replenished by rain thenwe would be overusing this resource.

FOR EXAMPLE, CRUDE OIL THAT WE

EXTRACT FROM THE EARTH IS A NON-

RENEWABLE RESOURCE. HOWEVER WE

MAY FIND A SOURCE OF OIL THAT WE DID

NOT KNOW OF EARLIER. EXPLORATIONS

ARE BEING UNDERTAKEN ALL THE TIME.

Example 2:Example 2:Example 2:Example 2:Example 2: Exhaustion ofExhaustion ofExhaustion ofExhaustion ofExhaustion ofNatural ResourcesNatural ResourcesNatural ResourcesNatural ResourcesNatural Resources

Look at the following data for crude oil.

Region/Country Reserves Number of Years(Billion Tonnes) Reserves will last

Middle East 89 93

United States of America 4 10

World 137 43

The table gives an estimate of reserves of crude oil (column1). Moreimportant, it also tells us for how many years the stock of crude oil willlast if people continue to extract it at the present rate. The reserveswould last only 43 years more. This is for the world as a whole. However,different countries face different situations. Countries like India dependon importing oil from abroad because they do not have enough stocksof their own. If prices of oil increase this becomes a burden for everyone.There are countries like USA which have low reserves and hence wantto secure oil through military or economic power.

The question of sustainability of development raises manyfundamentally new issues about the nature and process of development.

(a) Is crude oil essential for the development process in a country? Discuss.

(b) India has to import crude oil. What problems do you anticipate for thecountry looking at the above situation?

Non-renewable resources are thosewhich will get exhausted after yearsof use. We have a fixed stock on earthwhich cannot be replenished. We dodiscover new resources that we didnot know of earlier. New sources inthis way add to the stock. However,over time, even this will get exhausted.

TABLE 1.7 CRUDE OIL RESERVES

EXERCISES

1. Development of a country can generally be determined by

(i) its per capita income

(ii) its average literacy level

(iii) health status of its people

(iv) all the above

2. Which of the following neighbouring countries has better performance in terms ofhuman development than India?

(i) Bangladesh

(ii) Sri Lanka

(iii) Nepal

(iv) Pakistan

3. Assume there are four families in a country. The average per capita income ofthese families is Rs 5000. If the income of three families is Rs 4000, Rs 7000and Rs 3000 respectively, what is the income of the fourth family?

(i) Rs 7500

(ii) Rs 3000

(iii) Rs 2000

(iv) Rs 6000

4. What is the main criterion used by the World Bank in classifying differentcountries? What are the limitations of this criterion, if any?

5. In what respects is the criterion used by the UNDP for measuring developmentdifferent from the one used by the World Bank?

6. Why do we use averages? Are there any limitations to their use? Illustrate withyour own examples related to development.

7. Kerala, with lower per capita income has a better human development rankingthan Punjab. Hence, per capita income is not a useful criterion at all and shouldnot be used to compare states. Do you agree? Discuss.

8. Find out present sources of energy used by people in India. What could bepossibilities fifty years from now?

9. Why is the issue of sustainability important for development?

Consequences of environmentaldegradation do not respect nationalor state boundaries; this issue isno longer region or nation specific.Our future is linked together.Sustainability of development iscomparatively a new area ofknowledge in which scientists,economists, philosophers and other

social scientists are workingtogether.

In general, the question ofdevelopment or progress is perennial.At all times as a member of societyand as individuals we need to askwhere we want to go, what we wish tobecome and what our goals are. Sothe debate on development continues.


10. “The Earth has enough resources to meet the needs of all but not enough tosatisfy the greed of even one person”. How is this statement relevant to thedisscusion of development? Discuss.

11. List a few examples of environmental degradation that you may have observedaround you.

12. For each of the items given in Table 1.6, find out which country is at the top andwhich is at the bottom.

13. The following table shows the proportion of undernourished adults in India. It isbased on a survey of various states for the year 2001. Look at the table andanswer the following questions.

State Male Female(%) (%)

Kerala 22 19

Karnataka 36 38

Madhya Pradesh 43 42

All States 37 36


(i) Compare the nutritional level of people in Kerala and Madhya Pradesh.

(ii) Can you guess why around 40 per cent of people in the country areundernourished even though it is argued that there is enough food in thecountry? Describe in your own words.

ADDITIONAL PROJECT / ACTIVITY

Invite three different speakers to talk to you about the development of your region. Askthem all the questions that come to your mind. Discuss these ideas in groups. Eachgroup should prepare a wall chart, giving reasons about ideas that you agree or donot agree with.

NOTES FOR THE TEACHER

CHAPTER 2: SECTORS OF THE INDIAN ECONOMY

An economy is best understood when westudy its components or sectors. Sectoralclassification can be done on the basis ofseveral criteria. In this chapter, threetypes of classifications are discussed:primary/secondary/tertiary; organised/unorganised; and public/private. You cancreate a discussion about these types bytaking examples familiar to the studentsand relate them to their daily life. It isimportant to emphasise the changingroles of sectors. This can be highlightedfurther by drawing attention of thestudents to the rapid growth of servicesector. While elaborating the ideasprovided in the chapter, the students mayneed to be familiarised with a fewfundamental concepts such as GrossDomestic Product, Employment etc. Sincethe students may find this difficult tounderstand, it is necessary to explain tothem through examples. Several activitiesand exercises are suggested in the chapterto help the students understand how aperson’s activity could be placed —whether in the primary, secondary ortertiary, organised or unorganised, andpublic or private sector. You mayencourage the students to talk to variousworking people around them (such asshop owners, casual workers, vegetablevendors, workshop mechanics, domesticworkers etc.) to know more about how theylive and work. Based on such information,the students can be encouraged to developtheir own classification of economicactivities.

Another important issue to behighlighted is about the problems causedby the changes in the roles of sectors.The chapter has taken the example ofunemployment and what the governmentcan do to solve it. The declining importance

of agriculture and growing importance ofindustry and services should be relatedto the experience of the children by takingmore examples that they may observe intheir day-to-day life. Information derivedfrom the media could be used for thispurpose. You may encourage the studentsto bring important cuttings and storiesfrom newspapers, which could beprominently displayed in storyboards, andencourage the class to discuss theseissues. While discussing the unorganisedsector, the key issue of protecting theworkers engaged in the sector should behighlighted. You may also encourage thestudents to visit persons and enterprisesin the unorganised sector and get a firsthand experience from real life situation.

Sources for InformationThe GDP data used in this chapterpertaining to Gross Domestic Product atFactor Cost by Industry of Origin at1993-94 prices is taken from EconomicSurvey. It is a valuable source of GDP andother information relating to the Indianeconomy. For evaluation purposes,particularly to develop the analytical abilityof learners, teachers can refer to EconomicSurvey to get data for different years.

The employment figures are based ondata taken from the five-yearly surveyson employment and unemploymentconducted by the National Sample SurveyOrganisation (NSSO). NSSO is anorganisation under the Ministry ofStatistics, Planning and ProgrammeImplementation, Government of India.The website you can log onto is:http:/mospi.nic.in. Employment data is alsoavailable from other sources such asCensus of India.

UUUUUNDERSTNDERSTNDERSTNDERSTNDERSTANDINGANDINGANDINGANDINGANDING E E E E ECONOMICCONOMICCONOMICCONOMICCONOMIC D D D D DEVELEVELEVELEVELEVELOPMENTOPMENTOPMENTOPMENTOPMENT1818181818

SECTORSOF THE INDIAN ECONOMY

CHAPTER 2

SECTORS OF ECONOMIC ACTIVITIES

Let us look at these pictures. You will find that people areengaged in various economic activities. Some of these areactivities producing goods. Some others are producingservices. These activities are happening around us everyminute even as we speak. How do we understand theseactivities? One way of doing this is to group them (classifythem) using some important criterion. These groups are alsocalled sectors. There could be several ways of classificationdepending on the purpose and what one thinks is animportant criterion.


There are many activities that areundertaken by directly usingnatural resources. Take, forexample, the cultivation of cotton. Ittakes place within a crop season. Forthe growth of the cotton plant, wedepend mainly, but not entirely,on natural factors like rainfall,sunshine and climate. The productof this activity, cotton, is a naturalproduct. Similarly, in the case of anactivity like dairy, we are dependent

on the biological process ofthe animals and availabilityof fodder etc. The producthere, milk, also is a naturalproduct. Similarly, mineralsand ores are also naturalproducts. When we producea good by exploiting naturalresources, it is an activity ofthe primary sector. Whyprimary? This is because itforms the base for allother products that wesubsequently make. Sincemost of the naturalproducts we get are fromagriculture, dairy, fishing,forestry, this sector is also

called agriculture and relatedsector.

The secondary sector coversactivities in which natural productsare changed into other forms throughways of manufacturing that weassociate with industrial activity. It isthe next step after primary. Theproduct is not produced by naturebut has to be made and thereforesome process of manufacturing isessential. This could be in a factory, aworkshop or at home. For example,using cotton fibre from the plant, we

spin yarn and weave cloth. Usingsugarcane as a raw material, we makesugar or gur. We convert earth intobricks and use bricks to make housesand buildings. Since this sectorgradually became associated with thedifferent kinds of industries that cameup, it is also called as industrial sector.

After primary and secondary, thereis a third category of activities that fallsunder tertiary sector and is differentfrom the above two. These areactivities that help in the developmentof the primary and secondary sectors.These activities, by themselves, do notproduce a good but they are an aidor a support for the productionprocess. For example, goods that areproduced in the primary or secondarysector would need to be transportedby trucks or trains and then sold inwholesale and retail shops. At times,it may be necessary to store these ingodowns. We also may need to talk toothers over telephone or send letters(communication) or borrow moneyfrom banks (banking) to helpproduction and trade. Transport,storage, communication, banking,trade are some examples of tertiaryactivities. Since these activitiesgenerate services rather than goods,the tertiary sector is also called theservice sector.

Service sector also includes someessential services that may not directlyhelp in the production of goods. Forexample, we require teachers, doctors,and those who provide personalservices such as washermen, barbers,cobblers, lawyers, and people to doadministrative and accounting works.In recent times, certain new servicesbased on information technology suchas internet cafe, ATM booths, callcentres, software companies etc havebecome important.

Tertiary(Service)

Sector

Primary(Agriculture)

Sector

Secondary(Industrial)

Sector

producesnaturalgoods

producesmanufactured

goods

helps developother sectors

We begin by looking at different

kind of economic activities.

SSSSSECTORSECTORSECTORSECTORSECTORS OFOFOFOFOF THETHETHETHETHE I I I I INDIANNDIANNDIANNDIANNDIAN E E E E ECONOMYCONOMYCONOMYCONOMYCONOMY 2121212121

EXAMPLE

Imagine what would happen if farmersrefuse to sell sugarcane to a particularsugar mill. The mill will have to shutdown.

Imagine what would happen to cottoncultivation if companies decide not tobuy from the Indian market and importall cotton they need from othercountries. Indian cotton cultivation willbecome less profitable and the farmersmay even go bankrupt, if they cannotquickly switch to other crops. Cottonprices will fall.

Farmers buy many goods such astractors, pumpsets, electricity,pesticides and fertilisers. Imagine whatwould happen if the price of fertilisersor pumpsets go up. Cost of cultivationof the farmers will rise and their profitswill be reduced.

People working in industrial and servicesector need food. Imagine what wouldhappen if there is a strike bytransporters and lorries refuse to takevegetables, milk, etc. from rural areas.Food will become scarce in urban areaswhereas farmers will be unable to selltheir products.

1. Complete the above table to show how sectors are dependent on each other.

2. Explain the difference between primary, secondary and tertiary sectors usingexamples other than those mentioned in the text.

3. Classify the following list of occupations under primary, secondary and tertiary sectors:


WHAT DOES THIS SHOW?

This is an example of the secondary orindustrial sector being dependent onthe primary.

• Tailor• Basket weaver• Flower cultivator• Milk vendor• Fishermen• Priest• Courier

• Workers in match factory• Money lender• Gardener• Potter• Bee-keeper• Astronaut• Call centre employee

4. Students in a school are often classified into primary and secondary or junior andsenior. What is the criterion that is used? Do you think this is a useful classification?Discuss.

TABLE 2.1 EXAMPLES OF ECONOMIC ACTIVITIES

Economic activities, though, are grouped into three different categories,

are highly interdependent. Let us look at some examples.


The various production activities in the primary, secondaryand tertiary sectors produce a very large number of goodsand services. Also, the three sectors have a large number ofpeople working in them to produce these goods and services.The next step, therefore, is to see how much goods and servicesare produced and how many people work in each sector. Inan economy there could be one or more sectors which aredominant in terms of total production and employment, whileother sectors are relatively small in size.

How do we count the various goods andservices and know the total production ineach sector?

With so many thousands of goods and services produced,you might think this is an impossible task! Not only wouldthe task be enormous, you might also wonder how we canadd up cars and computers and nails and furniture. It won’tmake sense!!!

You are right in thinking so. To get around this problem,economists suggest that the values of goods and servicesshould be used rather than adding up the actual numbers.For example, if 10,000 kgs of wheat is sold at Rs 8 per kg,the value of wheat will be Rs 80,000. The value of 5000coconuts at Rs 10 per piece will be Rs 50,000. Similarly,the value of goods and services in the three sectors arecalculated, and then added up.

Remember, there is one precaution one has to take. Notevery good (or service) that is produced and sold needs to becounted. It makes sense only to include the final goods andservices. Take, for instance, a farmer who sells wheat to aflour mill for Rs 8 per kg. The mill grinds the wheat and sellsthe flour to a biscuit company for Rs 10 per kg. The biscuitcompany uses the flour and things such as sugar and oil tomake four packets of biscuits. It sells biscuits in the marketto the consumers for Rs 60 (Rs 15 per packet). Biscuits arethe final goods, i.e., goods that reach the consumers.

Why are only ‘final goods and services’ counted? Incontrast to final goods, goods such as wheat and the wheatflour in this example are intermediate goods. Intermediategoods are used up in producing final goods and services.The value of final goods already includes the value of allthe intermediate goods that are used in making the finalgood. Hence, the value of Rs 60 for the biscuits (final good)already includes the value of flour (Rs 10). Similarly, the

COMPARING THE THREE SECTORS

...BUT I SHOULD BE PAID THEFULL VALUE OF THE WHEAT

THAT I PRODUCE !


value of all other intermediate goodswould have been included. To countthe value of the flour and wheatseparately is therefore not correctbecause then we would be countingthe value of the same things a numberof times. First as wheat, then as flourand finally as biscuits.

The value of final goods andservices produced in each sectorduring a particular year providesthe total production of the sectorfor that year. And the sum ofproduction in the three sectors giveswhat is called the Gross DomesticProduct (GDP) of a country. It is thevalue of all final goods and servicesproduced within a country during aparticular year. GDP shows how bigthe economy is.

In India, the mammoth task ofmeasuring GDP is undertaken by acentral government ministry. ThisMinistry, with the help of variousgovernment departments of all theIndian states and union territories,collects information relating to totalvolume of goods and services and theirprices and then estimates the GDP.

Historical Change in SectorsGenerally, it has been noted from thehistories of many, now developed,countries that at initial stages ofdevelopment, primary sector was themost important sector of economicactivity.

As the methods of farmingchanged and agriculture sector beganto prosper, it produced much morefood than before. Many people couldnow take up other activities. Therewere increasing number of craft-persons and traders. Buying andselling activities increased many times.Besides, there were also transporters,

administrators, army etc. However, atthis stage, most of the goods producedwere natural products from theprimary sector and most people werealso employed in this sector.

Over a long time (more thanhundred years), and especiallybecause new methods ofmanufacturing were introduced,factories came up and startedexpanding. Those people who hadearlier worked on farms now beganto work in factories in large numbers.People began to use many moregoods that were produced in factoriesat cheap rates. Secondary sectorgradually became the most importantin total production and employment.Hence, over time, a shift had takenplace. This means that the importanceof the sectors had changed.

In the past 100 years, there hasbeen a further shift from secondary totertiary sector in developed countries.The service sector has become the mostimportant in terms of total production.Most of the working people are alsoemployed in the service sector. This isthe general pattern observed indeveloped countries.

What is the total production andemployment in the three sectors inIndia? Over the years have there beenchanges similar to the patternobserved for the developed countries?We shall see in the next section.

1. What does the history of developed countries indicateabout the shifts that have taken place between sectors?

2. Correct and arrange the important aspects for calculatingGDP from this Jumble.

To count goods and services we add the numbers thatare produced. We count all those that was produced inthe last five years. Since we shouldn’t leave out anythingwe add up all these goods and services.



Graph 1 shows theproduction of goodsand services in thethree sectors. Thisis shown for twoyears, 1973 and2003. You can seehow the totalproduction hasgrown over thethirty years.

PRIMARY, SECONDARY AND TERTIARYSECTORS IN INDIA

Answer the following questions bylooking at the graph:

1. Which was the largest producingsector in 1973?

2. Which is the largest producingsector in 2003?

3. Can you say which sector hasgrown the most over thirty years?

4. What was the GDP of India in 2003?

LET’S WORK THESEOUT

Rising Importance of theTertiary Sector in ProductionOver the thirty years between 1973and 2003, while production in all thethree sectors has increased, it hasincreased the most in the tertiarysector. As a result, in the year 2003,the tertiary sector has emerged as thelargest producing sector in Indiareplacing the primary sector.

Why is the tertiary sector becomingso important in India? There could beseveral reasons.

First, in any country severalservices such as hospitals,educational institutions, post andtelegraph services, police stations,courts, village administrative offices,municipal corporations, defence,transport, banks, insurancecompanies, etc. are required. Thesecan be considered as basic services.In a developing country thegovernment has to take responsibilityfor the provision of these services.

Second, the development ofagriculture and industry leads to thedevelopment of services such as

210000200000190000180000170000160000150000140000130000120000110000100000

900008000070000600005000040000300002000010000

0

Tertiary sector

Secondary sector

Primary sector

Graph 1 : GDP by Primary, Secondary andTertiary Sectors

1973 2003

Ru

pe

es

(C

rore

)

What does the comparison

between 1973 and 2003 show?

What conclusions can we draw

from the comparison?

Let’s find out.


transport, trade, storage and the like,as we have already seen. Greater thedevelopment of the primary andsecondary sectors, more would be thedemand for such services.

Third, as income levels rise, certainsections of people start demandingmany more services like eating out,tourism, shopping, private hospitals,private schools, professional trainingetc. You can see this change quitesharply in cities, especially in big cities.

Fourth, over the past decade or so,certain new services such asthose based on information andcommunication technology havebecome important and essential. Theproduction of these services has beenrising rapidly. In Chapter 4, we shallsee examples of these new servicesand the reasons for their expansion.

However, you must remember thatnot all of the service sector is growingequally well. Service sector in Indiaemploys many different kinds ofpeople. At one end there are a limitednumber of services that employ highlyskilled and educated workers. At theother end, there are a very largenumber of workers engaged inservices such as small shopkeepers,repair persons, transport persons,etc. These people barely manage toearn a living and yet they performthese services because no alternativeopportunities for work are availableto them. Hence, only a part of thissector is growing in importance. Youshall read more about this in the nextsection.

Where are most of the peopleemployed?Graph 2 presents percentage share ofthe three sectors in GDP. Now you candirectly see the changing importanceof the sectors over the thirty years.

100%90%80%70%60%50%40%30%20%10%

0%

Tertiary sector

Secondary sector

Primary sector

Graph 2 : Share of Sectors in GDP (%)

1973 2003

A remarkable fact about India isthat while there has been a changein the share of the three sectors inGDP, a similar shift has not takenplace in employment. Graph 3shows the share of employment inthe three sectors in 1973 and 2000.The primary sector continues to bethe largest employer even in theyear 2000.

Why didn’t a similar shift out ofprimary sector happen in case ofemployment? It is because notenough jobs were created in thesecondary and tertiary sectors. Even

100%90%80%70%60%50%40%30%20%10%

0%

Tertiary sector

Secondary sector

Primary sector

Graph 3 : Share of Sectors in Employment (%)

1973 2000

Em

plo

ymen

tG

DP


though industrial output or theproduction of goods went up byeight times during the period,employment in the industry wentup by only 2.5 times. The sameapplies to tert iary sector aswell. While production in the servicesector rose by 11 times, employmentin the service sector rose less thanthree times.

As a result, more than half of theworkers in the country are workingin the primary sector, mainly inagriculture, producing only aquarter of the GDP. In contrast tothis, the secondary and tertiarysectors produce three-fourth of theproduce whereas they employ lessthan half the people. Does this meanthat the workers in agriculture arenot producing as much as theycould?

What it means is that there aremore people in agriculture than isnecessary. So, even if you move a fewpeople out, production will not beaffected. In other words, workers inagricultural sector are under-employed.

For instance, take the case of asmall farmer, Laxmi , owning abouttwo hectares of unirrigated landdependent only on rain andgrowing crops like jowar and arhar.All five members of her family workin the plot throughout the year.Why? They have nowhere else to gofor work. You will see that everyoneis working, none remains idle, butin actual fact their labour effortgets divided. Each one is doingsome work but no one is fullyemployed. This is the situation ofunderemployment, where peopleare apparently working but allof them are made to work lessthan their potential. This kind of

underemployment is hidden incontrast to someone who does nothave a job and is clearly visible asunemployed. Hence, it is alsocalled disguised unemployment.

Now, supposing a landlord,Sukhram, comes and hires one ortwo members of the family to workon his land. Laxmi’s family is nowable to earn some extra incomethrough wages. Since you do notneed five people to look after thatsmall plot, two people moving outdoes not affect production on theirfarm. In the above example, twopeople may move to work in afactory. Once again the earnings ofthe family would increase and theywould also continue to produce asmuch from their land.

There are lakhs of farmers likeLaxmi in India. This means that evenif we remove a lot of people fromagricultural sector and provide themwith proper work elsewhere,agricultural production will notsuffer. The incomes of the people whotake up other work would increasethe total family income.

This underemployment can alsohappen in other sectors. Forexample there are thousands ofcasual workers in the servicesector in urban areas who searchfor daily employment. They areemployed as painters, plumbers,repair persons and others doingodd jobs. Many of them don’t findwork everyday. Similarly, we seeother people of the service sectoron the street pushing a cart orselling something where they mayspend the whole day but earnvery little. They are doing thiswork because they do not havebetter opportunities.


How to Create MoreEmployment?From the above discussion, we can seethat there continues to be considerableunderemployment in agriculture.There are also people who are notemployed at all. In what ways can oneincrease employment for people? Letus look at some of them.

Take the case of Laxmi with hertwo-hectare plot of un-irrigated land.The government can spend somemoney or banks can provide a loan,to construct a well for her family toirrigate the land. Laxmi will then beable to irrigate her land and take asecond crop, wheat, during the rabiseason. Let us suppose that onehectare of wheat can provideemployment to two people for 50 days(including sowing, watering, fertiliser


TABLE 2.2 SHARE OF PRIMARY SECTOR INGDP AND EMPLOYMENT

1973 2000 or 2003

Share in GDP

Share in employment

1. Complete the table using the data given in Graphs 2 and 3 and answer the questionthat follows.

What are the changes that you observe in the primary sector over a span of thirtyyears?

2. Choose the correct answer:

Underemployment occurs when people

(i) do not want to work

(ii) are working in a lazy manner

(iii) are working less than what they are capable of doing

(iv) are not paid for their work

3. Compare and contrast the changes in India with the pattern that was observed fordeveloped countries. What kind of changes between sectors were desired but didnot happen in India?

4. Why should we be worried about underemployment?

application and harvesting). So, twomore members of the family can beemployed in her own field. Nowsuppose a new dam is constructedand canals are dug to irrigate manysuch farms. This could lead to a lot ofemployment generation within theagricultural sector itself reducing theproblem of underemployment.

Now, suppose Laxmi and otherfarmers produce much more thanbefore. They would also need to sell someof this. For this they may be required totransport their products to a nearbytown. If the government invests somemoney in transportation and storage ofcrops, or makes better rural roads sothat mini-trucks reach everywhereseveral farmers like Laxmi, who nowhave access to water, can continue togrow and sell these crops. This activitycan provide productive employment tonot just farmers but also others such asthose in services like transport or trade.

Laxmi’s need is not confined towater alone. To cultivate the land, shealso needs seeds, fertilisers,agricultural equipments andpumpsets to draw water. Being a poorfarmer, she cannot afford many ofthese. So she will have to borrow moneyfrom moneylenders and pay a high

rate of interest. If the local bank givesher credit at a reasonable rate ofinterest, she will be able to buy all thesein time and cultivate her land. Thismeans that along with water, we alsoneed to provide cheap agriculturalcredit to the farmers for farming toimprove. We will look at some of theseneeds in Chapter 3, Money and Credit.

Another way by which we cantackle this problem is to identify,promote and locate industries andservices in semi-rural areas where alarge number of people may beemployed. For instance, supposemany farmers decide to grow arharand chickpea (pulse crops). Settingup a dal mill to procure and processthese and sell in the cities is one suchexample. Opening a cold storage couldgive an opportunity for farmers tostore their products like potatoes andonions and sell them when the priceis good. In villages near forest areas,we can start honey collection centreswhere farmers can come and sell wildhoney. It is also possible to set upindustries that process vegetables andagricultural produce like potato,sweet potato, rice, wheat, tomato,fruits, which can be sold in outsidemarkets. This will provideemployment in industries located insemi-rural areas and not necessarilyin large urban centres.

Do you know that in India thereare about 200 million children in theschool-going age group? Out of this,only about two-thirds are attending

What groups of people doyou think are unemployedor underemployed in yourarea? Can you think ofsome measures that couldbe taken up for them?

Gur Making inHaryana


to Work in 200 districts of India. Itis called National RuralEmployment Guarantee Act 2005(NREGA 2005). Under NREGA 2005,all those who are able to, andare in need of, work have beenguaranteed 100 days of employmentin a year by the government. If thegovernment fails in its duty toprovide employment, it will giveunemployment allowances to thepeople. The types of work that wouldin future help to increase theproduction from land will be givenpreference under the Act.

schools. The rest are not— they maybe at home or many of them may beworking as child labourers. If thesechildren are to attend schools, we willrequire more buildings, more teachersand other staff. A study conducted bythe Planning Commission estimatesthat nearly 20 lakh jobs can becreated in the education sector alone.Similarly, if we are to improve thehealth situation, we need many moredoctors, nurses, health workers etc.to work in rural areas. These are someways by which jobs would be createdand we would also be able to addressthe important aspects of developmenttalked about in Chapter 1.

Every state or region has potentialfor increasing the income andemployment for people in that area.It could be tourism, or regional craftindustry, or new services like IT. Someof these would require properplanning and support from thegovernment. For example, the samestudy by the Planning Commissionsays that if tourism as a sector isimproved, every year we can giveadditional employment to more than35 lakh people.

We must realise that some of thesuggestions discussed above wouldtake a long time to implement. Forthe short-term, we need some quickmeasures. Recognising this, thecentral government in India recentlymade a law implementing the Right

1. Why do you think NREGA 2005 is referred to as ‘ Right to work’ ?

2. Imagine that you are the village head. In that capacity suggest some activities thatyou think should be taken up under this Act that would also increase the income ofpeople? Discuss.

3. How would income and employment increase if farmers were provided with irrigationand marketing facilities?

4. In what ways can employment be increased in urban areas?



Let us examine another way of classifying activities in the economy. This looksat the way people are employed. What are their conditions of work? Are thereany rules and regulations that are followed as regards their employment?

organised because it has some formalprocesses and procedures. Some ofthese people may not be employed byanyone but may work on their ownbut they too have to registerthemselves with the government andfollow the rules and regulations.

Workers in the organised sectorenjoy security of employment. Theyare expected to work only a fixednumber of hours. If they work more,they have to be paid overtime by theemployer. They also get several otherbenefits from the employers. What are

Kanta works in the organisedsector. Organised sector covers thoseenterprises or places of work wherethe terms of employment are regularand therefore, people have assuredwork. They are registered by thegovernment and have to follow itsrules and regulations which aregiven in various laws such as theFactories Act, Minimum Wages Act,Payment of Gratuity Act, Shops andEstablishments Act etc. It is called

DIVISION OF SECTORS AS ORGANISED ANDUNORGANISED

KantaKantaKantaKantaKantaKanta works in an office. She attends her office from

9.30 a.m. to 5.30 p.m. She gets her salary regularly

at the end of every month. In addition to the salary,

she also gets provident fund as per the rules laid

down by the government. She also gets medical and

other allowances. Kanta does not go to office on

Sundays. This is a paid holiday. When she joined

work, she was given an appointment letter stating

all the terms and conditions of work.

KamalKamalKamalKamalKamalKamal is Kanta’s neighbour. He is adaily wage labourer in a nearbygrocery shop. He goes to the shop at7:30 in the morning and works till 8:00p.m. in the evening. He gets no otherallowances apart from his wages. Heis not paid for the days he does notwork. He has therefore no leave or paidholidays. Nor was he given any formalletter saying that he has beenemployed in the shop. He can be askedto leave anytime by his employer.

Do you see the differences in

the conditions of work

between Kanta and Kamal?


these benefits? They get paid leave,payment during holidays, providentfund, gratuity etc. They are supposedto get medical benefits and, under thelaws, the factory manager has toensure facilities like drinking waterand a safe working environment.When they retire, these workers getpensions as well.

In contrast, Kamal works in theunorganised sector. The unorganisedsector is characterised by small andscattered units which are largelyoutside the control of the government.There are rules and regulations butthese are not followed. Jobs here are

low-paid and often not regular. Thereis no provision for overtime, paidleave, holidays, leave due to sicknessetc. Employment is not secure. Peoplecan be asked to leave without anyreason. When there is less work, suchas during some seasons, some peoplemay be asked to leave. A lot alsodepends on the whims of theemployer. This sector includes a largenumber of people who are employedon their own doing small jobs suchas selling on the street or doing repairwork. Similarly, farmers work on theirown and hire labourers as and whenthey require.

1. Look at the following examples. Which of these are unorganised sector activities?

(i) A teacher taking classes in a school

(ii) A headload worker carrying a bag of cement on his back in a market

(iii) A farmer irrigating her field

(iv) A doctor in a hospital treating a patient

(v) A daily wage labourer working under a contractor

(vi) A factory worker going to work in a big factory

(vii) A handloom weaver working in her house

2. Talk to someone who has a regular job in the organised sector and another who works in the unorganisedsector. Compare and contrast their working conditions in all aspects.

3. How would you distinguish between organised and unorganised sectors? Explain in your own words.

4. The table below shows the estimated number of workers in India in the organised and unorganisedsectors. Read the table carefully. Fill in the missing data and answer the questions that follow.


· What is the percentage of people in the unorganised sector in agriculture?

· Do you agree that agriculture is an unorganised sector activity? Why?

· If we look at the country as a whole, we find that ———% of the workers in India are in theunorganised sector. Organised sector employment is available to only about ———% of theworkers in India.

Sector Organised Unorganised Total

Primary 2 242

Secondary 9 54 63

Tertiary 17 76 93

Total 28

Total in Percentage 100%

TABLE 2.3 WORKERS IN DIFFERENT SECTORS (IN MILLIONS)


How to Protect Workers inthe Unorganised Sector?The organised sector offers jobs thatare the most sought-after. But theemployment opportunities in theorganised sector have been expandingvery slowly. It is also common to findmany organised sector enterprises inthe unorganised sector. They adoptsuch strategies to evade taxes andrefuse to follow laws that protectlabourers. As a result, a large numberof workers are forced to enter theunorganised sector jobs, which pay avery low salary. They are oftenexploited and not paid a fair wage.Their earnings are low and notregular. These jobs are not secure andhave no other benefits.

Since the 1990s, it is also commonto see a large number of workerslosing their jobs in the organisedsector. These workers are forced totake up jobs in the unorganisedsector with low earnings. Hence,besides the need for more work, thereis also a need for protection andsupport of the workers in theunorganised sector.

Who are these vulnerable peoplewho need protection? In the ruralareas, the unorganised sector mostlycomprises of landless agriculturallabourers, small and marginalfarmers, sharecroppers and artisans(such as weavers, blacksmiths,carpenters and goldsmiths). Nearly80 per cent of rural households inIndia are in small and marginalfarmer category. These farmers needto be supported through adequatefacility for timely delivery of seeds,agricultural inputs, credit, storagefacilities and marketing outlets.

In the urban areas, unorganisedsector comprises mainly of workers insmall-scale industry, casual workersin construction, trade and transportetc., and those who work as streetvendors, head load workers, garmentmakers, rag pickers etc. Small-scaleindustry also needs government’ssupport for procuring raw materialand marketing of output. The casualworkers in both rural and urbanareas need to be protected.

We also find that majority ofworkers from scheduled castes, tribes

and backward communitiesfind themselves in theunorganised sector. Besidesgetting the irregular and lowpaid work, these workers alsoface social discrimination.Protection and support tothe unorganised sectorworkers is thus necessaryfor both economic andsocial development.

When factories close down, manyonce regular workers are foundselling goods or pushing a cart ordoing some other odd job


Sector Criteria used Most important Problems indicated andconclusion how they can be tackled

Primary, NatureSecondary, of activityTertiary

Organised,Unorganised

LET’S RECALLWith so many activities taking place around us, one needs to use theprocess of classification to think in a useful manner. The criterion forclassification could be many depending on what we desire to find out.The process of classification helps to analyse a situation.

In dividing the economic activities into three sectors — primary,secondary, tertiary — the criterion used was the ‘nature of activity’. Onthe basis of this classification, we were able to analyse the pattern of totalproduction and employment in India. Similarly, we divided the economicactivities into organised and unorganised and used the classification tolook at employment in the two sectors.

What was the most important conclusion that was derived from theclassification exercises? What were the problems and solutions that wereindicated? Can you summarise the information in the following table?

TABLE 2.4 CLASSIFYING ECONOMIC ACTIVITIES

Another way of classifying economicactivities into sectors could be on thebasis of who owns assets and isresponsible for the delivery of services.In the public sector, the governmentowns most of the assets and providesall the services. In the private sector,ownership of assets and delivery ofservices is in the hands of privateindividuals or companies. Railways orpost office is an example of the publicsector whereas companies like TataIron and Steel Company Limited(TISCO) or Reliance IndustriesLimited (RIL) are privately owned.

Activities in the private sector areguided by the motive to earn profits.

To get such services we have to paymoney to these individuals andcompanies. The purpose of the publicsector is not just to earn profits.Governments raise money throughtaxes and other ways to meet expenseson the services rendered by it. Modernday governments spend on a wholerange of activities. What are theseactivities? Why do governments spendon such activities? Let’s find out.

There are several things needed bythe society as a whole but which theprivate sector will not provide ata reasonable cost. Why? Some ofthese need spending large sums ofmoney, which is beyond the capacity

SECTORS IN TERMS OF OWNERSHIP: PUBLICAND PRIVATE SECTORS


of the private sector. Also, collectingmoney from thousands of people whouse these facilities is not easy. Even ifthey do provide these things theywould charge a high rate for theiruse. Examples are construction ofroads, bridges, railways, harbours,generating electricity, providingirrigation through dams etc. Thus,governments have to undertake suchheavy spending and ensure thatthese facilities are available foreveryone.

There are some activities, whichthe government has to support. Theprivate sector may not continue theirproduction or business unlessgovernment encourages it. Forexample, selling electricity at the costof generation may push up the costsof production of industries. Manyunits, especially small-scale units,might have to shut down. Governmenthere steps in by producing and sup-plying electricity at rates which theseindustries can afford. Governmenthas to bear part of the cost.

Similarly, the government in Indiabuys wheat and rice from farmers ata ‘fair price’. This it stores in itsgodowns and sells at a lower price toconsumers through ration shops. Youhave read about this in the chapteron Food Security in Class IX. Thegovernment has to bear some of the

cost. In this way, the governmentsupports both farmers andconsumers.

There are a large number ofactivities which are the primaryresponsibility of the government. Thegovernment must spend on these.Providing health and educationfacilities for all is one example. Wehave discussed some of these issuesin the first chapter. Running properschools and providing qualityeducation, particularly elementaryeducation, is the duty of thegovernment. India’s size of illiteratepopulation is one of the largest in theworld.

Similarly, we know that nearly halfof India’s children are malnourishedand a quarter of them are critically ill.We have read about Infant MortalityRates. The infant mortality rate ofOrissa (87) or Madhya Pradesh (85)is higher than that of the poorestregions of the world such as theAfrican countries. Government alsoneeds to pay attention to aspects ofhuman development such asavailability of safe drinking water,housing facilities for the poor and foodand nutrition. It is also the duty ofthe government to take care of thepoorest and most ignored regions ofthe country through increasedspending in such areas.

SUMMING UPIn this chapter we have looked at ways ofclassifying economic activities into somemeaningful groups. One way of doing thisis to examine whether the activity relates tothe primary, secondary or tertiary sectors.The data for India, for the last thirty years,shows that while goods and servicesproduced in the tertiary sector contributethe most to GDP, the employment remainsin the primary sector. We have also seen

what all can be done for increasingemployment opportunities in the country.Another classification is to consider whetherpeople are working in organised orunorganised sectors. Most people areworking in the unorganised sectors andprotection is necessary for them. We alsolooked at the difference between private andpublic activities, and why it is important forpublic activities to focus on certain areas.

1. Fill in the blanks using the correct option given in the bracket:

(i) Employment in the service sector _________ increased to the same extentas production. (has / has not)

(ii) Workers in the _________ sector do not produce goods.(tertiary / agricultural)

(iii) Most of the workers in the _________ sector enjoy job security.(organised / unorganised)

(iv) A _________ proportion of labourers in India are working in the unorganisedsector. (large / small)

(v) Cotton is a _________ product and cloth is a _________ product.[natural /manufactured]

(vi) The activities in primary, secondary and tertiary sectors are_________[independent / interdependent]

2. Choose the most appropriate answer.

(a) The sectors are classified into public and private sector on the basis of:

(i) employment conditions

(ii) the nature of economic activity

(iii) ownership of enterprises

(iv) number of workers employed in the enterprise

(b) Production of a commodity, mostly through the natural process, is anactivity in _________ sector.

(i) primary

(ii) secondary

(iii) tertiary

(iv) information technology

(c) GDP is the total value of _________ produced during a particular year.

(i) all goods and services

(ii) all final goods and services

(iii) all intermediate goods and services

(iv) all intermediate and final goods and services

(d) In terms of GDP the share of tertiary sector in 2003 is _________

(i) between 20 per cent to 30 per cent

(ii) between 30 per cent to 40 per cent

(iii) between 50 per cent to 60 per cent

(iv) 70 per cent

EXERCISES



3. Match the following:

Problems faced by farming sector Some possible measures

1. Unirrigated land (a) Setting up agro-based mills

2. Low prices for crops (b) Cooperative marketing societies

3. Debt burden (c) Procurement of food grains by government

4. No job in the off season (d) Construction of canals by the government

5. Compelled to sell their grains to (e) Banks to provide credit with low interestthe local traders soon after harvest

4. Find the odd one out and say why.

(i) Tourist guide, dhobi, tailor, potter

(ii) Teacher, doctor, vegetable vendor, lawyer

(iii) Postman, cobbler, soldier, police constable

(iv) MTNL, Indian Railways, Air India, SAHARA Airlines, All India Radio

5. A research scholar looked at the working people in the city of Surat and foundthe following.

Percentage of working people

15

15

20

Nature of employment

Organised

Place of work

In offices and factories registeredwith the government

Own shops, office, clinics inmarketplaces with formal license

People working on the street,construction workers, domesticworkers

Working in small workshopsusually not registered with thegovernment

Complete the table. What is the percentage of workers in the unorganisedsector in this city?

6. Do you think the classification of economic activities into primary, secondaryand tertiary is useful? Explain how.

7. For each of the sectors that we came across in this chapter why should onefocus on employment and GDP? Could there be other issues which should beexamined? Discuss.

8. Make a long list of all kinds of work that you find adults around you doing for aliving. In what way can you classify them? Explain your choice.

9. How is the tertiary sector different from other sectors? Illustrate with a fewexamples.

10. What do you understand by disguised unemployment? Explain with an exampleeach from the urban and rural areas.

11. Distinguish between open unemployment and disguised unemployment.

12. “Tertiary sector is not playing any significant role in the development of Indianeconomy.” Do you agree? Give reasons in support of your answer.


SSSSSECTORSECTORSECTORSECTORSECTORS OFOFOFOFOF THETHETHETHETHE I I I I INDIANNDIANNDIANNDIANNDIAN E E E E ECONOMYCONOMYCONOMYCONOMYCONOMY 3737373737SSSSSECTORSECTORSECTORSECTORSECTORS OFOFOFOFOF THETHETHETHETHE I I I I INDIANNDIANNDIANNDIANNDIAN E E E E ECONOMYCONOMYCONOMYCONOMYCONOMY 3737373737

13. Service sector in India employs two different kinds of people. Who are these?

14. Workers are exploited in the unorganised sector. Do you agree with this view?Give reasons in support of your answer.

15. How are the activities in the economy classified on the basis of employmentconditions?

16. Compare the employment conditions prevailing in the organised and unorganisedsectors.

17. Explain the objective of implementing the NREGA 2005.

18. Using examples from your area compare and contrast that activities and functionsof private and public sectors.

19. Discuss and fill the following table giving one example each from your area.

Well managed organisation Badly managed organisation

Public sector

Private Sector

20. Give a few examples of public sector activities and explain why the governmenthas taken them up.

21. Explain how public sector contributes to the economic development of a nation.

22. The workers in the unorganised sector need protection on the following issues :wages, safety and health. Explain with examples.

23. A study in Ahmedabad found that out of 15,00,000 workers in the city, 11,00,000worked in the unorganised sector. The total income of the city in this year(1997-1998) was Rs 60,000 million. Out of this Rs 32,000 million was generatedin the organised sector. Present this data as a table. What kind of ways shouldbe thought of for generating more employment in the city?

24. The following table gives the GDP in Rupees (Crores) by the three sectors:

Year primary secondary tertiary

1950 80,000 19,000 39,000

2000 3,14,000 2,80,000 5,55,000

(i) Calculate the share of the three sectors in GDP for 1950 and 2000.

(ii) Show the data as a bar diagram similar to Graph 2 in the chapter.

(iii) What conclusions can we draw from the bar graph?

NOTES FOR THE TEACHERCHAPTER 3 : MONEY AND CREDIT

Money is a fascinating subject and full ofcuriosities. It is important to capture thiselement for the students. The history ofmoney and how various forms were used atdifferent times is an interesting story. At thisstage the purpose is to allow students torealise the social situation in which theseforms were used. Modern forms of moneyare linked to the banking system. This is thecentral idea of the first part of the chapter.

The present situation in India, wherenewer forms of money are slowly spreadingwith computerisation of the banking system,offers many opportunities to students toexplore on their own. We need not get into aformal discussion of the ‘functions of money’but let it come up as questions. There arecertain areas that are not covered such as‘creation of money’ (money multiplier) or thebacking of the modern system that may bediscussed if you desire.

Credit is a crucial element in economiclife and it is therefore important to firstunderstand this in a conceptual manner.What are the aspects that one looks at inany credit arrangement and how this affectspeople is the main focus of the second partof the chapter. The world around us offersa tremendous variety of such arrangementsand it would be ideal to explain theseaspects of credit from situations that are

familiar to your students. The other crucialissue of credit is its availability to all,especially the poor, and on reasonableterms. We need to emphasise that this is aright of the people and without which a largesection of them would be kept out of thedevelopment process. There are manyinnovative interventions, such as that ofGrameen Bank, that students may be madefamiliar with but it is important to realisethat we don’t have answers to all questions.We need to find new ways and this is one ofthe social challenges that developingcountries face.

Sources for InformationThe data on formal and informal sector creditused in this chapter is drawn from thesurvey on rural debt by the National SampleSurvey Organisation (All India Debt andInvestment Survey, 2003, conducted byNSSO, Report No. 501, December 2005). Theinformation and data on Grameen Bank istaken from newspaper reports and websites.In order to get the details of bank-relatedstatistics or a particular detail of a bank,you can log on to the websites of ReserveBank of India (www.rbi.org) and theconcerned banks. Data on self-help groupsis provided on the website of National Bankfor Agriculture and Rural Development(NABARD) (www.nabard.org).


MMMMMONEYONEYONEYONEYONEY ANDANDANDANDAND C C C C CREDITREDITREDITREDITREDIT 3939393939

The use of money spans a very largepart of our everyday life. Look aroundyou and you would easily be able toidentify several transactions involvingmoney in any single day. Can youmake a list of these? In many of thesetransactions, goods are being boughtand sold with the use of money. Insome of these transactions, servicesare being exchanged with money. Forsome, there might not be any actualtransfer of money taking place nowbut a promise to pay money later.

Have you ever wondered whytransactions are made inmoney? The reason is simple.A person holding money can easilyexchange it for any commodity orservice that he or she might want.Thus everyone prefers to receivepayments in money and thenexchange the money for things thatthey want. Take the case of a shoemanufacturer. He wants to sell shoesin the market and buy wheat. Theshoe manufacturer will first exchangeshoes that he has produced formoney, and then exchange the moneyfor wheat. Imagine how much more

difficult it would be if the shoemanufacturer had to directlyexchange shoes for wheat without theuse of money. He would have to lookfor a wheat growing farmer who not

only wants to sell wheatbut also wants to buy theshoes in exchange.That is, both partieshave to agree to

sell and buy eachothers commodities.

This is known asdouble coincidenceof wants. What a persondesires to sell is exactly what theother wishes to buy. In a barter

system where goods are directlyexchanged without the use of money,double coincidence of wants is anessential feature.

In contrast, in an economy wheremoney is in use, money by providingthe crucial intermediate stepeliminates the need for doublecoincidence of wants. It is no longernecessary for the shoe manufacturerto look for a farmer who will buy hisshoes and at the same time sell him

M O N E YM O N E YM O N E YM O N E YM O N E YA N DA N DA N DA N DA N D

CREDITCREDITCREDITCREDITCREDIT

CHAPTER 3

MONEY AS A MEDIUM OF EXCHANGE

I’LL GIVEYOU SHOESFOR YOUR

WHEAT.

I DON’T NEEDSHOES. I NEED

CLOTHES.

I WANT SHOES.BUT I DON’T HAVE

WHEAT.


We have seen that money issomething that can act as a mediumof exchange in transactions. Beforethe introduction of coins, a variety ofobjects was used as money. Forexample, since the very early ages,Indians used grains and cattle asmoney. Thereafter came the use ofmetallic coins — gold, silver, coppercoins — a phase which continued wellinto the last century.

CurrencyModern forms of money includecurrency — paper notes and coins.Unlike the things that were used asmoney earlier, modern currency is notmade of precious metal such as gold,silver and copper. And unlike grainand cattle, they are neither ofeveryday use. The modern currencyis without any use of its own.

Then, why is it accepted as amedium of exchange? It is acceptedas a medium of exchange because thecurrency is authorised by thegovernment of the country.

In India, the Reserve Bank of Indiaissues currency notes on behalf of thecentral government. As per Indianlaw, no other individual or

organisation is allowed to issuecurrency. Moreover, the law legalisesthe use of rupee as a medium ofpayment that cannot be refused insettling transactions in India. Noindividual in India can legally refusea payment made in rupees. Hence,the rupee is widely accepted as amedium of exchange.

Deposits with BanksThe other form in which people holdmoney is as deposits with banks. Ata point of time, people need only somecurrency for their day-to-day needs.For instance, workers who receivetheir salaries at the end of each monthhave extra cash at the beginning ofthe month. What do people do withthis extra cash? They deposit it withthe banks by opening a bankaccount in their name. Banks acceptthe deposits and also pay an interestrate on the deposits. In this waypeople’s money is safe with thebanks and it earns an interest.People also have the provision towithdraw the money as and whenthey require. Since the deposits in thebank accounts can be withdrawn ondemand, these deposits are calleddemand deposits.

1. How does the use of money make it easier to exchange things?

2. Can you think of some examples of goods / services being exchanged or wages beingpaid through barter?


MODERN FORMS OF MONEY

Early punch-marked coins(may be 2500

years old)

Guptacoins

GoldMoharfromAkbar’sreign

wheat. All he has to do is find a buyerfor his shoes. Once he has exchangedhis shoes for money, he can purchasewheat or any other commodity in themarket. Since money acts as anintermediate in the exchange process,it is called a medium of exchange.

Tughlaqcoin

Modern coin


Cheque PaymentsCheque PaymentsCheque PaymentsCheque PaymentsCheque PaymentsA shoe manufacturer, M. Salim has to make a payment to the leather supplier and writesa cheque for a specific amount. This means that the shoe manufacturer instructs hisbank to pay this amount to the leather supplier. The leather supplier takes this cheque,and deposits it in his own account in the bank. The money is transferred from one bankaccount to another bank account in a couple of days. The transaction is complete withoutany payment of cash.

Thus we see that demand depositsshare the essential features of money.The facility of cheques against demanddeposits makes it possible to directlysettle payments without the use of cash.Since demand deposits are acceptedwidely as a means of payment, alongwith currency, they constitute moneyin the modern economy.

You must remember the role thatthe banks play here. But for thebanks, there would be no demanddeposits and no payments bycheques against these deposits. Themodern forms of money — currencyand deposits — are closely linked tothe working of the modern bankingsystem.

Account number

Coding used by banksCheque number

Demand deposits offer anotherinteresting facility. It is this facilitywhich lends i t the essent ia lcharacteristics of money (that of amedium of exchange). You wouldhave heard of payments being

made by cheques instead of cash.For payment through cheque, thepayer who has an account with thebank, makes out a cheque for aspecific amount. A cheque is apaper instructing the bank to paya speci f ic amount from theperson’s account to the person inwhose name the cheque has beenmade.

Bank branchcode

LET US TRY AND UNDERSTAND

HOW CHEQUE PAYMENTS ARE

MADE AND REALISED WITH

AN EXAMPLE.


Let us take the story of banks further.What do the banks do with thedeposits which they accept from thepublic? There is an interestingmechanism at work here. Banks keeponly a small proportion of theirdeposits as cash with themselves. Forexample, banks in India these dayshold about 15 per cent of theirdeposits as cash. This is kept asprovision to pay the depositors whomight come to withdraw money fromthe bank on any given day. Since, onany particular day, only some of itsmany depositors come to withdrawcash, the bank is able to manage withthis cash.

Banks use the major portion of thedeposits to extend loans. There is a

huge demand for loans for variouseconomic activities. We shall read moreabout this in the following sections.Banks make use of the deposits tomeet the loan requirements of thepeople. In this way, banks mediatebetween those who have surplusfunds (the depositors) and those whoare in need of these funds (theborrowers). Banks charge a higherinterest rate on loans than what theyoffer on deposits. The differencebetween what is charged fromborrowers and what is paid todepositors is their main source ofincome.

LOAN ACTIVITIES OF BANKS

People makedeposits

People makewithdrawals and

get interest

People takeloans

People repayloans with

interest

DEPOSITORS BORROWERS

1. M. Salim wants to withdraw Rs 20,000 in cash for making payments. How would hewrite a cheque to withdraw money?

2. Tick the correct answer.After the transaction between Salim and Prem,

(i) Salim’s balance in his bank account increases, and Prem’s balance increases.

(ii) Salim’s balance in his bank account decreases and Prem’s balance increases.

(iii) Salim’s balance in his bank account increases and Prem’s balance decreases.

3. Why are demand deposits considered as money?


What do you think would happenif all the depositors went to askfor their money at the same time?


A large number of transactions in our day-to-day activitiesinvolve credit in some form or the other. Credit (loan) refers toan agreement in which the lender supplies the borrower withmoney, goods or services in return for the promise of futurepayment. Let us see how credit works through the followingtwo examples.

(1) Festival Season(1) Festival Season(1) Festival Season(1) Festival Season(1) Festival SeasonIt is festival season two months from nowand the shoe manufacturer, Salim, hasreceived an order from a large trader intown for 3,000 pairs of shoes to bedelivered in a month time. To completeproduction on time, Salim has to hire a fewmore workers for stitching and pastingwork. He has to purchase the rawmaterials. To meet these expenses, Salimobtains loans from two sources. First, heasks the leather supplier to supply leather

now and promises to pay him later.Second, he obtains loan in cash from thelarge trader as advance payment for1000 pairs of shoes with a promise todeliver the whole order by the end of themonth.

At the end of the month, Salim is able todeliver the order, make a good profit, andrepay the money that he had borrowed.

(2) Swapna’s Problem(2) Swapna’s Problem(2) Swapna’s Problem(2) Swapna’s Problem(2) Swapna’s Problem

TWO DIFFERENT CREDIT SITUATIONS

In this case, Salim obtains credit to meet the workingcapital needs of production. The credit helps him to meet theongoing expenses of production, complete production on time,and thereby increase his earnings. Credit therefore plays avital and positive role in this situation.

Swapna, a small farmer, grows groundnut on her threeacres of land. She takes a loan from the moneylenderto meet the expenses of cultivation, hoping that herharvest would help repay the loan. Midway throughthe season the crop is hit by pests and the cropfails. Though Swapna sprays her crops withexpensive pesticides, it makes little difference. Sheis unable to repay the moneylender and the debtgrows over the year into a large amount. Nextyear, Swapna takes a fresh loan for cultivation.It is a normal crop this year. But the earningsare not enough to cover the old loan.She is caught in debt. She has to sella part of the land to pay off the debt.

TERMS OF CREDIT

Every loan agreement specifies aninterest rate which the borrower mustpay to the lender along with the

In rural areas, the main demandfor credit is for crop production. Cropproduction involves considerablecosts on seeds, fertilisers, pesticides,water, electricity, repair of equipment,etc. There is a minimum stretch ofthree to four months between the timewhen the farmers buy these inputsand when they sell the crop. Farmersusually take crop loans at thebeginning of the season and repay theloan after harvest. Repayment of theloan is crucially dependent on theincome from farming.

1. Fill the following table.

2. Supposing Salim continues to get orders from traders. What would behis position after 6 years?

3. What are the reasons that make Swapna’s situation so risky? Discussfactors – pesticides; role of moneylenders; climate.


Salim Swapna

Why did they need credit?

What was the risk?

What was the outcome?

In Swapna’s case, the failure of thecrop made loan repaymentimpossible. She had to sell part of theland to repay the loan. Credit, insteadof helping Swapna improve herearnings, left her worse off. This is anexample of what is commonly calleddebt-trap. Credit in this case pushesthe borrower into a situation fromwhich recovery is very painful.

In one situation credit helps toincrease earnings and therefore theperson is better off than before. Inanother situation, because of the

crop failure, creditpushes the person intoa debt trap. To repayher loan she has to sella portion of her land.She is clearly muchworse off than before.Whether credit wouldbe useful or not,therefore, dependson the risks in thesituation and whetherthere is some support,in case of loss.

repayment of the principal. Inaddition, lenders may demandcollateral (security) against loans.Collateral is an asset that theborrower owns (such as land,building, vehicle, livestocks,deposits with banks) and uses thisas a guarantee to a lender untilthe loan is repaid. If the borrowerfails to repay the loan, the lender hasthe right to sell the asset or collateralto obtain payment. Property such asland titles, deposits with banks,livestock are some common examplesof collateral used for borrowing.


A House LoanA House LoanA House LoanA House LoanA House LoanMegha has taken a loan of Rs 5 lakhs from thebank to purchase a house. The annual interestrate on the loan is 12 per cent and the loan is tobe repaid in 10 years in monthly instalments.Megha had to submit to the bank, documentsshowing her employment records and salarybefore the bank agreed to give her the loan. Thebank retained as collateral the papers of the newhouse, which will be returned to Megha onlywhen she repays the entire loan with interest.

Fill the following details of Megha’s housing loan.

Interest rate, collateral anddocumentation requirement, and themode of repayment together comprisewhat is called the terms of credit. Theterms of credit vary substantially fromone credit arrangement to another.They may vary depending on thenature of the lender and the borrower.The next section will provide examplesof the varying terms of credit indifferent credit arrangements.

1. Why do lenders ask for collateral while lending?

2. Given that a large number of people in our country are poor, does it in any wayaffect their capacity to borrow?

3. Fill in the blanks choosing the correct option from the brackets.

While taking a loan, borrowers look for easy terms of credit. This

means __________ (low/high) interest rate, ______________(easy/

tough) conditions for repayment, ___________(less/more) collateral

and documentation requirements.


Loan amount (in Rupees)

Duration of loan

Documents required

Interest rate

Mode of repayment

Collateral

SSSSShyamal tells us that every season he needsloans for cultivation on his 1.5 acres of land. Tilla few years back, he would borrow money fromthe village moneylender at an interest rate offive per cent per month (60% per annum).For the last few years, Shyamal has beenborrowing from an agricultural trader in thevillage at an interest rate of three per centper month. At the beginning of the croppingseason, the trader supplies the farm inputs oncredit, which is to be repaid when the cropsare ready for harvest.

Besides the interest charge on the loan, thetrader also makes the farmers promise tosell the crop to him. This way the tradercan ensure that the money is repaidpromptly. Also, since the crop prices are lowafter the harvest, the trader is able tomake a profit from buying the crop at a lowprice from the farmers and then selling itlater when the price has risen.

Variety of Credit ArrangementsVariety of Credit ArrangementsVariety of Credit ArrangementsVariety of Credit ArrangementsVariety of Credit ArrangementsExample of a Village

Rohit and Ranjan had finished reading about the terms of credit in class.They were eager to know the various credit arrangements that existed intheir area: who were the people who provided credit? Who were theborrowers? What were the terms of credit? They decided to talk to somepeople in their village. Read what they record...

15th Nov, 2006.

We head directly for the fields where most farmers and

labourers would be working at this time of the day. The fields

are planted with potato crops. We first meet Shyamal, a small

farmer in Sonpur, a small irrigated village.WWWWWe next meet Arun who is supervising thework of one farm labourer. Arun has sevenacres of land. He is one of the few personsin Sonpur to receive bank loan forcultivation. The interest rate on the loanis 8.5 per cent per annum, and can be repaidanytime in the next three years. Arun plansto repay the loan after harvest by selling apart of the crop. He then intends to storethe rest of the potatoes in a cold storageand apply for a fresh loan from the bankagainst the cold storage receipt. The bankoffers this facility to farmers who havetaken crop loan from them.

RRRRRama is working in a neighbouring field. Sheworks as an agricultural labourer. There areseveral months in the year when Rama hasno work, and needs credit to meet the dailyexpenses. Expenses on sudden illnesses orfunctions in the family are also met throughloans. Rama has to depend on her employer,a medium landowner in Sonpur, for credit.The landowner charges an interest rate of5 per cent per month. Rama repays themoney by working for the landowner. Mostof the time, Rama has to take a fresh loan,before the previous loan has been repaid.At present, she owes the landownerRs 5,000. Though the landowner doesn’ttreat her well, she continues to work for himsince she can get loans from him when inneed. Rama tells us that the only source ofcredit for the landless people in Sonpur arethe landowner-employers.

Loans from CooperativesLoans from CooperativesLoans from CooperativesLoans from CooperativesLoans from CooperativesBesides banks, the other major source of cheap creditin rural areas are the cooperative societies (orcooperatives). Members of a cooperative pool theirresources for cooperation in certain areas. There areseveral types of cooperatives possible such asfarmers cooperatives, weavers cooperatives,industrial workers cooperatives, etc. KrishakCooperative functions in a village not very far awayfrom Sonpur. It has 2300 farmers as members. Itaccepts deposits from its members. With thesedeposits as collateral, the Cooperative has obtaineda large loan from the bank. These funds are used toprovide loans to members. Once these loans arerepaid, another round of lending can take place.

Krishak Cooperative provides loans for the purchaseof agricultural implements, loans for cultivationand agricultural trade, fishery loans, loans forconstruction of houses and for a variety of otherexpenses.

1. List the various sources of credit in Sonpur.

2. Underline the various uses of credit in Sonpur in the above passages.

3. Compare the terms of credit for the small farmer, the medium farmer and the landlessagricultural worker in Sonpur.

4. Why will Arun have a higher income from cultivation compared to Shyamal?

5. Can everyone in Sonpur get credit at a cheap rate? Who are the people who can?

6. Tick the correct answer.

(i) Over the years, Rama’s debt· will rise.· will remain constant.· will decline.

(ii) Arun is one of the few people in Sonpur to take a bank loan because

· other people in the village prefer to borrow from the moneylenders.

· banks demand collateral which everyone cannot provide.

· interest rate on bank loans is same as the interest rate charged bythe traders.

7. Talk to some people to find out the credit arrangements that exist in your area. Recordyour conversation. Note the differences in the terms of credit across people.



Moneylenders

TradersRelatives and

Friends

Others

CooperativeSocieties

CommercialBanks

Landlords

the RBI sees that the banks give loansnot just to profit-making businessesand traders but also to smallcultivators, small scale industries, tosmall borrowers etc. Periodically,banks have to submit information tothe RBI on how much they arelending, to whom, at what interestrate, etc.

There is no organisation whichsupervises the credit activities oflenders in the informal sector. Theycan lend at whatever interest rate they

We have seen in theabove examples thatpeople obtain loans fromvarious sources. Thevarious types of loanscan be convenientlygrouped as formalsector loans andinformal sector loans.Among the formerare loans from banksand cooperatives. Theinformal lenders includemoneylenders, traders,employers, relatives andfriends, etc. In Graph 1you can see the varioussources of credit to ruralhouseholds in India. Is more creditcoming from the formal sector or theinformal sector?

The Reserve Bank of Indiasupervises the functioning of formalsources of loans. For instance, wehave seen that the banks maintain aminimum cash balance out of thedeposits they receive. The RBImonitors that the banks actuallymaintain the cash balance. Similarly,

FORMAL SECTOR CREDIT IN INDIA

Graph 1 : Sources of Creditfor Rural Households in India in 2003

30%

25% 27%

7%

7%

3%

1%

BUT WHY SHOULDA BANK WANT USUSUSUSUS TO

HAVE A HIGHER INCOME?


choose. There is no one to stop themfrom using unfair means to get theirmoney back.

Compared to the formal lenders,most of the informal lenders charge amuch higher interest on loans. Thus,the cost to the borrower of informalloans is much higher.

Higher cost of borrowing means alarger part of the earnings of theborrowers is used to repay the loan.Hence, borrowers have less incomeleft for themselves (as we saw forShyamal in Sonpur). In certaincases, the high interest rate ofborrowing can mean that the amountto be repaid is greater than theincome of the borrower. This couldlead to increasing debt (as we saw forRama in Sonpur) and debt trap. Also,people who might wish to start anenterprise by borrowing may not doso because of the high cost ofborrowing.

For these reasons, banks andcooperative societies need to lendmore. This would leadto higher incomesand many peoplecould then borrowcheaply for a varietyof needs. Theycould grow crops, dobusiness, set upsmall-scale industriesetc. They could set upnew industries ortrade in goods. Cheapand affordable creditis crucial for thecountry’s develop-ment.

Formal and Informal Credit:Who gets what?

Graph 2 shows the importance offormal and informal sources of creditfor people in urban areas. The peopleare divided into four groups, frompoor to rich, as shown in the figure.You can see that 85 per cent of theloans taken by poor households in theurban areas are from informalsources. Compare this with the richurban households. What do youfind? Only 10 per cent of their loansare from informal sources, while 90per cent are from formal sources. Asimilar pattern is also found in ruralareas. The rich households areavailing cheap credit from formallenders whereas the poor householdshave to pay a heavy price forborrowing!

What does all this suggest? First,the formal sector still meets only abouthalf of the total credit needs of therural people. The remaining creditneeds are met from informal sources.

Graph 2 : Of all the loans taken by urban housholds in 2003, whatpercentage was formal and what percentage was informal?

poor households well-off richhousholds with few assets households households

BLUE : Per cent of loans from the INFORMAL sector

85%

15%

PURPLE : Per cent of loans from the FORMAL sector

10%

90%72%

28%53% 47%


Most loans from informal lenderscarry a very high interest rate and dolittle to increase the income of theborrowers. Thus, it is necessarythat banks and cooperativesincrease their lending particularlyin the rural areas, so that thedependence on informal sourcesof credit reduces.

1. What are the differences between formal and informal sources of credit?

2. Why should credit at reasonable rates be available for all?

3. Should there be a supervisor, such as the Reserve Bank of India, that looks into theloan activities of informal lenders? Why would its task be quite difficult?

4. Why do you think that the share of formal sector credit is higher for the richer householdscompared to the poorer households?


SELF-HELP GROUPS FOR THE POOR

Secondly, while formal sectorloans need to expand, it is alsonecessary that everyone receivesthese loans. At present, it is the richerhouseholds who receive formal creditwhereas the poor have to depend onthe informal sources. It is importantthat the formal credit is distributedmore equally so that the poor canbenefit from the cheaper loans.

In the previous section we have seenthat poor households are stilldependent on informal sources ofcredit. Why is it so? Banks are notpresent everywhere in rural India.Even when they are present, getting aloan from a bank is much moredifficult than taking a loan frominformal sources. As we saw forMegha, bank loans require proper

documents and collateral. Absence ofcollateral is one of the major reasonswhich prevents the poor from gettingbank loans. Informal lenders such asmoneylenders, on the other hand,know the borrowers personally andhence are often willing to give aloan without collateral. The borrowerscan, if necessary, approach themoneylenders even without repaying

A workerstitching a quilt

DO YOU THINK A BANKWILL GIVE ME A

LOAN?


their earlier loans. However, themoneylenders charge very high ratesof interest, keep no records of thetransactions and harass the poorborrowers.

In recent years, people have triedout some newer ways of providingloans to the poor. The idea is toorganise rural poor, in particularwomen, into small Self Help Groups(SHGs) and pool (collect) theirsavings. A typical SHG has 15-20members, usually belonging to oneneighbourhood, who meet and saveregularly. Saving per member variesfrom Rs 25 to Rs 100 or more,depending on the ability of the peopleto save. Members can take small loansfrom the group itself to meet theirneeds. The group charges interest onthese loans but this is still less thanwhat the moneylender charges. Aftera year or two, if the group is regularin savings, it becomes eligible foravailing loan from the bank.Loan is sanctioned in thename of the group and ismeant to create self-employment opportunitiesfor the members. Forinstance, small loans areprovided to the members forreleasing mortgaged land,for meeting working capitalneeds (e.g. buying seeds,fertilisers, raw materialslike bamboo and cloth), forhousing materials, foracquiring assets like sewingmachine, handlooms, cattle,etc.

Most of the importantdecisions regarding thesavings and loan activitiesare taken by the groupmembers. The groupdecides as regards the loans

to be granted — the purpose, amount,interest to be charged, repaymentschedule etc. Also, it is the groupwhich is responsible for the repaymentof the loan. Any case of non-repayment of loan by any onemember is followed up seriously byother members in the group. Becauseof this feature, banks are willing tolend to the poor women whenorganised in SHGs, even though theyhave no collateral as such.

Thus, the SHGs help borrowersovercome the problem of lack ofcollateral. They can get timely loansfor a variety of purposes and at areasonable interest rate. Moreover,SHGs are the building blocks oforganisation of the rural poor. Notonly does it help women to becomefinancially self-reliant, the regularmeetings of the group provide aplatform to discuss and act on avariety of social issues such as health,nutrition, domestic violence, etc.

A women’s self-help groupmeeting in Gujarat

In this chapter we have looked at themodern forms of money and how theyare linked with the banking system.On one side are the depositors whokeep their money in the banks and onthe other side are the borrowers whotake loans from these banks. Economicactivities require loans or credit. Credit,as we saw can have a positive impact,or in certain situations make theborrower worse off.

Credit is available from a variety ofsources. These can be either formalsources or informal sources. Terms of

Grameen Bank of BangladeshGrameen Bank of BangladeshGrameen Bank of BangladeshGrameen Bank of BangladeshGrameen Bank of Bangladesh

“If credit can be made available tothe poor people on terms andconditions that are appropriate andreasonable these millions of smallpeople with their millions of smallpursuits can add up to create thebiggest development wonder.”

Professor Muhammad Yunus,the founder of Grameen Bank,

and recipient of 2006 Nobel Prize for Peace

SUMMING UPcredit vary substantially betweenformal and informal lenders. Atpresent, it is the richer householdswho receive credit from formal sourceswhereas the poor have to depend onthe informal sources. It is essentialthat the total formal sector creditincreases so that the dependence onthe more expensive informal creditbecomes less. Also, the poor shouldget a much greater share of formalloans from banks, cooperativesocieties etc. Both these steps areimportant for development.

Grameen Bank of Bangladesh is one of thebiggest success stories in reaching the poor tomeet their credit needs at reasonable rates.Started in the 1970s as a small project,Grameen Bank now has over 6 millionborrowers in about 40,000 villages spreadacross Bangladesh. Almost all of the borrowersare women and belong to poorest sections ofthe society. These borrowers have proved thatnot only are poor women reliable borrowers,but that they can start and run a variety ofsmall income-generating activities successfully.

EXERCISES

1. In situations with high risks, credit might create further problems for the borrower.Explain.

2. How does money solve the problem of double coincidence of wants? Explain withan example of your own.

3. How do banks mediate between those who have surplus money and those whoneed money?

4. Look at a 10 rupee note. What is written on top? Can you explain this statement?

5. Why do we need to expand formal sources of credit in India?

6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

7. What are the reasons why the banks might not be willing to lend to certain borrowers?


8. In what ways does the Reserve Bank of India supervise the functioning of banks?Why is this necessary?

9. Analyse the role of credit for development.

10. Manav needs a loan to set up a small business. On what basis will Manav decidewhether to borrow from the bank or the moneylender? Discuss.

11. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.

(a) Why might banks be unwilling to lend to small farmers?(b) What are the other sources from which the small farmers can borrow?(c) Explain with an example how the terms of credit can be unfavourable for the

small farmer.(d) Suggest some ways by which small farmers can get cheap credit.

12. Fill in the blanks:(i) Majority of the credit needs of the _________________households are met

from informal sources.

(ii) ___________________costs of borrowing increase the debt-burden.

(iii) __________________ issues currency notes on behalf of the CentralGovernment.

(iv) Banks charge a higher interest rate on loans than what they offer on__________.

(v) _______________ is an asset that the borrower owns and uses as a guaranteeuntil the loan is repaid to the lender.

13. Choose the most appropriate answer.

(i) In a SHG most of the decisions regarding savings and loan activities are taken by

(a) Bank.

(b) Members.

(c) Non-government organisation.

(ii) Formal sources of credit does not include(a) Banks.

(b) Cooperatives.

(c) Employers.

The following table shows people in a variety of occupations in urban areas. Whatare the purposes for which the following people might need loans? Fill in the column.

Occupations Reason for needing a Loan

Construction worker

Graduate student who is computer literate

A person employed in government service

Migrant labourer in Delhi

Household maid

Small trader

Autorickshaw driver

A worker whose factory has closed down

Next, classify the people into two groups based on whom you think might get a bankloan and those who might not. What is the criterion that you have used for classification?

ADDITIONAL PROJECT / ACTIVITY



Most regions of the world are getting increasinglyinterconnected. While this interconnectednessacross countries has many dimensions —cultural, political, social and economic — thischapter looks at globalisation in a more limitedsense. It defines globalisation as the integrationbetween countries through foreign trade andforeign investments by multinationalcorporations (MNCs). As you will notice, the morecomplex issues of portfolio investment have beenleft out.

If we look at the past thirty years or so, wefind that MNCs have been a major force in theglobalisation process connecting distant regionsof the world. Why are the MNCs spreading theirproduction to other countries and what are theways in which they are doing so? The first partof the chapter discusses this. Rather thanrelying on quantitative estimates, the rapid riseand influence of the MNCs has been shownthrough a variety of examples, mainly drawnfrom the Indian context. Note that the examplesare an aid to explain a more general point. Whileteaching, the emphasis should be on the ideasand examples are to be used as illustrations.You can also creatively use comprehensionpassages like the one given after Section II totest and reinforce new concepts.

Integration of production and integration ofmarkets is a key idea behind understanding theprocess of globalisation and its impact. This hasbeen dealt with at length in this chapter,highlighting the role of MNCs in the process. Youhave to ensure that the students grasp this ideawith sufficient clarity, before moving on to thenext topic.

Globalisation has been facilitated by severalfactors. Three of these have been highlighted:rapid improvements in technology, liberalisation

of trade and investment policies and, pressuresfrom international organisations such as theWTO. Improvement in technology is a fascinatingarea for students and you may, with a fewdirections, encourage them to do their ownexplorations. While discussing liberalisation, youhave to keep in mind that the students areunaware of what India was like in thepre-liberalisation era. A role-play could beconceived to compare and contrast the pre andpost-liberalisation era. Similarly, internationalnegotiations under WTO and the unevenbalances in power are interesting subjects thatcan be covered in a discussion mode rather thanas lectures.

The final section covers the impact ofglobalisation. To what extent has globalisationcontributed to the development process? Thissection draws on the topics covered in Chapters1 and 2 (for example, what is a fair developmentgoal), which you can refer to. Also, examples andactivities drawn from the local environment area must while discussing this section. This mightinclude contexts that have not been covered inthe chapter, such as the impact of imports onlocal farmers, etc. Collective brainstormingsessions can be conducted to analyse suchsituations.

Sources for InformationThe call for a fairer globalisation has been given,among others, by the International LabourOrganisation — www.ilo.org. Another interestingresource is the WTO website http://www.wto.org.It gives access to the variety of agreements thatare being negotiated at the WTO. For companyrelated information, most MNCs have their ownwebsites. If you want to critically look atthe MNCs, one recommended website iswww.corporatewatch.org.uk.

CHAPTER 4 : GLOBALISATION AND THE INDIAN ECONOMY


GGGGGLLLLLOBALISAOBALISAOBALISAOBALISAOBALISATIONTIONTIONTIONTION ANDANDANDANDAND THETHETHETHETHE I I I I INDIANNDIANNDIANNDIANNDIAN E E E E ECONOMYCONOMYCONOMYCONOMYCONOMY 5555555555

GLOBALISATIONGLOBALISATIONGLOBALISATIONGLOBALISATIONGLOBALISATIONAND THE INDIAN ECONOMYAND THE INDIAN ECONOMYAND THE INDIAN ECONOMYAND THE INDIAN ECONOMYAND THE INDIAN ECONOMY

CHAPTER 4

As consumers in today’s world, someof us have a wide choice of goods andservices before us. The latest modelsof digital cameras, mobile phones andtelevisions made by the leadingmanufacturers of the world are withinour reach. Every season, new modelsof automobiles can be seen on Indianroads. Gone are the days whenAmbassador and Fiat were the onlycars on Indian roads. Today, Indiansare buying cars produced by nearlyall the top companies in the world. Asimilar explosion of brands can beseen for many other goods: from shirtsto televisions to processed fruit juices.

Such wide-ranging choice of goodsin our markets is a relatively recentphenomenon. You wouldn’t havefound such a wide variety of goods inIndian markets even two decadesback. In a matter of years, ourmarkets have been transformed!

How do we understand theserapid transformations? What are thefactors that are bringing about thesechanges? And, how are these changesaffecting the lives of the people?We shall dwell on these questions inthis chapter.


Until the middle of the twentiethcentury, production was largelyorganised within countries. Whatcrossed the boundaries of thesecountries were raw materials, foodstuff and finished products. Coloniessuch as India exported raw materialsand food stuff and imported finishedgoods. Trade was the main channelconnecting distant countries. This wasbefore large companies called

Spreading of ProductionSpreading of ProductionSpreading of ProductionSpreading of ProductionSpreading of Productionby an MNCby an MNCby an MNCby an MNCby an MNC

A large MNC, producing industrial equipment, designs itsproducts in research centres in the United States, and thenhas the components manufactured in China. These are thenshipped to Mexico and Eastern Europe where the productsare assembled and the finished products are sold all over theworld. Meanwhile, the company’s customer care is carried outthrough call centres located in India.

PRODUCTION ACROSS COUNTRIES

multinational corporations (MNCs)emerged on the scene. A MNC is acompany that owns or controlsproduction in more than one nation.MNCs set up offices and factories forproduction in regions where they canget cheap labour and other resources.This is done so that the cost ofproduction is low and the MNCs canearn greater profits. Consider thefollowing example.

This is a call centre in Bangalore, equipped with telecom facilities and access toInternet to provide information and support to customers abroad.


Complete the following statement to show how the production process in the garmentindustry is spread across countries.

The brand tag says ‘Made in Thailand’ but they are not Thai products. We dissectthe manufacturing process and look for the best solution at each step. We aredoing it globally. In making garments, the company may, for example, get cottonfibre from Korea, ........

LET’S WORK THIS OUT

In this example the MNC is not onlyselling its finished products globally,but more important, the goods andservices are produced globally. Asa result, production is organised inincreasingly complex ways. Theproduction process is divided intosmall parts and spread out across theglobe. In the above example, Chinaprovides the advantage of being acheap manufacturing location.Mexico and Eastern Europe are useful

for their closeness to the marketsin the US and Europe. India hashighly skilled engineers who canunderstand the technical aspects ofproduction. It also has educatedEnglish speaking youth who canprovide customer care services. Andall this probably can mean 50-60 percent cost-savings for the MNC!The advantage of spreading outproduction across the borders to themultinationals can be truly immense.

INTERLINKING PRODUCTION ACROSSCOUNTRIES

At times, MNCs set up productionjointly with some of the localcompanies of these countries. Thebenefit to the local company of suchjoint production is two-fold. First,MNCs can provide money foradditional investments, like buyingnew machines for faster production.Second, MNCs might bring with themthe latest technology for production.

In general, MNCs set up productionwhere it is close to the markets; wherethere is skilled and unskilled labouravailable at low costs; and where theavailability of other factors ofproduction is assured. In addition,MNCs might look for governmentpolicies that look after their interests.You will read more about the policieslater in the chapter.

Having assured themselves of theseconditions, MNCs set up factories andoffices for production. The money thatis spent to buy assets such as land,building, machines and otherequipment is called investment.Investment made by MNCs is calledforeign investment. Any investmentis made with the hope that theseassets will earn profits.

WE WILL SHIFTTHIS FACTORY TO

ANOTHER COUNTRY.IT HAS BECOME

EXPENSIVE HERE!


But the most common route forMNC investments is to buy up localcompanies and then to expandproduction. MNCs with huge wealthcan quite easily do so. To take anexample, Cargill Foods, a very largeAmerican MNC, has bought oversmaller Indian companies such asParakh Foods. Parakh Foods hadbuilt a large marketing network invarious parts of India, where its brandwas well-reputed. Also, Parakh Foodshad four oil refineries, whose controlhas now shifted to Cargill. Cargill isnow the largest producer of edible oilin India, with a capacity to make 5million pouches daily!

In fact, many of the top MNCshave wealth exceeding the entirebudgets of the developing countrygovernments. With such enormouswealth, imagine the power andinfluence of these MNCs!

There’s another way in whichMNCs control production. LargeMNCs in developed countries placeorders for production with smallproducers. Garments, footwear,sports items are examples ofindustries where production iscarried out by a large number ofsmall producers around the world.

The products are supplied to theMNCs, which then sell these undertheir own brand names to thecustomers. These large MNCs havetremendous power to determine price,quality, delivery, and labourconditions for these distantproducers.

Thus, we see that there are avariety of ways in which the MNCs arespreading their production andinteracting with local producers invarious countries across the globe. Bysetting up partnerships with localcompanies, by using the localcompanies for supplies, by closelycompeting with the local companiesor buying them up, MNCs are exertinga strong influence on productionat these distant locations. As aresult, production in these widelydispersed locations is gettinginterlinked.

Women at home in Ludhiana making footballs for large MNCs

Jeans produced in developing countries beingsold in USA for Rs 6500 ($145)


Read the passage on the left and answer the questions.


1. Would you say Ford Motors is a MNC? Why?

2. What is foreign investment? How much did Ford Motors invest in India?

3. By setting up their production plants in India, MNCs such as FordMotors tap the advantage not only of the large markets that countriessuch as India provide, but also the lower costs of production. Explainthe statement.

4. Why do you think the company wants to develop India as a base formanufacturing car components for its global operations? Discuss thefollowing factors:

(a) cost of labour and other resources in India

(b) the presence of several local manufacturers who supply auto-parts to Ford Motors

(c) closeness to a large number of buyers in India and China

5. In what ways will the production of cars by Ford Motors in India lead tointerlinking of production?

6. In what ways is a MNC different from other companies?

7. Nearly all major multinationals are American, Japanese or European,such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?

For a long time foreign trade has beenthe main channel connectingcountries. In history you would haveread about the trade routesconnecting India and South Asia tomarkets both in the East and Westand the extensive trade that took placealong these routes. Also, you wouldremember that it was trading interestswhich attracted various tradingcompanies such as the East IndiaCompany to India. What then is thebasic function of foreign trade?

To put it simply, foreign tradecreates an opportunity for theproducers to reach beyond thedomestic markets, i.e., markets of theirown countries. Producers can sell theirproduce not only in markets locatedwithin the country but can alsocompete in markets located in othercountries of the world. Similarly, for thebuyers, import of goods produced inanother country is one way ofexpanding the choice of goods beyondwhat is domestically produced.

FOREIGN TRADE AND INTEGRATION OFMARKETS

Ford Motors, an Americancompany, is one of theworld’s largestautomobile manufacturerswith production spreadover 26 countries of theworld. Ford Motors cameto India in 1995 andspent Rs. 1700 crore toset up a large plant nearChennai. This was donein collaboration withMahindra and Mahindra,a major Indianmanufacturer of jeepsand trucks. By the year2004, Ford Motors wasselling 27, 000 cars inthe Indian markets,while 24,000 cars wereexported from India toSouth Africa, Mexico andBrazil. The companywants to develop FordIndia as a componentsupplying base for itsother plants across theglobe.

Cars made by Indian workers beingtransported to be sold abroad by MNCs.

Chinese Toys in IndiaChinese Toys in IndiaChinese Toys in IndiaChinese Toys in IndiaChinese Toys in India

Chinese manufacturers learnof an opportunity to export toysto India, where toys are sold ata high price. They startexporting plastic toys to India.Buyers in India now have theoption of choosing betweenIndian and the Chinese toys.Because of the cheaper pricesand new designs, Chinese toysbecome more popular in theIndian markets. Within a year,70 to 80 per cent of the toyshops have replaced Indiantoys with Chinese toys. Toysare now cheaper in the Indianmarkets than earlier.

Let us see the effect of foreign trade

through the example of Chinese toys

in the Indian markets.

What is happening here? As aresult of trade, Chinese toyscome into the Indian markets.In the competition betweenIndian and Chinese toys,Chinese toys prove better.Indian buyers have a greaterchoice of toys and at lowerprices. For the Chinese toymakers, this provides anopportunity to expand business.The opposite is true for Indiantoy makers. They face losses,as their toys are sellingmuch less.



1. What was the main channel connecting countries in the past? How is it differentnow?

2. Distinguish between foreign trade and foreign investment.

3. In recent years China has been importing steel from India. Explain how the importof steel by China will affect.

(a) steel companies in China.

(b) steel companies in India.

(c) industries buying steel for production of other industrial goods in China.

4. How will the import of steel from India into the Chinese markets lead to integrationof markets for steel in the two countries? Explain.


In general, with the opening oftrade, goods travel from one marketto another. Choice of goods in themarkets rises. Prices of similar goodsin the two markets tend to becomeequal. And, producers in the twocountries now closely compete againsteach other even though they areseparated by thousands of miles!Foreign trade thus results inconnecting the markets orintegration of markets in differentcountries.

In the past two to three decades, moreand more MNCs have been looking forlocations around the world whichwould be cheap for their production.Foreign investment by MNCs in thesecountries has been rising. At the sametime, foreign trade between countrieshas been rising rapidly. A large partof the foreign trade is also controlledby MNCs. For instance, the carmanufacturing plant of Ford Motorsin India not only produces cars for theIndian markets, it also exports carsto other developing countries andexports car components for its manyfactories around the world. Likewise,activities of most MNCs involvesubstantial trade in goods and alsoservices.

WHAT IS GLOBALISATION?

BE CAREFUL! THAT’SOUROUROUROUROUR WORLD YOU’RE

PLAYING WITH!SOMEDAY YOU’LLHAVE TO PAY THE

PRICE!

GLOBALISATIONIS FUN!

Small traders of readymade garments facing stiffcompetition from both MNC brands and imports.


TechnologyRapid improvement in technology has been one major factor that hasstimulated the globalisation process. For instance, the past fifty years haveseen several improvements in transportation technology. This has made muchfaster delivery of goods across long distances possible at lower costs.

The result of greater foreigninvestment and greater foreign tradehas been greater integration ofproduction and markets acrosscountries. Globalisation is thisprocess of rapid integration orinterconnection between countries.MNCs are playing a major role inthe globalisation process. Moreand more goods and services,investments and technology aremoving between countries. Mostregions of the world are in closer

1. What is the role of MNCs in the globalisation process?

2. What are the various ways in which countries can belinked?

3. Choose the correct option.

Globalisation, by connecting countries, shall result in

(a) lesser competition among producers.

(b) greater competition among producers.

(c) no change in competition among producers.


contact with each other than a fewdecades back.

Besides the movements of goods,services, investments and technology,there is one more way in which thecountries can be connected. This isthrough the movement of peoplebetween countries. People usuallymove from one country to another insearch of better income, better jobs orbetter education. In the past fewdecades, however, there has not beenmuch increase in the movement ofpeople between countries due tovarious restrictions.

Containers fortransport of goodsGoods are placed in containersthat can be loaded intact ontoships, railways, planes and trucks.Containers have led to hugereduction in port handling costsand increased the speed withwhich exports can reach markets.Similarly, the cost of air transporthas fallen. This has enabled muchgreater volumes of goods beingtransported by airlines.

FACTORS THAT HAVE ENABLED GLOBALISATION

...WE’VE SEEN GREAT IMPROVEMENTSIN TRANSPORTATION...


amazing world of internet, where youcan obtain and share information onalmost anything you want to know.Internet also allows us to send instantelectronic mail (e-mail) and talk(voice-mail) across the world atnegligible costs.

Even more remarkable have beenthe developments in information andcommunication technology. Inrecent times, technology in the areasof telecommunications, computers,Internet has been changing rapidly.Telecommunication facilities (tele-graph, telephone including mobilephones, fax) are used to contact oneanother around the world, to accessinformation instantly, and tocommunicate from remote areas. Thishas been facilitated by satellitecommunication devices. As youwould be aware, computers have nowentered almost every field of activity.You might have also ventured into the

Using IT inUsing IT inUsing IT inUsing IT inUsing IT inGlobalisationGlobalisationGlobalisationGlobalisationGlobalisation

Information and communication technology

(or IT in short) has played a major role in

spreading out production of services

across countries. Let us see how.

1. In the above example, underline thewords describing the use oftechnology in production.

2. How is information technologyconnected with globalisation? Wouldglobalisation have been possiblewithout expansion of IT?


A news magazine published for Londonreaders is to be designed and printed inDelhi. The text of the magazine is sentthrough Internet to the Delhi office. Thedesigners in the Delhi office getorders on how to design the magazinefrom the office in London usingtelecommunication facilities. Thedesigning is done on a computer. Afterprinting, the magazines are sent by airto London. Even the payment of moneyfor designing and printing from a bankin London to a bank in Delhi is doneinstantly through the Internet(e-banking)!

NO, MY CHILD! THISPRINTING PRESS IS NOTFOR ORDINARY INDIANS!

IT LOOKS LIKE A VERY NICEMAGAZINE. BUT WHY ISN’T MY

TEXTBOOK PRINTED LIKETHIS? I CAN HARDLY READTHE WORDS IN MY BOOK!

...BUT WHEREIS THE

ELECTRICITY?...


Liberalisation of foreign tradeand foreign investmentpolicyLet us return to the example of importsof Chinese toys in India. Suppose theIndian government puts a tax onimport of toys. What would happen?Those who wish to import these toyswould have to pay tax on this.Because of the tax, buyers will haveto pay a higher price on imported toys.Chinese toys will no longer be ascheap in the Indian markets andimports from China will automaticallyreduce. Indian toy-makers willprosper.

Tax on imports is an example oftrade barrier. It is called a barrierbecause some restriction has been setup. Governments can use tradebarriers to increase or decrease(regulate) foreign trade and to decidewhat kinds of goods and how muchof each, should come into the country.

The Indian government, afterIndependence, had put barriers toforeign trade and foreign investment.This was considered necessary toprotect the producers within thecountry from foreign competition.Industries were just coming up in the1950s and 1960s, and competitionfrom imports at that stage would nothave allowed these industries to comeup. Thus, India allowed imports

of only essential items such asmachinery, fertilisers, petroleumetc. Note that all developedcountries, during the early stages ofdevelopment, have given protection todomestic producers through a varietyof means.

Starting around 1991, some far-reaching changes in policy were madein India. The government decided thatthe time had come for Indianproducers to compete with producersaround the globe. It felt thatcompetition would improve theperformance of producers within thecountry since they would have toimprove their quality. This decisionwas supported by powerfulinternational organisations.

Thus, barriers on foreign trade andforeign investment were removed to alarge extent. This meant that goodscould be imported and exportedeasily and also foreign companiescould set up factories and officeshere.

Removing barriers or restrictionsset by the government is what isknown as liberalisation. Withliberalisation of trade, businesses areallowed to make decisions freelyabout what they wish to import orexport. The government imposesmuch less restrictions than beforeand is therefore said to be moreliberal.

1. What do you understand by liberalisation of foreign trade?

2. Tax on imports is one type of trade barrier. The government could also place a limit onthe number of goods that can be imported. This is known as quotas. Can you explain,using the example of Chinese toys, how quotas can be used as trade barriers?Do you think this should be used? Discuss.



rules regarding international trade,and sees that these rules are obeyed.149 countries of the world arecurrently members of the WTO(2006).

Though WTO is supposed to allowfree trade for all, in practice, it is seenthat the developed countries haveunfairly retained trade barriers. Onthe other hand, WTO rules have forcedthe developing countries to removetrade barriers. An example of this isthe current debate on trade inagricultural products.

We have seen that the liberalisation offoreign trade and investment in Indiawas supported by some very powerfulinternational organisations. Theseorganisations say that all barriers toforeign trade and investment areharmful. There should be no barriers.Trade between countries should be‘free’. All countries in the worldshould liberalise their policies.

World Trade Organisation (WTO) isone such organisation whose aim isto liberalise international trade.Started at the initiative of thedeveloped countries, WTO establishes

WORLD TRADE ORGANISATION

Debate on Trade PracticesDebate on Trade PracticesDebate on Trade PracticesDebate on Trade PracticesDebate on Trade PracticesDeveloping countries are, therefore, asking thedeveloped country governments, “We havereduced trade barriers as per WTO rules. But youhave ignored the rules of WTO and havecontinued to pay your farmers vast sums ofmoney. You have asked our governments to stopsupporting our farmers, but you are doing soyourselves. Is this free and fair trade?”

You have seen in Chapter 2, thatthe agriculture sector provides thebulk of employment and asignificant portion of the GDP inIndia. Compare this to a developedcountry such as the US with theshare of agriculture in GDP at 1%and its share in total employmenta tiny 0.5%! And yet this verysmall percentage of peoplewho are engaged inagriculture in the US receivemassive sums of money fromthe US government forproduction and for exports toother countries. Due to thismassive money that theyreceive, US farmers can sellthe farm products atabnormally low prices. Thesurplus farm products aresold in other country marketsat low prices, adverselyaffecting farmers in thesecountries.

A typical cotton farm in USA consists of thousands of acres owned bya huge corporation that will sell cotton abroad at lowered prices.

In the last fifteen years, globalisationof the Indian economy has come along way. What has been its effect onthe lives of people? We look at someof the evidence.

Globalisation and greatercompetition among producers - bothlocal and foreign producers - has beenof advantage to consumers,particularly the well-off sections in theurban areas. There is greater choicebefore these consumers who nowenjoy improved quality and lowerprices for several products. As a result,these people today, enjoy muchhigher standards of living than waspossible earlier.

Among producers and workers,the impact of globalisation has notbeen uniform.

Firstly, MNCs have increased theirinvestments in India over the past 15years, which means investing in Indiahas been beneficial for them. MNCshave been interested in industriessuch as cell phones, automobiles,electronics, soft drinks, fast food orservices such as banking in urbanareas. These products have a largenumber of well-off buyers. In theseindustries and services, new jobs havebeen created. Also, local companiessupplying raw materials, etc. to theseindustries have prospered.

1. Fill in the blanks.

WTO was started at the initiative of __________countries. The aim of the WTO is to

____________________. WTO establishes rules regarding ________________ for

all countries, and sees that ___________________ In practice, trade between countries

is not ______________________________. Developing countries like India have

___________________, whereas developed countries, in many cases, have continued

to provide protection to their producers.

2. What do you think can be done so that trade between countries is more fair?

3. In the above example, we saw that the US government gives massive sums of moneyto farmers for production. At times, governments also give support to promote productionof certain types of goods, such as those which are environmentally friendly. Discusswhether these are fair or not.


IMPACT OF GLOBALISATION IN INDIA


are some Indian companies whichare spreading their operationsworldwide.

Globalisation has also creatednew opportunities for companiesproviding services, particularly thoseinvolving IT. The Indian companyproducing a magazine for the Londonbased company and call centres aresome examples. Besides, a host ofservices such as data entry, account-ing, administrative tasks, engineeringare now being done cheaply incountries such as India and areexported to the developed countries.

Secondly, several of the top Indiancompanies have been able to benefitfrom the increased competition. Theyhave invested in newer technology andproduction methods and raised theirproduction standards. Some havegained from successful collaborationswith foreign companies.

Moreover, globalisation hasenabled some large Indian companiesto emerge as multinationalsthemselves! Tata Motors (auto-mobiles), Infosys (IT), Ranbaxy(medicines), Asian Paints (paints),Sundaram Fasteners (nuts and bolts)

1. How has competition benefited people in India?

2. Should more Indian companies emerge as MNCs? How would it benefit the people inthe country?

3. Why do governments try to attract more foreign investment?

4. In Chapter 1, we saw what may be development for one may be destructive for others.The setting of SEZs has been opposed by some people in India. Find out who arethese people and why are they opposing it.


In recent years, the central and stategovernments in India are taking specialsteps to attract foreign companies toinvest in India. Industrial zones, calledSpecial Economic Zones (SEZs), arebeing set up. SEZs are to have world classfacilities: electricity, water, roads,transport, storage, recreational andeducational facilities. Companies who setup production units in the SEZs do nothave to pay taxes for an initial period offive years.

Government has also allowedflexibility in the labour laws to attractforeign investment. You have seen inChapter 2 that the companies in theorganised sector have to obey certainrules that aim to protect the workers’

rights. In the recent years, the governmenthas allowed companies to ignore many ofthese. Instead of hiring workers on aregular basis, companies hire workers‘flexibly’ for short periods when there isintense pressure of work. This is done toreduce the cost of labour for the company.However, still not satisfied, foreigncompanies are demanding more flexibilityin labour laws.

Steps to Attract Foreign InvestmentSteps to Attract Foreign InvestmentSteps to Attract Foreign InvestmentSteps to Attract Foreign InvestmentSteps to Attract Foreign Investment

NOW, WEARE READYTO INVEST!

Small producers: Compete or perishFor a large number of small producers andworkers globalisation has posed majorchallenges.

Batteries, capacitors, plastics, toys, tyres, dairy products, andvegetable oil are some examples of industries where the smallmanufacturers have been hit hard due to competition. Several of theunits have shut down rendering many workers jobless. The smallindustries in India employ the largest number of workers (20 million)in the country, next only to agriculture.

1. What are the ways in which Ravi’s small production unit was affected by rising competition?

2. Should producers such as Ravi stop production because their cost of production is higher compared toproducers in other countries? What do you think?

3. Recent studies point out that small producers in India need three things to compete better in the market(a) better roads, power, water, raw materials, marketing and information network (b) improvements andmodernisation of technology (c) timely availability of credit at reasonable interest rates.

Can you explain how these three things would help Indian producers?

Do you think MNCs will be interested in investing in these? Why?

Do you think the government has a role in making these facilities available? Why?

Can you think of any other step that the government could take? Discuss.


used to buy different componentsincluding capacitors in bulk for themanufacture of television sets.However, competition from the MNCbrands forced the Indian televisioncompanies to move into assemblingactivities for MNCs. Even when someof them bought capacitors, they wouldprefer to import as the price of theimported item was half the pricecharged by people like Ravi.Ravi now produces less than half thecapacitors that he produced in the year2000 and has only seven workersworking for him. Many of Ravi’s friendsin the same business in Hyderabadand Chennai have closed their units.

Ravi did not expect that he would haveto face a crisis in such a short periodof his life as industrialist. Ravi took aloan from the bank to start his owncompany producing capacitors in 1992in Hosur, an industrial town in TamilNadu. Capacitors are used in manyelectronic home appliances includingtube lights, television etc. Within threeyears, he was able to expandproduction and had 20 workersworking under him.

His struggle to run his company startedwhen the government removedrestrictions on imports of capacitors asper its agreement at WTO in 2001. Hismain clients, the television companies,

Rising CompetitionRising CompetitionRising CompetitionRising CompetitionRising Competition


Competition and Uncertain Employment Globalisation and the pressure of competition have substantially changed the livesof workers. Faced with growing competition, most employers these days prefer toemploy workers ‘flexibly’. This means that workers’ jobs are no longer secure.

A Garment WorkerA Garment WorkerA Garment WorkerA Garment WorkerA Garment Worker35 year old Sushila has spent many

years as a worker in garment export

industry of Delhi. She was employed

as a ‘permanent worker’ entitled to

health insurance, provident fund,

overtime at a double rate, when

Sushila’s factory closed in the late

1990s. After searching for a job for

six months, she finally got a job 30

km. away from where she lives. Even

after working in this factory for

several years, she is a temporary

worker and earns less than half of

what she was earning earlier.

Sushila leaves her house every

morning, seven days a week at 7:30

a.m. and returns at 10 p.m. A day

off from work means no wage. She

has none of the benefits she used

to get earlier. Factories closer to her

home have widely fluctuating orders

and therefore pay even less.

Let us see how the workers in the garment export industryin India are having to bear this pressure of competition.

Large MNCs in the garment industry inEurope and America order their productsfrom Indian exporters. These large MNCswith worldwide network look for the cheapestgoods in order to maximise their profits. Toget these large orders, Indian garmentexporters try hard to cut their own costs. Ascost of raw materials cannot be reduced,exporters try to cut labour costs. Whereearlier a factory used to employ workers ona permanent basis, now they employ workersonly on a temporary basis so that they donot have to pay workers for the whole year.Workers also have to put in very longworking hours and work night shifts on aregular basis during the peak season. Wagesare low and workers are forced to workovertime to make both ends meet.

While this competition among the garmentexporters has allowed the MNCs to make largeprofits, workers are denied their fair share ofbenefits brought about by globalisation.

Factory workers folding garments for export. Though globalisation has created opportunities for paid work forwomen, the condition of employment shows that women are denied their fair share of benefits.



The conditions of work and the hardships of the workers described abovehave become common to many industrial units and services in India. Mostworkers, today, are employed in the unorganised sector. Moreover, increasinglyconditions of work in the organised sector have come to resemble theunorganised sector. Workers in the organised sector such as Sushila no longerget the protection and benefits that they enjoyed earlier.

that labour laws are properlyimplemented and the workers gettheir rights. It can support smallproducers to improve theirperformance till the time they becomestrong enough to compete. Ifnecessary, the government can usetrade and investment barriers. It cannegotiate at the WTO for ‘fairer rules’.It can also align with other developingcountries with similar interests tofight against the domination ofdeveloped countries in the WTO.

In the past few years, massivecampaigns and representation bypeople’s organisations haveinfluenced important decisionsrelating to trade and investments atthe WTO. This has demonstratedthat people also can play animportant role in the struggle for fairglobalisation.

The above evidence indicates thatnot everyone has benefited fromglobalisation. People with education,skill and wealth have made the bestuse of the new opportunities. On theother hand, there are many peoplewho have not shared the benefits.

Since globalisation is now areality, the question is how tomake globalisation more ‘fair’?Fair globalisation would createopportunities for all, and also ensurethat the benefits of globalisation areshared better.

The government can play a majorrole in making this possible. Itspolicies must protect the interests, notonly of the rich and the powerful, butall the people in the country. You haveread about some of the possible stepsthat the government can take. Forinstance, the government can ensure

1. In what ways has competition affected workers, Indian exporters and foreign MNCsin the garment industry?

2. What can be done by each of the following so that the workers can get a fair shareof benefits brought by globalisation?

(a) government

(b) employers at the exporting factories

(c) MNCs

(d) workers.

3. One of the present debates in India is whether companies should have flexiblepolicies for employment. Based on what you have read in the chapter, summarisethe point of view of the employers and workers.


THE STRUGGLE FOR A FAIR GLOBALISATION


A demonstration against WTO in Hong Kong, 2005

In this chapter, we looked at thepresent phase of globalisation.Globalisation is the process ofrapid integration of countries.This is happening throughgreater foreign trade and foreigninvestment. MNCs are playing amajor role in the globalisationprocess. More and more MNCsare looking for locations aroundthe world that are cheap for theirproduction. As a result,production is being organisedin complex ways.

Technology, particularly IT,has played a big role inorganising production acrosscountries. In addition,liberalisation of trade and

SUMMING UP

investment has facilitatedglobalisation by removingbarriers to trade andinvestment. At the inter -national level, WTO has putpressure on developing coun-tries to liberalise trade andinvestment.

While globalisation hasbenefited well-off consumersand also producers with skill,education and wealth, manysmall producers and workershave suffered as a result of therising competition. Fairglobalisation would createopportunities for all, and alsoensure that the benefits ofglobalisation are shared better.

1 What do you understand by globalisation? Explain in your own words.

2. What was the reasons for putting barriers to foreign trade and foreign investment bythe Indian government? Why did it wish to remove these barriers?

3. How would flexibility in labour laws help companies?

4. What are the various ways in which MNCs set up, or control, production in othercountries?

5. Why do developed countries want developing countries to liberalise their trade andinvestment? What do you think should the developing countries demand in return?

6. “The impact of globalisation has not been uniform.” Explain this statement.

7. How has liberalisation of trade and investment policies helped the globalisationprocess?

8. How does foreign trade lead to integration of markets across countries? Explainwith an example other than those given here.

9. Globalisation will continue in the future. Can you imagine what the world would belike twenty years from now? Give reasons for your answer.

10.Supposing you find two people arguing: One is saying globalisation has hurt ourcountry’s development. The other is telling, globalisation is helping India develop.How would you respond to these organisations?

11.Fill in the blanks.

Indian buyers have a greater choice of goods than they did two decades back. This

is closely associated with the process of ______________. Markets in India are selling

goods produced in many other countries. This means there is increasing

______________ with other countries. Moreover, the rising number of brands that we

see in the markets might be produced by MNCs in India. MNCs are investing in India

because _____________ ___________________________________________ . While

consumers have more choices in the market, the effect of rising _______________

and ______________has meant greater _________________among the producers.

12.Match the following.

(i) MNCs buy at cheap rates from small (a) Automobilesproducers

(ii) Quotas and taxes on imports are used to (b) Garments, footwear, sportsregulate trade items

(iii) Indian companies who have invested abroad (c) Call centres

(iv) IT has helped in spreading of (d) Tata Motors, Infosys, Ranbaxyproduction of services

(v) Several MNCs have invested in setting (e) Trade barriersup factories in India for production

EXERCISES


ADDITIONAL ACTIVITY / PROJECT

13.Choose the most appropriate option.

(i) The past two decades of globalisation has seen rapid movements in

(a) goods, services and people between countries.

(b) goods, services and investments between countries.

(c) goods, investments and people between countries.

(ii) The most common route for investments by MNCs in countries around theworld is to

(a) set up new factories.

(b) buy existing local companies.

(c) form partnerships with local companies.

(iii) Globalisation has led to improvement in living conditions

(a) of all the people

(b) of people in the developed countries

(c) of workers in the developing countries

(d) none of the above

I. Take some branded products that we use everyday (soaps, toothpaste,

garments, electronic goods, etc.). Check which of these are produced by MNCs.

II. Take any Indian industry or service of your choice. Collect information andphotographs from newspapers, magazine clippings, books, television, internet,interviews with people on the following aspects of the industry.

(i) Various producers/companies in the industry

(ii) Is the product exported to other countries

(iii) Are there MNCs among the producers

(iv) Competition in the industry

(v) Conditions of work in the industry

(vi) Has there been any major change in the industry in the past fifteen years

(vii) Problems that people in the industry face.



This chapter proposes to discuss the issue ofconsumer rights within the context of the waysmarkets operate in our country. There are manyaspects of unequal situations in a market andpoor enforcement of rules and regulations. Hence,there is a need to sensitise learners and encouragethem to participate in the consumer movement.This chapter provides case histories – how someconsumers were exploited in a real life situationand how legal institutions helped consumers ingetting compensated and in upholding their rightsas consumers. The case histories would enablethe students to link these narratives to their lifeexperiences. We have to enable students tounderstand that the awareness of being a well-informed consumer arose out of consumermovement and active participation of peoplethrough their struggles over a long period. Thischapter also provides details of a feworganisations helping consumers in differentways. Finally it ends with some critical issues ofthe consumer movement in India.

Aspects of Teaching / Sources of Information

This chapter has questions, case studies andactivities. It would be preferred that studentsdiscuss these in groups orally. Some of thesecould be answered in writing individually.

While carrying out each activity you couldstart with a brainstorming session about theactivity. Similarly there are many opportunitiesfor role-play in this chapter and this could be auseful way to share their experiences and

understand the issues at a deeper level. Makingposters collectively is another way to think aboutthese issues. This lesson contains activities,which require visits – visit to consumerprotection councils, consumer organisations,consumer court, retail shops, market places, etc.Organise the visits to maximise learners’experience. Have a discussion with them aboutthe purpose of the visit, things they need to dobeforehand and things that need to be collectedand the task (report/ project / article, etc.) theywould carry out after the visit. As part of thischapter, the learners may do letter-writing andspeaking activities. We may have to be sensitiveto the language aspect of exercises.

This chapter contains materials collectedfrom authenticated websites, books, newspapersand magazines. For example, http://www.mca.gov.in is a website of CentralGovernment Ministry of Consumer Affairs.Another website www.cuts-international.org is thewebsite of a consumer organisation working inIndia for more than 20 years. It publishes avariety of materials to create consumerawareness in India. They need to be sharedamong learners so that they can also collectmaterials as part of their activities. For example,case histories were taken from newspaperclippings and consumers who fought inconsumer courts. Let learners collect and readsuch materials from different sources: consumerprotection councils, consumer courts andinternet.

CHAPTER 5 : CONSUMER RIGHTS


CONSUMER RIGHTSCONSUMER RIGHTSCONSUMER RIGHTSCONSUMER RIGHTSCONSUMER RIGHTSCHAPTER 5

The collage you see below containssome news clippings of consumercourt verdicts. Why did the people goto the consumer court in these cases?These verdicts came about becausesome people persisted and struggledto get justice. In what ways were theydenied justice? More importantly,

what are the ways in which they canexercise their rights as consumers toget a fair deal from the sellers whenthey felt they had been denied a justtreatment?

We participate in the market both asproducers and consumers. Asproducers of goods and services wecould be working in any of the sectorsdiscussed earlier such as agriculture,industry, or services. Consumersparticipate in the market when theypurchase goods and services that theyneed. These are the final goods thatpeople as consumers use.

In the preceding chapters wediscussed the need for rules andregulations or steps that wouldpromote development. These could befor the protection of workers in theunorganised sector or to protectpeople from high interest ratescharged by moneylenders in theinformal sector. Similarly, rules andregulations are also required forprotecting the environment.

For example, moneylenders in theinformal sector that you read aboutin Chapter 3 adopt various tricks tobind the borrower: they could makethe producer sell the produce to themat a low rate in return for a timely loan;they could force a small farmer likeSwapna to sell her land to pay backthe loan. Similarly, many people whowork in the unorganised sector haveto work at a low wage and acceptconditions that are not fair and arealso often harmful to their health. Toprevent such exploitation, wehave talked of rules and regulationsfor their protection. There areorganisations that have struggledfor long to ensure that these rules arefollowed.

THE CONSUMER IN THE MARKETPLACELikewise, rules and regulations are

required for the protection of theconsumers in the marketplace.Individual consumers often findthemselves in a weak position.Whenever there is a complaintregarding a good or service that hadbeen bought, the seller tries to shiftall the responsibility on to the buyer.Their position usually is – “If youdidn’t like what you bought, pleasego elsewhere”. As if the seller has noresponsibility once a sale iscompleted! The consumer movement,as we shall discuss later, is an effortto change this situation.

Exploitation in the marketplacehappens in various ways. Forexample, sometimes traders indulgein unfair trade practices such as whenshopkeepers weigh less than whatthey should or when traders addcharges that were not mentionedbefore, or when adulterated/defectivegoods are sold.

Markets do not work in a fairmanner when producers are few andpowerful whereas consumerspurchase in small amounts and arescattered. This happens especiallywhen large companies are producingthese goods. These companies withhuge wealth, power and reach canmanipulate the market in variousways. At times false information ispassed on through the media, andother sources to attract consumers.For example, a company for yearssold powder milk for babies all over

THEY PURPOSELY MADE ITSO IT WOULD FALL APARTAFTER A FEW MONTHS SO

THAT I WILL BUY A NEW ONE!

7777777777CCCCCONSUMERONSUMERONSUMERONSUMERONSUMER R R R R RIGHTSIGHTSIGHTSIGHTSIGHTS

1. What are the various ways by which people may be exploited in the market?

2. Think of one example from your experience where you thought that there was some‘cheating’ in the market. Discuss in the classroom.

3. What do you think should be the role of government to protect consumers?


the world as the most scientificproduct claiming this to be betterthan mother’s milk. It took years ofstruggle before the company wasforced to accept that it had beenmaking false claims. Similarly, along battle had to be fought withcourt cases to make cigarette-manufacturing companies accept thattheir product could cause cancer.Hence, there is a need for rules andregulations to ensure protection forconsumers.

CONSUMER MOVEMENT

quality of goods and services on thesellers.

In India, the consumer movementas a ‘social force’ originated with thenecessity of protecting and promotingthe interests of consumers againstunethical and unfair trade practices.Rampant food shortages, hoarding,black marketing, adulteration of foodand edible oil gave birth to theconsumer movement in an organisedform in the 1960s. Till the 1970s,consumer organisations were largelyengaged in writing articles andholding exhibitions. They formedconsumer groups to look into themalpractices in ration shops andovercrowding in the road passengertransport. More recently, Indiawitnessed an upsurge in the numberof consumer groups.

The consumer movement arose outof dissatisfaction of the consumersas many unfair practices were beingindulged in by the sellers. There wasno legal system available toconsumers to protect them fromexploitation in the marketplace. Fora long time, when a consumer wasnot happy with a particular brandproduct or shop, he or she generallyavoided buying that brand product,or would stop purchasing from thatshop. It was presumed that it wasthe responsibility of consumers to becareful while buying a commodityor service. It took many years fororganisations in India, and aroundthe world, to create awarenessamongst people. This has alsoshifted the responsibility of ensuring

EVERYONE KNOWSTOBACCO KILLS PEOPLE,BUT WHO CAN SAY THAT

TOBACCO COMPANIESSHOULD NOT BE FREE

TO SELL TOBACCO?

1. What could have been the steps taken by consumer groups?

2. There may be rules and regulations but they are often not followed. Why? Discuss.


Consumers International

In 1985 United Nations adoptedthe UN Guidelines for ConsumerProtection. This was a tool fornations to adopt measures toprotect consumers and forconsumer advocacy groups topress their governments to doso. At the international level, thishas become the foundation forconsumer movement. Today,Consumers International hasbecome an umbrella body of 240organisations from over 100countries.

Because of all these efforts, the movement succeeded inbringing pressure on business firms as well as governmentto correct business conduct which may be unfair and againstthe interests of consumers at large. A major step taken in1986 by the Indian government was the enactment of theConsumer Protection Act 1986, popularly known as COPRA.You will learn more about COPRA later.


SAFETY IS EVERYONE’S RIGHT

Reji’s SufferingReji’s SufferingReji’s SufferingReji’s SufferingReji’s Suffering

CONSUMER RIGHTS

Reji’s suffering shows how ahospital, due to negligence by thedoctors and staff in givinganaesthesia, crippled a student forlife. While using many goods andservices, we as consumers, have theright to be protected against themarketing of goods and delivery ofservices that are hazardous to life andproperty. Producers need to strictlyfollow the required safety rules andregulations. There are many goodsand services that we purchase thatrequire special attention to safety. Forexample, pressure cookers have asafety valve which, if it is defective, cancause a serious accident. Themanufacturers of the safety valve haveto ensure high quality. You also needpublic or government action to seethat this quality is maintained.However, we do find bad qualityproducts in the market because thesupervision of these rules is weak andthe consumer movement is also notstrong enough.

1. For the following (you can add to the list) products/services discuss what safetyrules should be observed by the producer?

(a) LPG cyclinder (b) cinema theatre (c) circus (d) medicines (e) edible oil(f) marriage pandal (g) a high-rise building.

2. Find out any case of accident or negligence from people around you, where you thinkthat the responsibility lay with the producer. Discuss.


Reji Mathew, a healthy boy studying inClass IX, was admitted in a private clinic inKerala for removal of tonsils. An ENTsurgeon performed the tonsillectomyoperation under general anaesthesia. As aresult of improper anaesthesia Reji showedsymptoms of some brain abnormalitiesbecause of which he was crippled for life.

His father filed a complaint in the StateConsumer Disputes Redressal Commissionclaiming compensation of Rs 5,00,000 formedical negligence and deficiency, inservice. The State Commission, saying thatthe evidence was not sufficient dismissedit. Reji’s father appealed again in theNational Consumer Disputes Redressal

Commission locatedin New Delhi. TheNational Commissionafter looking into thecomplaint, held thehospital responsiblefor medical negligenceand directed it to paythe compensation.


Information about goods andservicesWhen you buy any commodity, youwill find certain details given on thepacking. These details are aboutingredients used, price, batchnumber, date of manufacture, expirydate and the address of themanufacturer. When we buymedicines, on the packets, you mightfind ‘directions for proper use’ andinformation relating to side effects andrisks associated with usage of thatmedicine. When you buy garments,you will find information on‘instructions for washing’.

Why is it that rules have been madeso that the manufacturer displays thisinformation? It is because consumershave the right to be informed aboutthe particulars of goods and servicesthat they purchase. Consumerscan then complain and ask forcompensation or replacement if theproduct proves to be defective in anymanner. For example, if we buy a

product and find it defective wellwithin the expiry period, we can askfor a replacement. If the expiry periodwas not printed, the manufacturerwould blame the shopkeeper and willnot accept the responsibility. If peoplesell medicines that have expiredsevere action can be taken againstthem. Similarly, one can protest andcomplain if someone sells a good atmore than the printed price on thepacket. This is indicated by ‘MRP’ —maximum retail price. In factconsumers can bargain with the sellerto sell at less than the MRP.

In recent times, the right toinformation has been expanded tocover various services provided by theGovernment. In October 2005, theGovernment of India enacted a law,popularly known as RTI (Right toInformation) Act, which ensures itscitizens all the information about thefunctions of government departments.The effect of the RTI Act can beunderstood from the following case.

Waiting...Waiting...Waiting...Waiting...Waiting...Amritha, an engineeringgraduate after submitting allthe certificates and attendingthe interview for a job in agovernment department, didnot receive any news of theresult. The officials alsorefused to comply with herqueries. She therefore filed anapplication using the RTI Actsaying that it was her right toknow the result in areasonable time so that shecould plan her future. Shesoon got her call letter forappointment.


1. When we buy commodities we find that the price charged is sometimes higher orlower than the Maximum Retail Price printed on the pack. Discuss the possiblereasons. Should consumer groups do something about this?

2. Pick up a few packaged goods that you want to buy and examine the informationgiven. In what ways are they useful? Is there some information that you thinkshould be given on those packaged goods but is not? Discuss.

3. People make complaints about the lack of civic amenities such as bad roads orpoor water and health facilities but no one listens. Now the RTI Act gives you thepower to question. Do you agree? Discuss.


Abirami, a student ofAnsari Nagar, joined a two-year course at a localcoaching institute forprofessional courses inNew Delhi. At the time ofjoining the course, shepaid the fees Rs 61,020as lumpsum for the entirecourse of two years.However, she decided to opt out of thecourse at the end of one year as shefound that the quality of teaching wasnot up to the mark. When she askedfor a refund of the fee for one year, itwas denied to her.

When she filed the case in the DistrictConsumer Court, the Court directedthe Institute to refund Rs 28,000saying that she had the right to

choose. The Instituteagain appealed in theState Consumer Com-mission. The StateCommission upheld thedistrict court’s directionand further fined theinstitute Rs 25,000 for afrivolous appeal. It alsodirected the institute to

pay Rs 7000 as compensation andlitigation cost.

The State Commission also restrainedall the educational and professionalinstitutions in the state from chargingfees from students for the entireduration of the course in advance andthat too at one go. Any violation of thisorder may invite penalties andimprisonment, the commission said.

if you buy a tooth brush. If you arenot interested in buying the brush,your right to choice is denied. Similarly,sometimes gas supply dealers insistthat you have to buy the stove fromthem when you take a new connection.In this way many a times you areforced to buy things that you may notwish to and you are left with no choice.

What do we understand from thisincident? Any consumer who receives aservice in whatever capacity, regardlessof age, gender and nature of service, hasthe right to choose whether to continueto receive the service.

Suppose you want to buytoothpaste, and the shop owner saysthat she can sell the toothpaste only

When choice is denied

A RefundA RefundA RefundA RefundA Refund

Where should consumers goto get justice?Read again the cases of Reji Mathewand Abirami given earlier in thechapter.

These are some examples in whichconsumers are denied their rights.Such instances occur quite often inour country. Where should theseconsumers go to get justice?

Consumers have the right to seekredressal against unfair tradepractices and exploitation. If anydamage is done to a consumer, shehas the right to get compensation

The following are some of the catchy advertisements of products that we purchasefrom the market. Which of the following offers would really benefit consumers? Discuss.

15 gm more in every 500 gm pack.

Subscribe for a newspaper with a gift at the end of a year.

Scratch and win gifts worth Rs 10 lakhs.

A milk chocolate inside a 500 gram glucose box.

Win a gold coin inside a pack.

Buy shoes worth Rs 2000 and get one pair of shoes worth Rs 500 free.


depending on the degree of damage.There is a need to provide an easy andeffective public system by which thiscan be done.

You might be interested in knowinghow an aggrieved person gets his orher compensation. Let us take thecase of Prakash. He had sent amoney-order to his village for hisdaughter’s marriage. The money didnot reach his daughter at the timewhen she needed it nor did it reachmonths later. Prakash filed a case ina district level consumer court in NewDelhi. All the steps he undertook areillustrated here.

1. PRAKASH GOES TO THE POST OFFICE TOSEND MONEY ORDER TO HIS DAUGHTER 2. PRAKASH COMES TO KNOW THAT THE

MONEY HAS NOT REACHED HIS DAUGHTER


3. PRAKASH ENQUIRES ABOUT THEMONEY ORDER IN THE POST OFFICE 4. THE POST OFFICE DOES NOT RESPOND

TO THE QUERY SATISFACTORILY

5. PRAKASH GOES TO THE LOCAL CONSUMERPROTECTION COUNCIL FOR ADVICE 6. PRAKASH GOES TO A CONSUMER COURT TO FILE

A CASE.. HE FILLS A REGISTRATIONFORM

7. HE HIMSELF PLEADS THECASE IN THE COURT 8. THE COURT JUDGE VERIFIES

THE DOCUMENTS9. THE JUDGE ANNOUNCES

THE COURT VERDICT.



The consumer movement in Indiahas led to the formation of variousorganisations locally known asconsumer forums or consumerprotection councils. They guideconsumers on how to file cases in theconsumer court. On many occasions,they also represent individualconsumers in the consumer courts.These voluntary organisations alsoreceive financial support from thegovernment for creating awarenessamong the people.

If you are living in a residentialcolony, you might have noticedname boards of Resident WelfareAssociations. If there is any unfairtrade practice meted out to theirmembers they take up the case ontheir behalf.

Arrange the following in the correct order.

(a) Arita files a case in the District Consumer Court.

(b) She engages a professional person.

(c) She realises that the dealer has given her defectivematerial.

(d) She starts attending the court proceedings.

(e) She goes and complains to the dealer and the Branchoffice, to no effect.

(f) She is asked to produce the bill and warranty beforethe court.

(g) She purchases a wall clock from a retail outlet.

(h) Within a few months, the dealer was ordered by thecourt to replace her old wall clock with a brand newone at no extra cost.


LEARNING TO BECOME WELL-INFORMEDCONSUMERSWhen we as consumers become conscious of our rights,while purchasing various goods and services, we will beable to discriminate and make informed choices. Thiscalls for acquiring the knowledge and skill to become awell-informed consumer. How do we become conscious

Under COPRA, a three-tier quasi-judicial machinery at the district,state and national levels was set upfor redressal of consumer disputes.The district level court deals with thecases involving claims upto Rs 20lakhs, the state level courts betweenRs 20 lakhs and Rs 1 crore and thenational level court deals with casesinvolving claims exceeding Rs 1 crore.If a case is dismissed in district levelcourt, the consumer can also appealin state and then in National levelcourts.

Thus, the Act has enabled us asconsumers to have the right torepresent in the consumer courts.

of our rights? Look at the posters onthe right and in the previous page.What do you think?

The enactment of COPRA has ledto the setting up of separatedepartments of Consumer Affairs incentral and state governments. Theposters that you have seen are oneexample through which governmentspread information about legalprocess which people can use.You might also be seeing suchadvertisements on television channels.

ISI and AgmarkISI and AgmarkISI and AgmarkISI and AgmarkISI and Agmark

While buying many commodities, on thecover, you might have seen a logo with theletters ISI, Agmark or Hallmark. Theselogos and certification help consumers getassured of quality while purchasing thegoods and services. The organisations thatmonitor and issue these certificates allowproducers to use their logos provided theyfollow certain quality standards.

Though these organisations developquality standards for many products, it isnot compulsory for all the producers tofollow standards. However, for someproducts that affect the health and safetyof consumers or of products of massconsumption like LPG cylinders, foodcolours and additives, cement, packageddrinking water, it is mandatory on the partof the producers to get certified by theseorganisations.

India has been observing 24December as the National Consumers’Day. It was on this day that the IndianParliament enacted the ConsumerProtection Act in 1986. India is oneof the countries that have exclusivecourts for consumer redressal.

The consumer movement in Indiahas made some progress in terms ofnumbers of organised groups and

their activities. There are today morethan 700 consumer groups in thecountry of which only about 20-25are well organised and recognised fortheir work.

However, the consumer redressalprocess is becoming cumbersome,expensive and time consuming. Manya time, consumers are required toengage lawyers. These cases require

1. Look at the posters and cartoons in this chapter. Think of any particular commodityand the aspects that need to be looked at as a consumer. Design a poster for this.

2. Find out the nearest consumer court for your area.

3. What is the difference between consumer protection council and consumer court?

4. The Consumer Protection Act 1986 ensures the following as rights which everyconsumer in India should possess

(i) Right to choice. (iv) Right to representation.

(ii) Right to information. (v) Right to safety.

(iii) Right to redressal. (vi) Right to consumer education.

Categorise the following cases under different heads and mark against each inbrackets.

(a) Lata got an electric shock from a newly purchased iron. She complained to theshopkeeper immediately. ( )

(b) John is dissatisfied with the services provided by MTNL for the past few months.He files a case in the District Level Consumer Forum. ( )

(c) Your friend has been sold a medicine that has crossed the expiry date and youare advising her to lodge a complaint ( ).

(d) Iqbal makes it a point to scan through all the particulars given on the pack of anyitem that he buys. ( )

(e) You are not satisfied with the services of the cable operator catering to yourlocality but you are unable to switch over to anybody else. ( )

(f) You realise that you have received a defective camera from a dealer. You arecomplaining to the head office persistently ( ).

5. If the standardisation ensures the quality of a commodity, why are many goodsavailable in the market without ISI or Agmark certification?

6. Find out the details of who provides Hallmark and ISO certification.


TAKING THE CONSUMER MOVEMENT FORWARD

time for filing and attending the courtproceedings etc. In most purchasescash memos are not issued henceevidence is not easy to gather.Moreover most purchases in themarket are small retail sales. Theexisting laws also are not very clearon the issue of compensation toconsumers injured by defectiveproducts. After 20 years of theenactment of COPRA, consumerawareness in India is spreading butslowly. Besides this the enforcement

EXERCISES

of laws that protect workers,especially in the unorganised sectorsis weak. Similarly, rules andregulations for working of markets areoften not followed.

Nevertheless, there is scope forconsumers to realise their role andimportance. It is often said thatconsumer movements can be effectiveonly with the consumers’ activeinvolvement. It requires a voluntaryeffort and struggle involving theparticipation of one and all.

8787878787

1. Why are rules and regulations required in the marketplace? Illustrate with a few examples.

2. What factors gave birth to the consumer movement in India? Trace its evolution.

3. Explain the need for consumer consciousness by giving two examples.

4. Mention a few factors which cause exploitation of consumers.

5. What is the rationale behind the enactment of Consumer Protection Act 1986?

6. Describe some of your duties as consumers if you visit a shopping complex in your locality.

7. Suppose you buy a bottle of honey and a biscuit packet. Which logo or mark you will haveto look for and why?

8. What legal measures were taken by the government to empower the consumers in India?

9. Mention some of the rights of consumers and write a few sentences on each.

10. By what means can the consumers express their solidarity?

11. Critically examine the progress of consumer movement in India.

12. Match the following.

(i) Availing details of ingredients of a product (a) Right to safety

(ii) Agmark (b) Dealing with consumer cases

(iii) Accident due to faulty engine in a scooter (c) Certification of edible oil and cereals

(iv) District Consumer Court (d) Agency that develop standards forgoods and services

(v) Consumers International (e) Right to information

(vi) Bureau of Indian Standards (f) Global level institution ofconsumer welfare organisations

13. Say True or False.

(i) COPRA applies only to goods.

(ii) India is one of the many countries in the world which has exclusive courts for consumerredressal.

CCCCCONSUMERONSUMERONSUMERONSUMERONSUMER R R R R RIGHTSIGHTSIGHTSIGHTSIGHTS

(iii) When a consumer feels that he has been exploited, he must file a case inthe District Consumer Court.

(iv) It is worthwhile to move to consumer courts only if the damages incurredare of high value.

(v) Hallmark is the certification maintained for standardisation of jewellry.

(vi) The consumer redressal process is very simple and quick.

(vii) A consumer has the right to get compensation depending on the degree ofthe damage.

1. Your school organises a consumer awareness week. As the Secretary of theConsumer Awareness Forum, draft a poster covering all the consumer rights.You may use the clues and ideas given in the poster on page 84 and 85. Thisactivity can be done with the help of your English teacher.

2. Mrs. Krishna bought a colour television (CTV) against six months warranty. TheCTV stopped working after three months. When she complained to the dealer /shop where it was purchased, they sent an engineer to set it right. The CTVcontinues to give trouble and Mrs Krishna no longer gets any reply to the complaintshe made to the dealer / shop. She decides to write to the Consumer Forum inher area. Write a letter on her behalf. You may discuss with your partner / groupmembers before you write it.

3. Establish a consumer club in your school. Organise mock consumer awarenessworkshops like monitoring bookshops, canteen, and shops in your school area.

4. Prepare posters with catchy slogans like:

– An alert consumer is a safe consumer

– Buyers, Beware

– Consumers be cautious

– Be aware of your rights

– As consumers, assert your right

– Arise, awake and stop not till ______________________ (Complete it)

5. Interview 4-5 persons in your neighbourhood and collect varied experiencesregarding how they have been victims of such exploitation and their responses.

6. Conduct a survey in you locality by supplying the following questionnaire to getan idea as to how alert they are as consumers.

ADDITIONAL PROJECTS / ACTIVITIES


For each question, tick one.

1. When you buy some item, do you insist on a bill?

2. Do you keep the bill carefully?

3. If you realise that you have been tricked by the shop-keeper, have you bothered to complain to him?

4. Have you been able to convince him that you’ve beencheated?

5. Do you simply grumble to yourself reconciling that it isyour fate that you are often being victimised so and it isnothing new?

6. Do you look for ISI mark, expiry date etc.?

7. If the expiry date mentioned is just a month or so away,do you insist on a fresh packet?

8. Do you weigh the new gas cylinder/old newspapersyourself before buying/selling?

9. Do you raise an objection if a vegetable seller uses stonesin place of the exact weight?

10. Do excessively bright coloured vegetables arouse yoursuspicion?

11. Are you brand-conscious?

12. Do you associate high price with good quality (to reassureyourself that after all you have not paid a higher price justlike that)?

13. Do you unhesitatingly respond to catchy offers?

14. Do you compare the price paid by you with those ofothers?

15. Do you strongly believe that your shopkeeper never cheatsa regular customer like you?

16. Do you favour ‘home delivery’ of provision items withoutany doubt regarding weight etc.?

17. Do you insist on ‘paying by meter’ when you travel byauto?

Note

(i) You are extremely aware as a consumer if your answers forQns. 5, 12, 13, 15 and 16 are (C) and for the rest (A).

(ii) If your answers are (A) for Qns. 5, 12, 13, 15 and 16 and therest (C), then you have to wake up as consumer.

(iii) If your answer is (B) for all the questions – you are somewhataware.

Always Sometimes Never

A B C


SUGGESTED READINGSBooks

Abijit Vinayak Banerjee, Roland Benabou and Dilip Mookherjee (eds.),Understanding Poverty, Oxford University Press, New York, 2006.

Amit Bhaduri and Deepak Nayyar, Intelligent Person’s Guide to Liberalisation,Penguin Books, New Delhi, 1996.

Amit Bhaduri, Development with Dignity: The Case for Full Employment, NationalBook Trust, New Delhi, 2005.

Amit Bhaduri, Macroeconomics: The Dynamics of Commodity Production,Macmillan, London, 1986.

Bimal Jalan (ed.), Indian Economy, Penguin Books, New Delhi, 2002.

CUTS, Is it Really Safe, Consumer Unity Trust Society, Jaipur, 2004.

CUTS, State of the Indian Consumer: Analyses of the Implementation of the UnitedNations Guidelines for Consumer Protection, 1985 in India, Consumer UnityTrust Society, Jaipur, 2001.

Indrani Mazumdar, Women and Globalisation: The Impact on Women Workers inthe Formal and Informal Sectors in India, Stree, Delhi, 2007.

Jagdish Bhagwati In Defence of Globalisation, Oxford University Press, Delhi, 2004.

Jan Breman and Parthiv Shah, Working in the mill no more, Oxford UniversityPress, Delhi, 2005.

Jan Breman, Footloose Labour: Working in India’s Informal Economy, CambridgeUniversity Press, Cambridge, 1996.

Jean Dreze and Amartya Sen, India: Development and Participation, OxfordUniversity Press, Delhi, Third Impression, 2007.

John K.Galbraith, Money: Whence it Came, Whence it Went, Indian Book Company,New Delhi, 1975.

Joseph Stiglitz, Globalisation and its Discontents, Penguin Books India,New Delhi, 2003.

National Consumer Disputes Redressal Commission, Landmark Judgments onConsumer Protection, Universal Law Publishing Co., Delhi, 2005.

Tirthankar Roy, The Economic History of India, 1857-1947, Oxford UniversityPress, Delhi, Second Edition, 2006.


Government Publications

Ministry of Finance, Economic Survey, Government of India.

NSSO, Key Results of Employment-Unemployment Rounds, National Sample SurveyOrganisation, Ministry of Statistics and Programme Implementation, Govtof India, New Delhi.

Planning Commission, National Human Development Report 2001, Governmentof India, New Delhi.

Other Reports

Reserve Bank of India, Handbook of Statistics on Indian Economy, Mumbai.

UNDP, Human Development Report 2006, United Nations Development Programme,Geneva.

World Bank, World Development Indicators, The World Bank, Washington.

World Bank, World Development Indicators, The World Bank, Washington.



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