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Structure of Indian Economy Nature and significance Economic systems structure of

Indian industry Economic reforms in various sectors nature challenges social justice
Disinvestment mechanism problems and procedures Sickness in Indian industry, competition
Act 2002.

An economy is the way a nation makes economic choices about how the nation will use its
resources to produce and distribute goods and services.
The following are the different segments of structuring the Indian economy

Agriculture sector on the Eve of independence: The following observations describe

the state of Indian agricultural sector on the eve of independence.
a. Low level of productivity: Level of productivity was very low.
b. High degree of Vulnerability: (Rain conditions)
c. A wedge between the owners of the soil and Tillers of the soil


Industrial sector on the eve of Independence: Systematic de-industrialization is the

term that describes the status of industrial sector during the British rule. It implies two
a. Decay of handicrafts some important causes
i. Discriminatory tariff policy of the state: Heavy duty on exports of
Indian handicrafts.
ii. Disappearance of princely courts: No support for Handicrafts under
British rule.
iii. Competition from machine made products.
iv. New patterns of demand: Western culture. Demand for western
v. Introduction to railways in India: Used for British products distribution.
b. Bleak growth of the modern industry: The British rule in India witnessed only
a bleak growth of modern industry. It was the second half the 19th century that the
modern industry started showing its presence.


Foreign trade under British Rule: India had occupied the place of eminence in the area
of foreign trade, since ancient times. But the British rule in India ended this eminence.
India was well known exporter of finished goods (Such as fine cotton, silk textiles, iron
goods, wooden goods, ivory work and precious stones). But the British rule in India
converted India into exporter of raw material and importer of finished goods.


Demographic profile during the British rule: high birth and death rate. (48 and 40 per
1000), Massive poverty. Poor literacy 16%


Infrastructure on the Eve of the Independence: Infrastructure refers to the elements of

economic change (transport, communication, banking, power/energy) and element of
social change (education, health and housing) were poor at that stage.

Nature and significance

The Indian Economy was called an underdeveloped economy but slowly become a developing
economy but is now referred to as the mixed economy.
Underdeveloped Economy
An underdeveloped economy is one which is one which is characterized by low per capita
income, underutilized manpower and resource along with a low standard of living. All of this
could be probably due to improper use of techniques of constraints in socio-economic factors.
According to Simon Kuznets Underdeveloped economy, is that country which fails to provide
acceptable levels of living to large portion of the countrys population with resulting misery and
material deprivations
Nature of underdeveloped economy: The characteristic features of an underdeveloped economy
1. Low per capita income: In underdeveloped countries, per capita real income is very low
compared to the developed countries.as per the world development report 2007, the per
capita income (GNI) of India in 2005 was $720. This is quite low then compared with
the developed economics of different nations. When comparing the purchasing power
parity (PPP) of India and America in 2005, India was found to be one twelfth of

Americans PPP. The per capita income in underdeveloped countries is as low as 7% of

the per capita income in some of the advanced nations.
2. Mass poverty and inequitable distribution of income: Income inequalities lead to mass
poverty and unequal distribution of income is due to inequality in asset distribution. This
has also enhanced due to liberalization policies. The rick took a large percentage of the
total income distribution as compared to what the poor received. The higher income
people are usually private sector-owners, managers and workers, public sector-managers
and workers and small family farmers in prosperous rural areas.
3. Predominance of Agriculture: Most of the less develop countries like India depends upon
agriculture sector. The majority of population is engaged in agriculture. But
unfortunately agriculture is hope led in a backward stage in the developed countries. So
national product remains very low in these countries.
4. Rapid population growth and high dependency: In 2004 the population of India was
growing at the rate of 1.44% P.A and was about 1065 million. Birth rate is high as
compared to the death rates and all of this also contributes to the population. A rapidly
increasing population poses a lot of problems:
a. The economic growth rate must match the population growth rate so that the
standard of living is kept at a specific level not low.
b. The growing population daily essential requirements also increase whereby
supply should match the demand.
c. Large populations mean more workforces which in turn mean employment for
all. But if the demand does not much of development or expansion of the
industries to accommodate the Labour force.
5. Scarcity of capital and underdeveloped natural resource: India is a country which has
abundant renewable and non-renewable resource. Renewable resource is source of water,
tanks, canals, rivers and so on. While non-renewable resources are minerals. But these
resources have not utilized properly because of the lace of capital. The scarcity of capital
is because of the lack of technical knowledge which results in a low rate of production
and ultimately low consumption of steel, cement and electricity.
6. Unemployment: In India there is unemployment due to a large population the supply of
Labour being more than the demand. There is deficiency of capital in the Indian

economy whereby there is not much of development or expansion of the industries to

accommodate the Labour force.
7. Technological backwardness: India still uses outdated technology. There still exist a
wide gap between the sophisticated production techniques of the developed countries
and Indian technology. The reason is due to the poverty of living. This has led to a
continuous low production of output.
8. Lack of entrepreneurs: In India businessmen are concerned about profits only and do not
contribute much towards the long term industrial development of the country.
9. Poor quality of Human capital: India is the land of superstition, conservation and labors.
Illiteracy is found amongst majority of the population.
Developing Economy
1. Sustained growth: The economic growth of India since independence has been erratic but
there is an upward trend. Unit recently Indias growth rate has been about 8% which is
quite good.
2. Significant changes in sectorial distribution of domestic product: The contribution of
agriculture to the gross domestic product since the first two decades of the economic
planning has declined steadily due to service sector development.
3. Change in the occupational distribution of the population: The changes in occupational
pattern and shirt from agriculture to other sectors.
4. Growth of capital goods industries: Industries developed to produce industrial goods. Ex:
Iron, Steel, heavy chemicals, fertilizers, heavy engineering, locomotives, And machine
5. Progress in transport, education and medical sector
6. Banking and financial sector
Mixed Economy
It is a mid-way between socialist economy and capitalist economy. Co-existence both public and
private sectors is the feature
1. Public sector: Public sector or state owned means of production was mainly for a social
welfare cause while the privately owned means of production had an interest mainly in
the profit aspect. But they had to operate only within the boundaries specified by the

Government and abide by their rules and regulations. The main aim of the Government
was to promote and control critically important industries and allow private ownership
only in those areas where the industries are no top priority.
2. Private ownership: Role of the public sector in the total national output is rapidly
diminishing with more and more industries coming under private ownership courtesy the
Government which is involved in their active transfer.
3. Decisive role of the market mechanism: The market mechanism for various markets is
majorly controlled by the government. Even then the markets run as per the laws
prevailing in the market. A licensing system for industries was established but it could
only correct the license and control system to some extent. With the introduction of
structural reforms in 1991-92 market controls have been deregulated to a large extent.
4. Economic planning: Even since India became independent it has been practicing
economic planning. The main purpose is to develop all sectors and sections of the
economy. The government plans the economy for a period of five years. These are called
five year plans, some targets are set to be achieved in the agricultural, industrial and other

Importance/merits of mixed economic system

Economic freedom and capital formation: Since people have the right to acquire and hold
private property, this right encourages capital formation. Economic freedom provides incentive
to the people to work hard. It promotes setting up of more business units which in turn promote
capital formation.

Competition and efficient production: Healthy competition among the producers keeps the
standard of efficiency high. Because of the possibility of private profit all factors work
efficiently. Because of competition, all business units try to reduce their wastages, improve
efficiency and make optimum utilization of resource.

There are four types of economies:
1. Pure Market Economy
2. Pure Command Economy
3. Traditional Economy
4. Mixed Economy
Lets review each of these types of economies.
Pure Market Economy

NO government involvement in economic decisions. Private firms account for all


Consumers decide WHAT should be produced. They do this through the purchases they

Businesses determine HOW the products will be produced. They must be competitive.

WHO buys the products? The people with the most money are able to buy more goods
and services.


Difficulty enforcing property rights - no laws.

Some people have few resources to sell - no minimum income.

Some firms try to monopolize markets - conspiring and price fixing.

No public goods. - National defense?

Pure Command Economy

All resources are government-owned.

One person (dictator) or a group of officials decide WHAT products are needed.

The government runs all businesses, controls all employment, and decides HOW goods
and services will be produced.

The government decides WHO receives the products that are produced.


Consumers get low priority.

Little freedom of choice few products.


Resources owned by the state are often wasted individuals dont care if they dont own

Traditional Economy
1. Economy is shaped largely by custom or religion.
2. Customs and religion determine the WHO, WHAT, and HOW.
Example: India has a caste system which restricts occupational choice. (A social class
separated from others by distinctions of hereditary rank, profession, or wealth.)
Mixed Economy
1. Most economies in the world today are mixed.
2. Classification is based on how much government intervention there is.
Government Philosophies

Countries also have different philosophies of government which reflect not only the laws and
rules, but how individuals are treated. There are three political philosophies:
1. Capitalism: Capitalism features private ownership of businesses and
marketplace competition. It is the same as a free enterprise system. The
political system most frequently associated with capitalism is democracy.

2. Socialism: The main goal of socialism is to keep prices low for all people
and to provide employment for many. The government runs key
industries, generally in telecommunications, mining, transportation, and
banking. Socialist countries tend to have more social services.
3. Communism: Have a totalitarian form of government; this means that the
government runs everything and makes all decisions. Theoretically, there
is no unemployment in communist countries. The government decides the
type of schooling people will receive and also tells them where to live.
Many countries are in transition from either communism or socialism to capitalism.

Privatization is a common aspect of transition from a command economy to free enterprise

system. Privatization means state-owned industries are sold to private individuals
and companies.
In India before independence the industries are ruled by private people. So that most of the
priority they will share with profits as well as work exploitation and energy conjunction. After
that our India became an independent .so that they can give the priority for self-development of
Indian industries.
Indian industries can develop in three stages.
In the 1st stage they develop the industries like milling grains, extracting oils, spinning vegetables
and tanning leather. In the second stage they develop the industries depending on technology
bases like paper, sugar, cement, textile and furniture. After this the Indian govt. gave the priority
for consumer and capital goods. Consumer goods means transform from manufacturer to
consumer, whereas capital goods transfer from one business to other for producing other
The role and importance of industrial sector in Indian Economy can be understood with the
Share of industries in the GDP: The share of industries in GNP of India has been increasing
steadily, with it increasing form 13.3% in in 1950-51 to 24.4% in 2001-02 and further to 26% in
Increase in Employment of opportunities: Industrial sector in India is steadily contributing to an
increase in employment opportunities. The working population in Industrial sector was 10.7% in
1950-51 and it further increased to 17.56 in 2008-2009.
Growth of large scale industries: the tremendous growth of industrial sector during the last 60
years in the form of establishment and development of basic and capital goods industries.
Growth in the production of consumer durable: in recent times due to liberalization rapid
industrialization has contributed to the healthy growth of consumer durable goods sector. The
annual growth rate of consumer durable goods, which was only 14.4% during 1981-85, has
increased to 16.9 during 1985-90.
Industrial policy, 1991: The new industrial policy, 1991 and the policy of liberalization, by
reducing the role of public sector and enhancing the role of private sector, are contributing to
rapid industrialization in the country.


In the decades if 80s and 90s the whole world has experienced the dramatic changes. Entire
Europe and most of the developing countries like India, Vietnam, Peru, Morocco etc., are
sweeping with the economic reforms.
The economic reforms broadly indicate the necessary structural adjustment to external events.
The trade which takes among the various countries of world/between one country of the world
and another country of the world is known as international trade. It is said that the volume of
trade especially, the volume/value of international trade determines the economic development.
It is aptly pointed out that trade in general and international trade in particular, is described as the
engine of economic growth and development.
The first phase: The first phase of economic reforms had its origin in 1985 initiated by young
Prime Minister Mr. Rajiv Gandhi soon after taking over the office. The prime minister in his first
national broadcast said the public sector has entered into too many areas where it should not be.
To provide large scope to the Pvt. Sector, a no. of changes in policy were introduced with regard
to industrial licensing, export-import policy, fiscal policy, foreign equity policy; etc. The Govt.
introduced the various measures in the following manner:
1. Cement: Cement was totally decontrolled.
2. Sugar: The share of free sale of sugar in open market.
3. Broad banding: It is introduced in four wheelers, chemicals, type-writer etc.
4. Drug: 94 drugs were completely delicensed 27 are placed outside.
5. Textile: introduction of new textile policy 1985.
6. Electronics: electronics industry was liberalized from MRTP.
7. Foreign trade.
Second phase: Economic reforms introduced under Rajiv Gandhi regime didnt yield the
desired results. Thus India was forced to approach the World Bank and IMF to provide
huge loan. The congress Govt, soon after resumption of office on June, 1991 realized the
importance of mega-industrialization for country to keep pace with the industrially
advanced nations open door policy by Dr.Manmohan Singh.





Liberalization of the economy means to free it from direct or physical controls imposed by the
Measures taken for liberalization: following measures have been taken under economic reforms
for liberalization of Indian economy:
1. Abolition of industrial licensing and registration: Main feature of the new industrial policy
is to adopt a policy of linearization in place of controlled economy. Till now private sector of the
economy was functioning under a rigid licensing system. Under new economic policy private
sector has been freed, to a rigid licensing system. Under new economic policy private sector has
been freed, to a large extent, from the yoke of licenses and other restrictions. In July 1991 a new
industrial licensing has been abolished for all other industries. Industries for which licenses are
still necessary are:

Defense equipment
Industrial explosives
Dangerous chemicals

Any entrepreneur can float any new company and sell its shares without any restrictions.
2. Concession from Monopolies Act: According to the provisions of monopolies and
restrictive trade practices act all those companies having assets worth more than 100 crore
used to be declared monopolies and restrictive trade practices firms and were subjected to
several restrictions.
3. Freedom for expansion and production to industries: Under the policy of liberalization,
industries are free to expand and produce. They need to prior official approval.


4. Increase in the investment limit of the small industries: Investment limit of the small
industries has been raised to one crore so as to enable them to introduce modernization.
Investment limit of tiny industries has also been increased to 25 lakh.
5. Freedom to import capital goods: under the policy of liberalization, Indian industries
will be free to buy machines and raw material from abroad in order to expand and modernize
6. Freedom to import technology: New economic policy of economic reforms has laid
emphasis on the use of high technique to promote modernization. The objective of this policy
is to develop sunrise industries, i.e., computers and electronics.
7. Free determination of interest rates: Interest rate of the banking system of the country
will no longer be determined by the Reserve Bank of India as per the policy of liberalization.
Banks all over the country are now free to determine the rate of interest as they like.
8. Action plan for information technology and software development: A National Task
force on information technology and software development submitted 108 point action plan
in July 1998. The recommendations have been accepted by the government and directions for
their implementations have been given to all concerned departments.
In the context of economic reforms, privatization means allowing the private sector to set up
more and more of industries that were previously reserved for public sector. Under it,
existing enterprises of the public sector are either wholly or partially sold to private sector.
1. Change in Ownership: The degree of privatization is judged by the extent of ownership
transferred from the public enterprise to the private sector.

Total Nationalization
Joint venture
Workers co-operative

2. Organizational Measures: It includes a variety of measures to limit sate control. They


A holding company structure


3. Operational Measures: The efficiency of public sector enterprises depends upon the
organizational structure. Unless this structure grants a sufficient degree of autonomy to the

operators of the enterprise or develops a system of incentives, it cannot raise its efficiency and
Globalization is the third pillar of the structure of economic reforms. Globalization is the
process of movement from a closed economy to an open economy and the process of
removal of restrictions on foreign trade, investments, innovations in communications and
transport systems.
Globalization Indicators: There are some variables that can be considered as the indictors
of globalization. These indicators of globalization are:

Foreign Direct investments: Foreign firms falls under the category of foreign direct
investments by investing in the real assets like factories, sales offices etc.
Globalization in the form of FDI happened in the middle of the 1980s
Foreign portfolio investment: Foreign portfolio equity investment has also happened
globally by the FDI
Global governance by international organizations like world trade organizations:
from the following three factors outlined it is clear that
1. Economic integration is very deep.
2. Reduction in import duty rates
3. Cooperation between countries for foreign investment is increased.
Business Restructuring Flexibility and closeness to Market
1. Flexible, just in time production system
2. Moving production closer to the consumer and securing access to the local market
3. Diversification of operations.

1. High cost: To maintain international standard
2. Poor infrastructure
3. Obsolescence: Outdated technology
4. Resistance to change: Resisted by Labour unions
5. Poor quality image
Lack of experience: tact and diplomacy on the part of business in India


Social justice generally refers to the idea of creating an egalitarian society or institution that is
based on the principles of equality and solidarity, that understands and values human right, and
that recognizes the dignity of every human being. The term and modern concept of Social
justice was coined by the Justice Luigi Taparelli in 1840 based on the teachings of St. Thomas
and given further exposure in 1848 by Anotni Rosmini-Serbati.
The idea was elaborated by the moral theologian Jhon A. Ryan, who initiated the concept of a
living wage. Social justice is based on the concept of human rights and equality and can be
defined as The way in which human rights is manifested in the everyday lives of people at
every level of society.
In the year, the erstwhile Ministry of Welfare was bifurcated into the Department of Women and
Child Development and the department of welfare.
Subsequently, the name of the ministry was changed to the Ministry of social justice and
empowerment in May, 1998. Further, in Oct, 1999, the Tribal Development Division had moved
out to form separate Ministry of Tribal affairs. In January, 2007, the minorities division along
with Wakf Unit have been moved out of the ministry and formed as separate ministry and the
child development division has gone to the ministry of women and child development.
It means to take return of equities from Govt. public sector units. Means the process of reducing
the amount of money in Govt. sectors that was replaced by public and private sector.
The Govt. of India has been decided to withdrawal their money from industrial sector in
accordance with this decisions the Govt. has adopted the root of disinvestment.
1. To strengthening of public sector units.
2. To increase competition.
3. To promote the growth of Indian companies.


Utilization of fund or money for disinvestment: by the following programme of disinvestment

was initiated in 1991-92 the finance minister of central as well as the state as announced that the
disinvestment money should be used in the form of NRF (National renewal fund) and also for
various schemes like non-inflationary position, employment scheme and for the development of
back ward people.
The Govt. has used the entire process of disinvestment which will offer to development of Indian
natural resources and their proper consumption and also reduce fiscal deficiency.
Problems of disinvestment process: The different reason for disinvestment process failure are
explained below
1. Unplanned: The govt. carried out the exercise of disinvestment process in a hasty and
unplanned and hesitated way.
2. Long term policy frame work: The Govt. launched the disinvestment process without
creating the required positions or conditions its takeoff.
3. Competition: the method is face lack of adequate competition to secure best
valuation/price which was not generated as financial bids were submitted by only one or
two parties in the final stage.
4. Failed to provide essential service: It is not prudent to privatize PSUs for temporary gain
like market increase since market economy (Private sector) has failed to provide essential
goods and services.
5. Corruption: Privatization has been criticized expressing that it has gone hand-in-hand
widespread corruption and insider dealing.


Industrial sickness is a natural and universal phenomenon of industrial economy. In India the
industrial sickness came to being during 1970s when large industrial units faced closure in west
The industrial sickness results great unemployment, wastage of natural resources, loss of
production of goods and social unrest.
A sick unit referred to as one that operates at lower than BEP. Another description holds that a
sick unit is one that fails to generate internal surplus on continuing basis.
According to V.N.Nadkari To a layman a sick unit is one which is not healthy. To an investor, it
is one which skips dividends. To an industrialist, it is unit which his making losses and tottering
on the brink of closure. To a banker, it is a unit which has incurred cash losses in the previous
year and is likely to repeat the performance in the current and following years.


Causes OR factors of industrial sickness:

Industrial sickness factors can be classified into two types.

Internal factors
External factors.

Internal factors: internal factors again classified into two types. Born sickness factors and
achieved sickness factors.
Faulty financial planning: faulty financial planning is the major factor of industrial sickness.
Under capitalization is responsible for it and its signs become evident from very beginning of its
Lack of experience of promoters: sometimes promoters are new and they lack in experience.
Wrong section of the project and faulty project planning and wrong guidance given by
promotional agencies of the govt. may leads to the birth of a sick unit.
Selection of wrong location
Technological factors: adoption of inappropriate technology, obsolete technology, standard
machinery, wrong technological collaboration, license, production restricted goods etc may also
leads to sickness.

Wrong estimation of capital

Poor organization structure
Marketing conditions.
Bad management
Unwarranted diversification and diversion
Inventory management
Failure in marketing
Unsatisfactory Labour-management relations.

External factors: The government interference or adverse government policy.


Economic crisis
Statutory price control
Continuous power cuts
Fast technological changes
Cut-throat competition.

Extent of industrial sickness: there is no prcised information is available regarding the

prevalence of sickness in various industries and there is no comprehensive standard and
universally accepted definition for sickness .but some other actions taken by the Indian govt for
reducing industrial sickness.

Govt. policy towards industrial sickness: for handle effectively and systematically the Indian
Govt. announced sickness policy in 1985 .according to that policy every govt should concentrate
on sickness industries who are running in India.
Role of administration plans: The administrative ministers have been assigned the specific
responsibility to deal with this problem. At the time of preparation of five years plan govt should
give priority for sickness industry.
Strengthening monitoring mechanism: banks and financial institutions should strength the
system of monitoring and also take timely corrections in industrial sickness.
Under taking diagnosis: Before support to the industrial sickness everyone should identify what
is the problems reason for sickness and who is responsible for this.
Consulting regular meeting between govt. and financial institutions: There is a necessity for
conducting meetings between industry people and govt. because of these both have the
knowledge about different problems faced by industrialist and policies implemented by govt.
Sickness industry Acts: An important peace of legislation dealing with industrial sickness by
using industrial sickness act 1985. They take actions like

Timely direction of sick and potential industries who are undertaking by the govt.
The speed up actions determined by the Govt. for recovery of such companies.
Reconstruction of industries.
Efficient management for sickness industries.
Takeover by the efficient management.
To sale or lease by the other successful industries.

Competition Act 2002:

The competition bill 2001 may be called as the competition act 2002, extends to the whole of
India except Jammu and Kashmir. The competition bill 2001, has been introduced into
parliament in august .The MRTP act has been replaced by competition act 2002on the
recommendations of S.V.rangarajan committee. It will be decided the healthy competition
guidelines for business people.
This act is applicable throughout India except the state of Jammu & Kashmir. It empowers all
enterprises and individuals from the act of applicability. It will supervise all national and
international activities. Under his act there is no civil adjudication. This act will provided
policies for business activities along with economic conditions of particular country.
Competition commission: The act provide for the establishment of competition commission of
India consisting of

General Deputy manager

2 chair persons
8 other members

These all people are recruited by central govt. The chair person have duration of 5 years and he
most possess 15 years experience as high court judge and 15 years of experience in
professionalism and have knowledge in interdisciplinary. The other members in its committee
are deputy manager, advisor and consultancies.
1. To shift the focus from curing monopolies to promoting competition.
2. To ensure fair and healthy competition.
3. To promote and sustain competition in markets.
4. To protect interest of consumers.
5. To ensure freedom of trade carried by other participants in Indian markets.


Competition commission of India to be established.

Repeal of MRT act
Prohibition of abuse dominance.
Competition fund released.

Components of the Act:

1. This act has four components.
o Prohibition of anti-competitive agreement
o Prohibition of abuse dominance
o Regulation of mergers and acquisitions
o Establishment of 10 members in Competition commission of India.
Other applications:
To create barriers the new marketers in the market: For protecting the local industries or
small scale industries competition act always maintain some barriers to the MNCs companies
and new marketers.


Hindering entry to market: By intentionally if any business people give any difficulties to the
competitors then competition act is prohibited.
Promote the production, distribution goods and services: This act not only protect enterprises
but also concentrate on production activities, distribution activities and quality of goods and
Promotion of technical economical and scientific method: This act also concentrate on
technology development in the business, development of science methods and also economic
development industries as well as govt.
Prohibition of anti-competitive agreement: The act prohibits persons and enterprises for
entering into any agreement which has adverse impact on any area in business like production,
distribution, supply chain, storage, merger and acquisition of goods and services.