Government Budget Meaning, Objective

Components of Government Budget

Classification of receipts Capital and revenue
Classification of expenditure - Capital and revenue
Balanced budget surplus budget, deficit budget- meaning and implication
Revenue deficit, Fiscal deficit, primary deficit- Meaning and implication.
Meaning of Government Budget:-A government budget is an annual statement of the
estimated receipts and estimated expenditure of the government during a fiscal year.
Objective of the Government Budget
The objective that are pursued by the government through the budget areI. Reallocation of resources -:It means managed and proper distribution of resources.
As private sector can not provide all the goods and services the government has to
provide these goods.
II. To reduce inequalities in income and wealth-: Through budget government tries to
reduce the gap between Rich and poor. This is achieved through taxing the rich and
subsidizing the needs of poor people. Taxing the income of rich people reduces their
purchasing power and subsidies to poor people increases real income of poor
people.
III. To achieve economic stability -: There may be inflation or depression in the
economy. Inflation is the situation of rise in price level whereas depression is lack of
demand. Both the situations are undesirable. During depression government
reduces rate of tax and borrowing and increases public expenditure. During inflation
government increases the rate of tax and borrowing and decreases public
expenditure.
IV. Management of Public Enterprises
V. To achieve economic growth
Components of Government Budget:1. Budget Receipts
2. Budget Expenditure
Classification of Budget Receipts:1. Capital Receipts: - Capital Receipts refer to those receipts of the government
which
i) tend to create a liability or
ii) Causes reduction in its assets. All the Capital receipts are broadly classified into
three categories.

1) Recovery of loans :- These are Capital receipts because they reduce financial
assets of the government
2) Borrowings: - Funds raised by the government form the borrowing are treated as
capital receipts such receipts creates liability.
3) Other Receipts: - Funds raised through disinvestment are included in this
category. By this government assets are reduced.
2. Revenue Receipts:-Any receipts which do not either create a liability or lead to
reduction in assets is called revenue receipts.
Revenue receipts consist of
1) Tax Revenue and 2) Non-Tax Revenue.
1) Tax Revenue: A tax is a legal compulsory payment imposed by the government on the people. All
taxes are broadly classified into
i) Direct Tax and ii) Indirect Tax.
When the liability to pay a tax and the burden of that tax falls on the same person,
the tax is called direct tax. e.g. Income tax, corporation tax, Gift tax etc.When the
liability to pay a tax falls on one person and burden of that tax falls on some other
person, the tax is called an Indirect tax. e.g. Sales tax, Custom duties, Service tax
etc.
2) Non-Tax Revenue: - Non tax revenue consists of all revenue receipts other than
taxes. For eg.:-i) Interestii) Profit and dividendiii) Fees and finesiv) External grant-inaid
Meaning of Budget Expenditure:-Budget expenditure refers to the estimated
expenditure to be incurred by the government under different heads in a year.
Revenue Expenditure:-An expenditure which do not creates assets or reduces
liability is called Revenue Expenditure.Examples are Salaries of government
employees, interest payment on loan taken by the government, pension, subsidies,
grants etc.
Capital Expenditure:-It refers to the expenditure which leads to creation of assets
and reduction in liabilities eg. Expenditure incurred on construction of building, roads,
bridges etc.

Balanced Budget:- A Government budget is said to be a balanced in which

government receipts are shown equal to government expenditure
Surplus Budget:-When government receipts are more than government expenditure
in the budget, the budget is called a surplus budget.
Budget Deficit

Deficit Budget:-When government expenditure exceeds government receipts in the

budget is said to be a deficit budget.
Types:Revenue Deficit:-Revenue deficit refers to the excess of revenue expenditure of the
government over its revenue receipts.
Revenue deficit = Total revenue expenditure Total revenue receipts.
Importance: - Since it is largely related with the recurring expenditure. Therefore,
high revenue deficit gives a warning to the government either to cut expenditure or to
increase revenue receipts. It also implies requirement burden in future.

Fiscal Deficit:Fiscal deficit is defined as excess of total expenditure over total receipts excluding
borrowings.
Fiscal Deficit = Total budget expenditure - Total budget receipts net of borrowings.
Importance: - Fiscal deficit is a measure of total borrowings required by the
government. Greater fiscal deficit implies, greater borrowings by the government.
This creates a large burden of interst payments in the future that leads to increase in
revenue expenditure, causing an increase in revenue deficit. Thus a vicious circle
sets in. In the present, a large fiscal deficit may also lead to inflationary pressures.
Primary Deficit:Primary deficit is defined as fiscal deficit minus interest payment. It is equal to fiscal
deficit reduced by interest payment.
Primary deficit = Fiscal deficit interest payment.
Importance: - Primary deficit signifies borrowing requirements of the government. A
low or zero primary deficit means that while governments interest requirement on
earlier loans have compelled the government to borrow but it is aware of the need to
tighter its belt.

Balance of payment : Meaning andcomponenets

By Cliffton Rodrigues on Saturday, 6 June 2015 at 15:57
Meaning :- The balance of payment of a country is a systematic record of all
economic transactions between the residents of the reporting country and the
residents of foreign countries during a given period of time
Balance of trade and balance of payment :Balance of trade takes into account only those transactions arising out of the exports
and imports of goods(the visible items).It does not consider the exchange of services
rendered such as shipping. Balance of payments takes into account the exchange of
both visible and invisible items. Hence, the balance of payments represents a better
picture of a countrys economic transactions with the rest of the world than the
Balance of Trade.
Structure of Balance of Payments Accounts :A Balance of payments statements is a summary of a nations total economic
transactions undertaken on international account. It is usually composed of two
sections :1) Current Account
2) Capital Account
1) Current Account :- It records the following 3 items :i) Visible items of trade :- The balance of export and import of goods is called the
balance of visible trade eg. Tea, Coffee etc.
ii) Invisible trade :- The balance of exports and imports of services is called the
balance invisible trade eg. Shipping, insurance etc.
iii) Unilateral transfers :- Unilateral transfer are receipts which residents of a country
make without getting anything in return eg. Gifts etc.
The net balance of visible trade, invisible trade and of unilateral transfers is the
balance on current account.
2) Capital Account :- It records are international transactions that involve a resident
of the domestic country changing his assets with a foreign resident or his liabilities to
a foreign resident.
Various forms of capital account transactions :1) Private Transactions :- There are transactions that effect the liabilities
and assets of individuals.
2) Official Transactions :- Transactions affecting assets and liabilities by
the govt. and its agencies.
3) Portfolio Investment :- It is the acquisition of an asset that does not
give the purchaser control over the asset.
4) Direct Investment :- It is the act of purchasing an asset and at the same
time acquiring control of it.
The net value of the balance of direct and portfolio investment is called
the balanced on Capital Account.
Other items in the balance of payments:-

These are included since the full balance of payments account must balance. These
are as follows
i) Errors and omissions :- These may arise due to the presence of sampling error or
dishonesty.
ii) Official reserve transactions :- All transactions excepts those in the category of
autonomous transactions.
Autonomous Items :Autonomous items in BOP refer to international economic transactions that take
place due to some economic motive. Such as profit maximization. These items are
often called above the line items in BOP.
The BOP is in deficit if autonomous receipts are less than autonomous
payments. The monetary authorities may finance a deficit by depleting their reserves
of foreign currencies or by borrowing from the IMF.
Accommodating Items :- Accommodating items in the BOP refer to transactions that
occur because of other activities in the BOP, such as government financing.
Accommodating items are also referred to as below the line items.
Disequilibrium in BOP :There are number of factors that cause disequilibrium in the BOP. Showing either a
surplus or deficit. These are categorized in three factors:- i)
Economic factors
i)
Political factors
ii)
Social factors

Social Infrastructure, Employment, and Human Development

By Cliffton Rodrigues on Saturday, 6 June 2015 at 15:50
Growth with equity has been the focus of Indian economic policy since the 1960s. By
2020, India is projected to be the youngest nation in the world in terms of size. While
this youth bulge provides India great opportunities, it also poses challenges. These
young people need to be healthy, suitably educated, and appropriately skilled to
contribute optimally to the economy. Despite global shocks, India has not
compromised on expenditures on welfare activities, especially for the vulnerable
population. The success of programmes and policies of the government lies in the
strength of institutional structures with strong public delivery systems as well as in
the attitudes and mindset of the people. To ensure conversion of outlays into
outcomes the role of Panchayati Raj institutions is crucial. Though significant
outcomes have been achieved in the areas of poverty reduction, health, and
education, more remains to be done. Government, along with civil society, media,
and other stakeholders, must work towards changing the patriarchal mindset of
society and empowering women to realize their untapped potential and fulfill their
aspirations.
9.2 As per provisional results of Census 2011, 2001-11 is the first decade in
independent India where in the population momentum coupled with declining fertility
has dampened the pace of net additions to population. Thus, the net addition
(between 2001-2011) is less than that of the pervious decade by 0.86 million. At
present a little more than one out of every six persons in the world is an Indian. As
per Sample Registration System (SRS) (2013) data, there has been a gradual
decline in the share of population in the age group 0-14 from 41.2 to 38.1 per cent
during 1971 to 1981 and from 36.3 to 28.4 per cent during 1991 to 2013. On the
other hand, the proportion of economically active population (15-59 years) or, Indias
demographic dividend, has increased from 53.4 to 56.3 per cent during 1971 to
1981 and from 57.7 to 63.3 per cent during 1991 to 2013. On account of better
education, health facilities, and increase in life expectancy, the percentage of elderly
(60+) has gone up from 5.3 to 5.7 per cent and 6.0 to 8.3 per cent respectively in the
same two periods.
9.3 The growth rate of the labour force will continue to be higher than that of the
population until 2021. According to an Indian Labour Report (Time Lease, 2007), 300
million youth will enter the labour force by 2025, and 25 per cent of the worlds
workers in the next three years will be Indians. Population projections indicate that in
2020 the average age of Indias population will be the lowest in the worldaround
29 years compared to 37 years in China and the United States of America, 45 years
in West Europe, and 48 years in Japan. Consequently, while the global economy is
expected to witness a shortage of young population of around 56 million by 2020,
India will be the only country with a youth surplus of 47 million (Report on Education,
Skill Development and Labour Force (2013-14) Volume III, Labour Bureau, 2014).
9.4 The main issue to address then is not just providing employment but increasing
the employability of the labour force in India. Employability is contingent upon
knowledge and skills developed through quality education and training. Thus any
solution to the problem lies in a well-designed education and training regime that
sets out to meet these objectives. The problem of low employability levels owing to

poor quality of education is accentuated by the fact that fewer students opt for higher
education.
EDUCATIONAL CHALLENGES
9.5 While only 73 per cent literacy has been achieved as per Census 2011, there has
been marked improvement in female literacy. Male literacy at 80.9 per cent is still
higher than female literacy at 64.6 per cent but the latter has increased by 10.9
percentage points compared to 5.6 percentage points for the former. The Right of
Children to Free and Compulsory Education (RTE) Act 2009 was enacted by the
centre to increase the quality as well as accessibility of elementary education in India
in April 2010. Sarva Shiksha Abhiyan (SSA) is the designated scheme for
implementation of the RTE Act. The framework of the SSA has been revised to
include reimbursement for expenditure incurred for at least 25 per cent admissions of
children belonging to disadvantaged and weaker sections in private unaided schools
from the academic year 2014- 15. Between 2007-08 and 2013-14, according to the
DISE (District Information System for Education), total enrolment in primary schools
increased from 134 million to 137 million in 2011- 12 and then declined to 132 million
in 2013-14 while upper primary enrolment grew from 51 million to about 67 million.
This is in line with the changing demographic age structure. India has achieved near
universal enrolment and enhanced hard and soft infrastructure (schools, teachers,
and academic support staff).
9.6 However, the overall standard of education is well below global standards: that
PISA (Programme for International Student Assessment) 2009+ results ranked Tamil
Nadu and Himachal Pradesh 72 and 73 out of 74 participants, higher only than
Kyrgyzstan, exposes the gaps in our education system. PISA, which measures the
knowledge and skills of 15-year-olds with questions designed to assess their
problem-solving capabilities, rates these two states at the bottom, with the scores in
mathematics and science falling way behind the OECD (Organisation for Economic
Cooperation and Development) average. Shanghai-China tops the rankings followed
by Singapore, while the Russian Federation is ranked at thirty-eighth position.
Countries where students near the end of compulsory schooling perform at high
levels tend to maintain their lead after these students transition from school into
young adulthoodThere is considerable scope for postsecondary education and
training systems, as well as workplaces, to intervene to improve the proficiency of
young people who leave school with poor literacy and numeracy skills. Clearly, the
policy prescription lies in shifting attention away from inputs to outcomes and
focusing on building quality education and skill development infrastructure (Box: 9.1).
India did not participate in PISA 2012.
9.7 ASER (Annual Status of Education Report) findings have been reporting low
levels of learning amongst the 5 to 16 age group in rural India since 2005. The
worrying fact is that these are floorlevel tests (basic 2-digit carry-forward subtraction
and division skills), without which one cannot progress in the school system.
9.8 With the changing demography and declining child population, the inadequacy of
human capital at the base of the pyramid leading to a huge backlog in basic skills
could become a big impediment in Indias growth. The Padhe Bharat Badhe Bharat
initiative to create a base for reading, writing, and math fluency is a good step.
However, for it to be fruitful, it is critical that the local administration is fully involved

and sensitized. 9.9 While the RTE Act and the Juvenile Justice Act 2000 were
promulgated to bring children into education rather than employment, they have
allowed youth in the 15-18 age-group to slip through the cracks. India has about 100
million young people who fall in this category. Since there are educational and age
requirements for entry into most vocational skilling programmes, and job placements
are not possible before age 18, the vast majority of this population could land up in
the unorganized sector. There is need for research into the type of knowledge or
skills required to address the opportunity gaps and to improve productive capacity in
the unorganized sector.
9.10 Concurrently, to build capacity in secondary schools on par with expanded
primary enrolments, several schemes like the Mid-Day Meal (MDM) scheme,
Rashtriya Madhyamik Shiksha Abhiyan (RMSA), Model School Scheme (MSS), and
Saakshar Bharat (SB)/ Adult Education have also been implemented. The focus of
SB is female literacy. Inter alia, the lack of trained teachers compounds the problem.
To strengthen the cadre of teacher educators by providing early career choice to
prospective teachers and to fill the vacancies in teacher education institutions, a new
four-year integrated programme, i.e. BA/BEd. and BSc./BEd. has been introduced.
9.11 The Indian higher education system is one of the largest in the world in terms of
the number of colleges and universities. From 350 universities and 16,982 colleges
in 2005-06, the numbers have gone up to 713 universities, 36,739 colleges, and
11,343 diploma-level institutions in 2013-14. There is need to match the supply with
demand and to dovetail education policy to employment opportunities. Therefore,
higher education needs to be futuristic and envision areas that will generate future
employment opportunities and accordingly offer suitable courses for students. The
gross enrolment ratio (GER) in higher education has nearly doubled from around
11.6 per cent in 2005- 06 to 21.1 per cent in 2012-13 (Provisional), with 29.6 million
students enrolled in 2012-13 as compared to 14.3 million in 2005-06. However, the
lower penetration into higher levels of education leads to higher dropouts, especially
among the secondary and upper primary students, consequently to accumulation of
less educated and less skilled job seekers at the bottom of the pyramid. The
percentage educated also falls progressively with higher levels of education.
EMPLOYMENT MATTERS Skilling the Youth
9.12 There is a dual challenge here of developing skills on the one hand and using
skills on the other since skills that are not used are lost. As per the Labour Bureau
Report 2014, the current size of Indias formally skilled workforce is small,
approximately 2 per cent. This number contrasts poorly with smaller countries like
South Korea and Japan that report figures of 96 and 80 per cent respectively. At allIndia level around 6.8 per cent persons aged 15 years and above are reported to
have received/ be receiving vocational training.
9.13 As per studies conducted by National Skill Development Corporation (NSDC)
for the period between 2013 and 2022, there is an incremental requirement of 120
million skilled people in the non-farm sector. The current capacity for skilling is
grossly inadequate and needs to be speedily scaled up to meet immediate skill
needs of the country. The poor skill levels among Indias workforce are attributed to
dearth of a formal vocational education framework, with wide variation in quality, high
school dropout rates, inadequate skills training capacity, negative perception towards

skilling, and lack of industryready skills even in professional courses (Labour

Bureau Report 2014). Some recent initiatives that aim to enhance access, equality,
quality, innovation, etc. in the area of higher and vocational education are the
Rashtriya Uchchatar Shiksha Abhiyan (RUSA), Technical Education Quality
Improvement Programme (TEQIP), and National Skill Qualification Framework
(NSQF).
9.14 A dedicated Department of Skill Development and Entrepreneurship has been
created under the Ministry of Skill Development, Entrepreneurship, Youth Affairs and
Sports to accord focused attention in this area. In addition, the skilling programme for
rural youth has been refocused and reprioritized to build the capacity of poor rural
youth to address domestic and global skill requirements. The Deen Dayal
Upadhyaya Grameen Koushalya Yojana (DDU-GKY) is a placement-linked skill
development scheme for poor rural youth. A total of 51,956 candidates have been
skilled under the DDU-GKY, of which 28,995 have been placed till November during
2014-15.
9.15 Other new programmes that aim at bringing minorities into mainstream
development include Nai Manzil for education and skill development of dropouts;
USTTAD (Upgrading Skills and Training in Traditional Arts/Crafts for Development) to
conserve traditional arts/crafts and build capacity of traditional artisans and
craftsmen belonging to minority communities; Nai Roshni, a leadership training
programme for women; and MANAS for upgrading entrepreneurial skills of minority
youths.
Sluggish employment growth
9.16 A cause for concern is the deceleration in the compound annual growth rate
(CAGR) of employment during 2004-05 to 2011-12 to 0.5 per cent from 2.8 per cent
during 1999-2000 to 2004-05 as against CAGRs of 2.9 per cent and 0.4 per cent
respectively in the labour force for the same periods. As per the National Sample
Survey Office (NSSO) data during 1999-2000 to 2004-05, employment on usual
status (US) basis increased by 59.9 million persons from 398.0 million to 457.9
million as against the increase in labour force by 62.0 million persons from 407.0
million to 469.0 million. After a period of slow progress during 2004-05 to 2009-10,
employment generation picked up during 2009-10 to 2011- 12, adding 13.9 million
persons to the workforce, but not keeping pace with the increase in labour force
(14.9 million persons) (Table 9.1). Based on current daily status (CDS), CAGR in
employment was 1.2 per cent and 2.6 per cent against 2.8 per cent and 0.8 per cent
in the labour force respectively for the same periods.
9.17 There have also been structural changes: for the first time, the share of the
primary sector in total employment has dipped below the halfway mark (declined
from 58.5 per cent in 2004-05 to 48.9 per cent in 2011-12), while employment in the
secondary and tertiary sectors increased to 24.3 per cent and 26.8 per cent
respectively in 2011-12 from 18.1 per cent and 23.4 per cent respectively in 2004-05.
Self-employment continues to dominate, with a 52.2 per cent share in total
employment. What is critical is the significant share of workers engaged in lowincomegenerating activities.
9.18 There are other issues of concern like poor employment growth in rural areas,
particularly among females. Though employment of rural males is slightly better than

that of females, long-term trends indicate a low and stagnant growth. Such trends
call for diversification of livelihood in rural areas from agriculture to non-agriculture
activities. In order to improve generation of productive employment under the
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the
Intensive and Participatory Planning Exercise (IPPE) has been initiated to prepare
the labour budget for financial year 2015-16 in selected 2500 backward blocks using
participatory rural appraisal technique. Emphasis has been laid on agriculture and
allied activities to ensure that at least 60 per cent of the works in a district in terms of
cost is for creation of productive assets linked to agriculture and allied activities
through development of land, water, and trees.
9.19 A major impediment to the pace of quality employment generation in India is the
small share of manufacturing in total employment. However data from the sixtyeighth NSSO round (2011- 12) indicates a revival in employment growth in
manufacturing from 11 per cent in 2009-10 to 12.6 per cent in 2011-12. This is
significant given that the National Manufacturing Policy 2011 has set a target of
creating 100 million jobs by 2022. Promoting growth of micro, small, and medium
enterprises (MSME) is critical from the perspective of job creation which has been
recognized as a prime mover of the development agenda in India. Although total
informal employment increased by 9.5 million to 435.7 million between 2004-05 and
2011-12, it is significant that informal unorganizedsector employment declined by 5.8
million to 390.9 million, leading to an increase in informal organizedsector
employment by 15.2 million. Consequently the share of unorganized labour has
declined from 87 per cent to 82.7 per cent (Table 9.2).
9.20 NSSO rounds are quinquennial and therefore information on the employment/
unemployment situation in the country is available only after a gap of five years. To
make available data in the interregnum, the Labour Bureau conducts household
employment-unemployment surveys on annual basis and has also been bringing out
quarterly survey reports on the effects of the economic slowdown on employment in
select sectors in India since 2009. The results of the latest quarterly summary on
employment, July 2014 (Box 9.2), indicate an increase in employment by 3.5 million
since the first survey.
9.21 The US unemployment rate is generally regarded as the measure of chronic
open unemployment during the reference year; while the CDS is considered a
comprehensive measure of unemployment, including both chronic and invisible
unemployment. Thus, while chronic open unemployment rate in India hovers around
a low of 2 per cent, it is significant in absolute terms. The number of unemployed
people (under US) declined from 11.3 million during 2004-05 to 9.8 million in 200910 but again increased to 10.8 million in 2011-12. However, based on the CDS the
number of unemployed person days declined from 34.3 million in 2004-05 to 28.0
million in 2009-10 and further to 24.7 million in 2011-12. Thus there has been a
significant reduction in chronic and invisible unemployment from 8.2 per cent in
2004-05 to 5.6 per cent in 2011-12 (Table 9.1). Despite only a marginal growth in
employment between 2009-10 and 2011-12, the reason for the decline in
unemployment levels could be that an increasing proportion of the young population
opts for education rather than participating in the labour market. This is reflected in

the rise in enrolment growth in higher education from 4.9 million in 1990-91 to 29.6
million in 2012-13 (Provisional).
Labour Reforms
9.22 Significant improvement in industrial harmony in India is evident from the fact
that mandays lost on account of strikes and lockout have been steadily declining:
from 17.6 million in 2009 to 14.46 million in 2011, and further to 3.65 million
(Provisional) during 2013 and 1.79 million (Provisional) from January 2014 to 9
December 2014.
9.23 The multiplicity of labour laws and difficulty in complying with them has always
been cited as an impediment to industrial development in India. In a major initiative
for ensuring compliance and promoting ease of doing business, the government has
initiated a number of labour reform measures (Box 9.3). Thus amendments have
been proposed to labour laws to align them with the demands of a changing labour
market. Individually, states like Rajasthan have also introduced major reforms in
three labour legislations: the Industrial Disputes Act, Factories Act, and Contract
Labour Act.
TOWARDS A HEALTHY INDIA
9.24 It is noteworthy that Indias total fertility rate (TFR) has been steadily declining
and is now at 2.3; while state-wise disparities exist, a declining trend is recorded
across states, explaining the declining growth rate of population. Figure 9.3 gives the
comparative trends in TFR across BRICS nations (Brazil, Russia, India, China and
South Africa). India is set to reach the UN Millennium Development Goals (MDG)
with respect to maternal and child survival. The MDG for maternal mortality ratio
(MMR) is 140 per 100,000 live births, while India had achieved 178 by 2010-12 and
is estimated to reach 141 by 2015. The under- 5 mortality rate (U5MR) MDG is 42,
while India has an U5MR of 52 and is expected to reach 42 by 2015. This is
particularly creditable as in 1990 Indias MMR and U5MR were 47 per cent and 40
per cent above the international average respectively. However, significant effort is
required to improve the rate of decline of still-births and neonatal mortality, which
have been lower/ stagnant in some states. While overall death rates have been
declining, owing to improvement in health accessibility and facilities, SRS (2013)
reports that a significant 30 per cent of all deaths occur in the age group 0-4 years;
the percentages are higher for girl children in both rural and urban areas.
9.25 A direct relationship exists between water, sanitation, health, nutrition, and
human well- being. Consumption of contaminated drinking water, improper disposal
of human excreta, lack of personal and food hygiene, and improper disposal of solid
and liquid waste are major causes of diseases in developing countries like India. The
Swachh Bharat Mission (Gramin) launched on 2 October 2014 aims at attaining an
open defecation free (ODF) India by 2 October 2019, by providing access to toilet
facilities to all rural households and initiating Solid and Liquid Waste Management
activities in all gram panchayats to promote cleanliness. Box 9.4 provides examples
of good practices that have replication potential. Together with capacity building
efforts by multiple agencies including Panchayati Raj institutions (PRIs), fieldlevel
implementers, organizations of high repute identified as key resource centres
(KRCs), selfhelp groups, womens groups, convergence with other state
departments like Health, Women & Child Development, and Panchayati Raj,

provision has been made for incentivizing accredited social health activists (ASHAs)
and anganwadi workers to promote sanitation. Guidelines are also in place to involve
corporates in the sanitation sector through corporate social responsibility.
9.26 In order to improve the availability of drinking water in rural areas, 20,000 solar
power based water supply schemes have been approved under the National Rural
Drinking Water Programme (NRDWP) across all the states for their habitations
located in far-flung / hilly areas or where availability of electricity is a constraint.
9.27 Mission Indradhanush was launched on 25 December 2014 with the aim of
covering all those children who are either unvaccinated or are partially vaccinated
against seven vaccine-preventable diseases which include diphtheria, whooping
cough, tetanus, polio, tuberculosis, measles, and hepatitis B by 2020. The
intensification of immunization activities will be carried out in 201 high focus districts
in the first phase and 297 districts will be targeted for the second phase in 2015.
9.28 With the goal of providing holistic health solutions, the erstwhile Department of
AYUSH (Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy) has
been elevated to a fullfledged ministry from 9 November 2014. The basic objective of
the National AYUSH Mission (NAM) is to promote AYUSH medical systems through
cost-effective AYUSH services and strengthening of educational systems. Steps are
also underway for including yoga in the regular education curriculum. Paying heed to
the Prime Ministers exhortation during his address to the UN General Assembly in
September 2014, the UN has declared 21 June International Yoga Day.
9.29 Given the multiple determinants of health, it is clear that a prevention agenda
that addresses the social and economic environment requires cross-sectoral, multilevel interventions that involve sectors such as food and nutrition, education, drinking
water and sanitation, housing, employment, industrial and occupational safety,
welfare including social protection, family and community services, tribal affairs, and
communications.
POVERTY
9.30 The latest estimates of poverty are available for the year 2011-12. These
estimates have been made following Tendulkar Committee methodology using
household consumption expenditure survey data collected by the NSSO in its sixtyeighth round (2011-12). Over a span of seven years the incidence of poverty
declined from 37.2 per cent to 21.9 per cent in 2011-12 for the country as a whole,
with a sharper decline in the number of rural poor (Table 9.3).
HUMAN DEVELOPMENT: INTERNATIONAL COMPARISON
9.31 The 2014 Human Development Report (HDR) presents the Human
Development Index (HDI) values and ranks for 187 countries in terms of three basic
parameters: to live a long and healthy life, to be educated and knowledgeable, and
to enjoy a decent standard of living. Indias HDI value for 2013 is 0.586, positioning
the country at 135 out of 187 countries and territoriesthe lowest among the BRICS
countries, with Russia at 57, Brazil at 79, China at 91, and South Africa at118, and
slightly ahead of Bangladesh and Pakistan. Significantly, while China improved its
ranking by ten places between 2008 and 2013, Indias position improved by just one
rank (Table 9.4). Thus a lot remains to be done to bridge the gap.
9.33 In terms of gender equality, the HDR ranks India 127 out of 152 countries with a
Gender Inequality Index (GII) of 0.563. The GII for 149 countries reveals the extent

to which gender inequality erodes national achievements in reproductive health,

empowerment and labour market participation . A comparison with Indias developing
country peers in the G20 grouping also shows India in poor light on gender equality
issues. Unlike the HDI, a higher GII value indicates poor performance (Table 9.6).
9.34 The Gender Development Index (GDI), defined as a ratio of the female to male
HDI measures gender inequality according to three basic parameters of human
development: health (LEB), 9.32 Indias HDI is also below the average of countries in
both the medium human development group (0.614) and in South Asia (0.588).
Between 1980 and 2013, Indias life expectancy at birth (LEB) increased by 11.0
years, mean years of schooling increased by 2.5 years, and expected years of
schooling increased by 5.3 years while gross national income (GNI) per capita
increased by about 306.2 per cent. As compared to BRICS nations and some
neighbouring countries, India reports the least mean years of schooling and an LEB
that is just above that of South Africa. Bangladesh, with less GNI per capita than
India, has a much higher LEB and mean years of schooling. China, which recorded a
slightly higher HDI than India in 1980, has widened the margin in 2013 (Table 9.5).
The existing gap in health and education indicators between India and developed
countries and also many developing countries education (expected years of
schooling for children and mean years for adults aged 25 years and older); and
command over economic resources (estimated GNI per capita). Country rankings
are based on absolute deviation from gender parity in HDI. The GDI is calculated for
148 countries. The female HDI value for India is 0.52 as compared to 0.63 for males,
resulting in a GDI value of 0.828. In comparison, Bangladesh and China are ranked
higher with values of 0.908 and 0.939 respectively (Table 9.7).
9.35 Thus, while India is in the bottom 25 per cent of all countries on the HDI, it
ranks in the bottom 20 per cent on the GII. These statistics reflect the high levels of
gender inequality in India and the poor status of women and girls in Indian society.
India is a signatory to the Convention on the Elimination of All Forms of
Discrimination against Women (CEDAW), which is often described as an
international bill of rights for women. It defines discrimination against women and
sets the agenda for national action to end violations of womens rights. An important
element of CEDAW is its affirmation of womens reproductive rights, including the
right to determine the number and spacing of children and equal access to family
planning. Unfortunately in India there is an increasingly disproportionate emphasis
on womens sterilization; thus tubectomies account for a whooping 97.5 per cent of
all sterilization operations in 2013-14 (a massive jump from 78.6 per cent in the
1980s). This runs counter to our goals of achieving gender equality and womens
empowerment. Sterilization constitutes 75 per cent of Indias contraceptive use. It is
unparalleled in any country in the world today. The closest is Latin America where it
forms 40 per cent of all contraceptive methods.
9.36 Another concern is the secular decline in the child sex ratio (CSR girls per
1000 boys aged 0-4 or 0-6) in India from 976 in 1961 to 918 in 2011; the SRS (2013)
reports a figure of 909 for 2011-13. Globally CSR is calculated as boys per 100 girls.
Comparatively, in Asia and the Pacific, the CSR (boys per 100 girls aged 0-14) was
110 in 2012, much higher than the sex ratio under natural conditions (105). While
Chinas CSR declied from 121 in 2010 to 117 in 2012, Indias CSR increased from

109 to 111 over the same period. Figure 9.4 gives the trends in CSR in select
countries in Asia between 1990 and 2012.
9.37 The UN General Assembly in 1993 defined violence against women as any act
of genderbased violence that results in, or is likely to result in, physical, sexual or
psychological harm or suffering to women. Consequently, apart from violence
against married/adult women, excess female child mortality, female infanticide, and
child marriage are also considered violence against the female gender. The
implementation of the Protection of Women from Domestic Violence Act 2005
(PWDVA) is weak, as nineteen states have no planned schemes.
9.38 Appropriately a new scheme, Beti Bachao Beti Padhao (BBBP) Programme, for
promoting survival, protection, and education of the girl child was launched on 22
January 2015 at Panipat, Haryana, a state that is noted for the lowest CSR 835
(SRS 2013). It aims to address declining CSR through a mass campaign targeted at
changing social mind set and creating awareness about the criticality of the issue.
The overall goal of the BBBP programme is to celebrate the girl child and facilitate
her education with the objectives of preventing gender-biased sex-selective
elimination, ensuring survival and protection, and education of the girl child. 9.39
Comparison of select socio-economic development indicators of states is given in
Appendix Table 9.8.
FOSTERING INCLUSIVE GROWTH
9.40 Indian development planning has focused on formulation of programmes and
policies aimed at bringing the marginalized and poor sections of society into the main
stream. The government has been implementing many such programmes for social
and financial inclusion. The disbursement of benefits needs a systematic channel
which will provide for financial empowerment and make monitoring easier and the
local bodies more accountable. The Pradhan Mantri Jan Dhan Yojna (PMJDY)
launched on 28 August 2014 and the RuPay Card, which is a payment solution, are
important schemes in this regard. These two schemes are complementary and will
enable achievement of multiple objectives such as financial inclusion, insurance
penetration, and digitalization.
9.41 Government has restructured and finetuned a number of ongoing programmes
based on the field experience to make them need based. These are listed in
Appendix Page A141-A145. To facilitate coordinated functioning of various social
infrastructure and human development programmes, the government has launched
the Sansad Adarsh Gram Yojna (SAGY) which will be implemented through the
convergence and implementation of existing government programmes. In addition,
the Vanbandhu Kalyan Yojna will be implemented in one block each of ten states that
have Fifth Schedule areas.
9.42 Given the multiple schemes implemented to foster inclusive growth, the role of
Panchayati
DEMOGRAPHIC DIVIDEND AND RELATED POLICY INTERVENTIONS
9.43 A declining 0-14 population will impact both elementary (5-14 age group) and
higher education (15-29 age group). Elementary education can be further subdivided
into primary (5-9 age group) and middle/upper primary (10- 14 age group). The first
stage of impact will be felt in declining enrolment in primary schools. As stated
earlier, total enrolment in primary schools has fallen in 2013-14 while upper primary

enrolment has grown. The dependency ratio for India is expected to fall from 54 per
cent in 2010 to 49 per cent in 2020. In this scenario, given interstate disparities,
states that are already facing this situation need to adopt specific policy measures in
the field of education, wherein, instead of expanding the number of primary schools,
focus should be on (i) improving access to education considering the high dropout
rates among senior students; (ii) removing gender disparity especially in the higher
age group and in rural areas; and (iii) improving quality of education, including pupilteacher ratios and provision of amenities in schools, especially in view of the
declining learning levels.
9.44 The lag in demographic transition between different states that necessitates
state-specific policies to optimally garner the benefits of the demographic dividend.
Owing to substantial fertility decline in the south during the last two decades, the
south is ahead in the demographic transition compared to the north, thereby the
window is already wide open in the south compared to the north. For instance, the
projected average age of 29 years in 2020 has already been surpassed in some
states like Kerala (33 years), Goa (32.3), Tamil Nadu (31.3), Himachal Pradesh
(30.4), Punjab (29.9), Andhra Pradesh (29.3), and West Bengal (29.1). Comparative
picture of five states each with lowest and highest average age is shown in Figure
9.5.
9.45 This lag in demographic transition among states in India could turn out to be a
great blessing from the point of view of coping with the problem of declining
population. India is better placed in this respect than most other countries. Thus
states already well into the demographic window should actively pursue policies for
employment generation to the already bulging labour force, while states just entering
the window period have some time to plan and must pursue policies simultaneously
in several areas like education, health (including reproductive health), gender issues,
and employment generation from now on so that they can fully utilize the opportunity.
TRENDS IN INDIAS SOCIAL-SECTOR EXPENDITURE
9.46 Reserve Bank of India (RBI) data on expenditure on social services by the
general government (centre and states) as a proportion of total expenditure has also
been showing a mixed trend. It had declined to 22.9 per cent in 2012-13 from 24.7
per cent in 2010-11 but increased to 24.1 per cent in 2013-14 (RE) and declined
again to 22.3 per cent in 2014-15 (BE). As a percentage of the GDP, expenditure on
social services has declined from 6.9 per cent in 2009-10 to 6.7 per cent in 2014-15
(BE), with expenditure on education increasing from 3.0 per cent to 3.1 per cent and
on health declining from 1.4 per cent to 1.2 per cent. There was a consistent rise in
absolute social-sector expenditure by the general government (centre+state) even
during the global crisis of 2008-09 and Euro area crisis of 2011- 12, from ` 3,80,628
crore during 2008-09 to ` 5,80,868 crore in 2011-12 and further to ` 8,68,476 crore
(BE) during 2014-15 (Appendix Table 9.9).
9.47 Government spending on healthcare in India is only 1.2 per cent of GDP which
is about 4 per cent of total government expenditure, less than 30 per cent of total
health spending. The failure to reach minimum levels of public health expenditure
remains the single most important constraint to attaining desired health outcomes.
While it is important to recognize the growth and potential of a rapidly expanding
private sector, international experience shows that health outcomes and financial

protection are closely related to absolute and relative levels of public health
expenditure.
CONCLUSION
9.48 With women accounting for nearly 48 per cent of Indias population (Census
2011), there is need to ensure and safeguard their place in the socio-economic
milieu. Since this requires a change in the patriarchal mindset of the larger
population, government has to continue to be a proactive facilitator of this change
through consistent policies. India aims to be in the top 50 countries of the Doing
Business ranking; it must at the same time endeavour to be in the top 50 countries in
HDI and GII rankings. Low levels of education and skill deficit are responsible for low
income levels of a large majority of the labour force, thereby perpetuating inequality.
Consequently, the governments thrust on skill development as well as Make in
India aims at improving employability and generating employment avenues. Since
demographic predictions warn that the promise of the demographic dividend will not
last long, in any case not beyond 2050, India needs to take advantage of this
demographic window in the next couple of decades. The challenge for the country
now is in planning and acting towards converting its demographic burden into
enhanced opportunities for growth by dovetailing the quality of manpower to the
requirements of employers (off-farm, industry, and services sectors), both domestic
and international. For this intention to translate into reality, a bottom-up approach
using Panchayati Raj institutions and ULBs as agents of change is the need of the
hour.
Box 9.1 : School Education Outcomes : Critical Inputs for tapping the Demographic
Dividend i. The single most significant ASER finding is that learning levels across the
country, whether in public or private school, have not improved (Figure 9.1). ii.
Another important finding is regarding school enrolmentfrom only 16 per cent
children enrolled in private schools in 2005, enrolment has gone up to nearly 30 per
cent. Present trends indicate that this number will increase to 50 per cent by the end
of the current decade. During 2007-08 and 2013-14, enrolment in government
schools (both primary and upper primary) declined by about 11.7 million, from 133.7
million to 121 million, while enrolment in private schools increased by 27 million, from
51 million to 78 million. It is a moot point whether the poor learning levels in
government schools have contributed to this. Paradoxically this trend is observed in
rural areas, which receive funding under the SSA and other programmes. iii. Some
highlights of the survey of rural children conducted in 16,497 villages in 557 districts
(569,229 children surveyed), are listed below:
Marginal improvement in basic reading levels: The percentage of children in
Standard V who are able to read a Standard II-level text increased from 47.0 per
cent in 2013 to 48.1 per cent in 2014.
Decline in arithmetic levels: The percentage of Standard III children able to solve
simple two-digit subtraction problems fell from 26.1 per cent in 2013 to 25.3 per cent
in 2014. The percentage of children in Standard II who cannot recognize numbers up
to 9 has increased over time, from 11.3 per cent in 2009 to 19.5 per cent in 2014.
Better provision of girls toilets: The proportion of schools without toilets (girls + boys)
declined from 7.2 per cent in 2013 to 6.3 per cent in 2014. The proportion of

separate girls toilets (unlocked and useable) in schools has improved from 32.9 per
cent in 2010 to 53.3 per cent in 2013 and further to 55.7 per cent in 2014.
Increase in libraries in schools: The proportion of schools without libraries has
declined only one percentage point from 22.9 per cent during 2013 to 21.9 per cent
during 2014.
Compliance on pupil-teacher ratio: There has been a consistent rise in the proportion
of schools complying with RTE norms on pupil-teacher ratio, from 45.3 per cent in
2013 to 49.3 per cent in 2014.
Improvement in drinking water facility: The proportion of schools with no provision for
drinking water declined from 17.0 per cent in 2010 to 15.2 per cent in 2013 and
further to 13.9 per cent in 2014 but the proportion of schools with useable drinking
water facility improved only marginally from 73.8 per cent in 2013 to 75.6 per cent in
2014.
Stagnant enrolment in rural India: Over one year the enrolment of 6-14-year old
children in rural India remained dormant at 96.8 per cent, with the proportion not
enrolled also unchanged at 3.3 per cent.
Rising private school enrolment: Private school enrolment of 6-14-year olds has
risen marginally from 29.0 per cent in 2013 to 30.8 per cent in 2014. Among the
major States which have higher private enrolment are Kerala followed by Haryana,
UP, Punjab, and Rajasthan.
Decline in classroom-teacher ratio (CTR): The steady decline in the percentage of
schools meeting the RTE norm for CTR continued; from 73.8 per cent in 2013 the
ratio further declined to 72.8 per cent in 2014.
Decline in attendance: Childrens attendance in both primary and upper primary
schools shows a steady downward trend. In 2009, attendance was at 74.3 per cent
in primary schools and 77 per cent in upper primary schools as compared to 71.4 per
cent and 71.1 per cent respectively in 2014.
Same classroom for different classes: In 2014, Standard II students in about 63 per
cent of schools and Standard IV students in about 57 per cent of schools were
reported to be sitting with one or more other classes; the percentages have been
increasing over the years. Source: Annual Status of Education Report (Rural) 2014
Provisional Results Box 9.3 :
Labour reform measures
(1) The Apprentice Act 1961 was amended on 18.12.2014 to make it more
responsive to industry and youth. The Apprentice Protsahan Yojana was also
launched to support MSMEs in the manufacturing sector in engaging apprentices.
Government is also working affirmatively to bring a single uniform law for the MSME
sector to ensure operational efficiency and improve productivity while ensuring job
creation on a large scale.
(2) A unified labour portal scheme called ShramSuvidha Portal has been launched
for timely redressal of grievances and for creating a conducive environment for
industrial development. Its main features are: (i) Unique Labour Identification
Number (LIN) allotted to around 0.7 million units facilitating online registration; (ii)
filing of selfcertified, simplified single online return instead of 16 separate returns by
industry; (iii) transparent labour inspection scheme via computerized system as per

risk-based criteria and uploading of inspection reports within 72 hours by labour

inspectors.
(3) Under Employees State Insurance Corporation (ESIC) Project Panchdeep:
Digitization of internal and external processes to ensure efficiency in operations,
especially services to employers and insured persons. The portal enables employers
to file monthly contributions, generate temporary identity cards and create monthly
contribution challans online, issue of pehchan card for insured persons for fast and
convenient delivery of services. Through the IP Portal, insured persons can check
contributions paid/payable by employers, family details, entitlement to various
benefits, and status of claims. Integration of its services will promote ease of
business and curb transaction costs.
(4) Under Employees Provident Fund (EPF): Digitization of complete database of
42.3 million EPF subscribers and allotment of universal account number (UAN) to
each member, which facilitates portability of member accounts. UAN is being seeded
with bank account, Aadhar Card and other KYC details to promote financial
inclusion. Direct access to EPF accounts will enable members to access and
consolidate previous accounts. Online pensioners can view their account and
disbursement details online. The statutory wage ceiling under the Employees
Provident Fund and Miscellaneous Provisions (EPF&MP) Act was enhanced to Rs.
15000 per month from 01.09.2014. A minimum pension of Rs.1000 has been
introduced for pensioners under the Employees Pension Scheme 1995 w.e.f
01.09.2014.
(5) For Unorganized Workers: The Rashtriya Swasthya Bima Yojana (RSBY) is a
scheme under the Unorganized Workers Social Security Act 2008. It is a smart cardbased cashless health insurance scheme, including maternity benefit, which
provides a cover of Rs 30,000 per family per annum on a family floater basis to
below poverty line (BPL) families in the unorganized sector. It is proposed to extend
the RSBY to all unorganized workers in a phased manner.
(6) A National Council for Vocational Training-Management Information System
(NCVT-MIS) portal has been developed for streamlining the functioning of Industrial
Training Institutes (ITI), Apprenticeship Scheme, and assessment/certification of all
NCVT training courses.
(7) The National Career Service(NCS) is being implemented as a mission mode
project to transform the National Employment Service and provide various jobrelated services such as online registration of job seekers and job vacancies, career
counselling, vocational guidance, and information on skills development courses,
internships, and apprenticeship.
Box 9.5 : Need to Strengthen Village Panchayats and ULGs The 73rd and 74th
Constitutional Amendments marked a watershed in the history of decentralized
governance, planning, and development in India as these made panchayats and
ULGs the third tier of government with reasonable power and authority in addition to
creating space for women and marginalized groups in the federal set-up.
Decentralized democracy was also extended to Fifth Schedule areas through the
provisions of another Panchayat (Extension to the Scheduled Areas) Act 1996 known
as the Extension Act which not only made the gram sabha a strong body, but also
put jal, jungle, and jamin (water, forest, and land) under its control. These central

acts, however, instead of clearly specifying the powers and functions of panchayats
and municipalities, have left it to the discretion of state governments. Articles 243 G
and 243 W of these acts decree that the legislature of a state may, by law, endow the
panchayats/municipalities with such powers and authority as may be necessary to
enable them to function as institutions of self-government. Such law may also
contain provisions for devolution of powers and responsibilities upon panchayats/
municipalities, subject to such conditions as may be specified therein, with respect to
the preparation of plans and implementation of such schemes for economic
development and social justice as may be entrusted to them. These may include
inter alia schemes and plans in relation to socioeconomic development and providing
basic services as listed in the Eleventh and Twelfth Schedules of the constitution.
Article 243 ZD of the 74th Amendment Act providing for constitution of district
planning committees (DPC) by the state government in every district is a milestone
in decentralized planning with peoples participation. These committees are expected
to consolidate the plans prepared by the panchayats and municipalities in the district
and prepare a draft development plan for the district as a whole. DPCs have been
set up in most of the states. Much of implementation of these panchayat acts, i.e.
power-sharing with panchayats / ULGs, is left to the states. Over the years
panchayats and ULGs have not been strengthened in terms of functions, finances
and functionaries (triple Fs) with regard to preparation of plans and the listed
subjects.
These amendment acts have the potential of becoming true vehicles for carrying out
the governments slogan of less governmentmore governance if an atmosphere of
general consensus to adopt it is created among all the states. In order to convert
outlays of the panchayat /municipality-centric programmes into outcomes, these
institutions need greater awareness, responsibility, and accountability, which will also
enable better connect of these programmes with the common man. There needs to
be greater devolution of powers to the panchayats and municipalities in respect of
the triple Fs in a phased manner. The majority of panchayat/municipality-centric
programmes do have earmarked funds for awareness generation and capacity
building. These funds across ministries need to be pooled together under the
Panchayati Raj Ministry and Ministry of Urban Development to make infrastructure
and capacity building of panchayats and municipalities a continuous and regular
process. This will enable panchayats and municipalities to understand not only their
role and rights but also their responsibilities and will make them accountable,
bringing about qualitative improvement in governance at decentralized level. Such
facilitation by the government will transform panchayats and municipalities into
vibrant institutions and enable them to perform their envisaged role in participatory
planning, implementation, execution, monitoring, and supervision and also carry out
social audit of all panchayat/ municipality-centric programmes including the Swachh
Bharat Mission.

Inflation Impact on Economy

By Cliffton Rodrigues on Saturday, 6 June 2015 at 15:44
Inflation means a rise in prices of goods and services in an economy over a period of
time. Inflation is caused by some demand side factors (Increase in money
supply,Increase in income, Black money spending, Expansion of the Private
Sector,Increasing Public Expenditures) and some Supply side factors (Shortage of
factors of production, Industrial Disputes, Increase in exports (excess exports),
Global factors,Neglecting the production of consumer goods).Inflation effects the
different sectors of the economy (Effects on the distribution of income and wealth,
Effects on production, Effects on the Government, Effects on the Balance of
Payment, Effects on Monetary Policy, Effects on Social Sector, Effects on Political
environment) and different classes of the people (Debtors & Creditors,Salaried
Class, Wages earners, Fixed income group, Investors and
shareholders,Businessmen, Agriculturists).There are many causes for inflation,
depending on a number of factors. For example,inflation can happen when
governments print an excess of money to deal with a crisis. When any extra money
is created, it will increase some societal groups buying power. All sectors in the
economy try to buy more than the economy can produce.Shortages are then created
and merchants lose business. In the end, the price level rises. Another.Another
common reason of inflation is a rise in production costs, which leads to an increase
in the price of the final product. For example, if raw materials increase in price, this
leads to the cost of production increasing, this in turn leads to the company
increasing prices to maintain their profits. Inflation can also be caused by federal
taxes put on consumer products. As the taxes rise, suppliers often pass on the
burden to the consumer.In Pakistan, the most important thing is the rise in prices of
oil, gas, excise duties and the increase in the utility tariffs. These all has an
inflationary impact on the economy. Pakistan, with a population of about 16 million
people has undergone are mark-able economic growth during last few years, but the
core problems of the economy are still unsolved. Inflation is one of these core
problems.Government claims that in order to keep the prices of essential
commodities under control, it has been taking various measures throughout the year.
In order to provide relief to the low and fixed income groups, the government has
been selling wheat flour and sugar through the outlets of the Utility Stores
Corporation (USC) at much lower prices than the market.Thegovernment has also
allowed the import of various items through land routes from neighboring countries.
But, all these are secondary measures. Problems like inflation and poverty cant be
resolved by applying the secondary measures directly, these need strategic
planning. Unfortunately, in Pakistan, these core problems have never undergone
such a planning process
Government has never invited foreign investment for the production of basic
goods.Agriculture sector, on which the major industries rely for the raw material has
notbeen given sufficient subsidies. The major rise in the prices is because of
theincreasing prices of oil (as increased prices of oil increase the cost of production),
butno such steps have been taken to control the oil prices.Domestic productions at
less cost of production will not only make the availability of goods much easier but
Aggregate Supply will also increase, and domestic industry will get

developed.Inflation is one of the obstacles on the way of development. In Pakistan, it

has squeezed the major part of the population. It needs to be controlled by strategic
planning. Domestic production should be encouraged instead of imports; investment
should be given preference in consumer goods instead of luxuries, Agriculture sector
should be given subsidies, foreign investment should be attracted, and developed
countries should be requested for financial and managerial assistance. And lastly
astrong monitoring system should be established on different levels in order to have
a sound evaluation of the process at every stage.Inflation always hurts ones
standard of living. Rising prices mean people have to pay more for the same goods
and services. If income increases at a slower rate as inflation, the standard of living
declines even if one makes more. So it is the root cause in making and affecting
economy and people of the country poor. If we want to control inflation we shall have
to inflict strict control over the supply of money and evading any relaxation to the
supply of money. This is the most apt way whereby wecan control inflation effectively
and keep the economy of the country in a strong andstable position.
Bonds
Bonds and other fixed-income securities are highly sensitive to interest rate changes.
A bond is a loan. The issuer, usually a company or government entity, borrows
money fromthe investor who buys the bond. When interest rates rise, the price of
existing bonds falls. Thats because investors can get higher rates on newly issued
bonds. As a result, the price of old bonds must fall to make them competitive with
new ones.
Cuases of inflation: A standard explanation for the cause of inflation is too much
money chasing too few goods. Thisis also called thedemand-pull theory.
Heres how it works:
1.For several possible reasons, more money is being spent than normal. This could
bebecause interest rates are low and people are borrowing more. Or perhaps the
governmentis spending a lot on defense contracts during a war.
2.Theres not enough supply to keep up with the rising demand for homes, cars,
tanks,missiles, et cetera. Manufacturers are producing goods at a slower rate than
people aredemanding goods.
3.When supply is less than demand, prices go up. Another explanation for inflation is
the cost-push theory.
Heres how that works:
1.For several possible reasons, the cost of doing business starts to go up
independent of demand. This could be because labor unions negotiated a new
contract for higher wages,the local currency loses value and the cost of exporting
foreign goods goes up, or newtaxes have put a strain on the bottom line.
2.Its called cost-push inflation because the rise in the cost of doing business pushes
theprice of products up.
An increase in the rate will impact the value of stocks, bonds, real estate, the
dollarand gold. Heres a look at how rising rates could affect various investmentsSo

how do interest rates affect the rise and fall of inflation? Like we said earlier, lower
interest ratesput more borrowing power in the hands of consumers. And when
consumers spend more, theeconomy grows, naturally creating inflation. If the Fed
decides that the economy is growing too fast-that demand will greatly outpace
supply-then it can raise interest rates, slowing the amount of cashentering
the economy.Its the Feds responsibility to closely monitor inflation indicators like the
Consumer Price Index(CPI) and the Producer Price Indexes (PPI) and do its best to
keep the economy in balance. Theremust be enough economic growth to keep
wages up and unemployment low, but not too muchgrowth that it leads to
dangerously high inflation. The target inflation rate is somewhere betweentwo and
three percent per year

Merits and demerits of recently launched Suraksha Bima Yojana and Jeevan
Jyoti Bima Yojana schemes.
By Cliffton Rodrigues on Wednesday, 3 June 2015 at 16:56
Recently government launched two bima yojana, one if life insurance and another is
health insurance.
Government has wonderfully thought about these Yojanas and it will definitely help in
longer run if executed properly and given to people in fair terms.
Benefits:
1) These Bima yojanas are very cheap at Rs 12 premium for Rs 2 lakh insurance. So
a very poor person can also afford it.
2) Forms are easy to fill and will be easier for rural people to fill them and get them
emrolled.
3) Government is acting as a facilitator and subscriber is paying for it. So
government is not again paying like we havd done from Independence for vote bank
and not putting much load on government finances.
4) It will help in financial inclusion as lot of people will not have to pay for health
related issues now. So a burden will go down.
Demerits:
1) No medical test: Currently insurance companies are not doing any medical tests
for subscribers but they are taking a self declaration from the applicant that he or she
does not suffer from medical issues.
Lot of people dont read these instructions and they themselves dont know about
their diseases. So lot of people will not get their claims later on and these insurance
companies will deny it.
2)There will be lot of false claims bu rural people and government is pushing on the
insurers to waive the usual process of investigating thoroughly deaths within one
year of buying the policy.Many times there are lot of foul plays both by people.
3) Attitude of insuance companies is such that they look for eveyr possible way to
deny the claims .They simply follow this motto of "deny if you can, pay if you must".
They apply this day in and day out to even well-educated people. Mnay times they
change the terms, insured amount and lot many frauds.
If we see these schemes are very good for India and for following the financial and
medical inclusion for all but we need proper regulators to ensure that the insurance
companies dont foul play and fair claims should be received by people even in most
rural areas of India.

Genesis of CDR Mechanism in India

There are occasions when corporates find themselves in financial difficulties
because of factors beyond their control and also due to certain internal
reasons. For the revival of such corporates as well as for the safety of the
money lent by the banks and financial institutions, timely support through
restructuring of genuine cases is called for. However, delay in agreement
amongst different lending institutions often comes in the way of such
endeavors. Based on the experience in countries like the UK, Thailand, Korea,
Malaysia, etc. of putting in place an institutional mechanism for restructuring of
corporate debt and need for a similar mechanism in India, a Corporate Debt
Restructuring System was evolved and detailed guidelines were issued by
Reserve bank of India on August 23, 2001 for implementation by financial
institutions and banks.
The Corporate Debt Restructuring (CDR) Mechanism is a voluntary nonstatutory system based on Debtor-Creditor Agreement (DCA) and InterCreditor Agreement (ICA) and the principle of approvals by super-majority of
75% creditors (by value) which makes it binding on the remaining 25% to fall
in line with the majority decision. The CDR Mechanism covers only multiple
banking accounts, syndication/consortium accounts, where all banks and
institutions together have an outstanding aggregate exposure of Rs.100 million
and above. It covers all categories of assets in the books of member-creditors
classified in terms of RBI's prudential asset classification standards. Even
cases filed in Debt Recovery Tribunals/Bureau of Industrial and Financial
Reconstruction/and other suit-filed cases are eligible for restructuring under
CDR. The cases of restructuring of standard and sub-standard class of assets
are covered in Category-I, while cases of doubtful assets are covered under
Category-II.
Reference to CDR Mechanism may be triggered by:

Any or more of the creditors having minimum 20% share in either

working capital or term finance, or

By the concerned corporate, if supported by a bank/FI having minimum

20% share as above.

It may be emphasized here that, in no case, the requests of any corporate

indulging in fraud or misfeasance, even in a single bank, can be considered for
restructuring under CDR System. However, Core Group, after reviewing the
reasons for classification of the borrower as wilful defaulter, may consider
admission of exceptional cases for restructuring after satisfying itself that the
borrower would be in a position to rectify the wilful default provided he is
granted an opportunity under CDR mechanism.
Structure of CDR System: The edifice of the CDR Mechanism in India stands
on the strength of a three-tier structure:

CDR Standing Forum

CDR Empowered Group

CDR Cell

Legal

Basis

of

CDR

The legal basis to the CDR System is provided by the Debtor-Creditor

Agreement (DCA) and the Inter-Creditor Agreement (ICA). All banks /financial
institutions in the CDR System are required to enter into the legally binding
ICA with necessary enforcement and penal provisions. The most important
part of the CDR Mechanism which is the critical element of ICA is the provision
that if 75% of creditors (by value) agree to a debt restructuring package, the
same
would
be
binding
on
the
remaining
creditors.
Similarly, debtors are required to execute the DCA, either at the time of
reference to CDR Cell or at the time of original loan documentation (for future
cases). The DCA has a legally binding stand still agreement binding for
90/180 days whereby both the debtor and creditor(s) agree to stand still and
commit themselves not to take recourse to any legal action during the period.
Stand Still is necessary for enabling the CDR System to undertake the
necessary debt restructuring exercise without any outside intervention, judicial
or otherwise. However, the stand still is applicable only to any civil action,
either by the borrower or any lender against the other party, and does not
cover
any
criminal
action.
Besides, the borrower needs to undertake that during the stand still period the
documents will stand extended for the purpose of limitation and that he would
not approach any other authority for any relief and the directors of the
company will not resign from the Board of Directors during the stand still
period.

Indias public sector banks are heading towards bad times. We dont need a soothsayer to say
thisa close look at the earnings of banks in the quarter ending March makes it quite clear.
Among 39 listed banks in Indiaboth private and publicfour recorded net losses in the March
quarter, and three of them are public sector banks. They are Bank of India, Oriental Bank of
Commerce and Punjab and Sind Bank. At least nine other public banks recorded a drop in net

profit compared with the year-ago quarter; and for a few of them, the drop has been pretty sharp.
For instance, Punjab National Bank (PNB) posted a 62% drop in net profit; for Dena
Bank, United Bank of India (UBI) and Indian Overseas Bank (IOB), the drop in net profit was

even sharperbetween 70% and 87%. Two private banks that posted a drop in the Marchquarter net profit are Jammu and Kashmir Bank Ltd and South Indian Bank Ltd.
The sole reason for the losses and the drop in net profits is ballooning bad assets, for which
banks need to set aside money. Fourteen Indian banks now have at least 5% or more gross bad
loans and, barring two, all are public sector banks. UBIs gross bad loans are 9.49% of loan
assets and those of IOB, 8.33%. Similarly, the seven banks that have between 4% and 5% bad
assets are all public sector banks. Of the five banks that have 3-4% gross bad assets, four are
from the public sector. ICICI Bank Ltd is the lone private sector entry into this segment. After
setting aside money for such loans, 13 banks have at least 3% or more net non-performing
assets (or NPAs) and barring one, all are from the public sector.
Provisions on account of bad assets have eaten into their net profit, even though not too many
banks have shown a drop in their operating profit. For instance, PNBs provision for bad loans
rose 161% in the March quarter over the December quarterfrom Rs.1,468 crore to Rs.3,834
crore; for Punjab and Sind Bank, the rise has been 150% and for Syndicate Bank, 146%. Among
others, IDBI Bank Ltds provision rose 80%, that of Bank of Baroda44%, and Bank of India 43%.
Ideally, some of the banks should have set aside more money to take care of bad assets but they
could not do so as that would have affected their profits even more. In absolute terms, gross bad
assets of the 39 listed banks rose a little more than 25% over the past year to Rs.3.02 trillion
and, after provisioning, net bad assets rose some 26% to Rs.1.68 trillion.
The larger story is this: The past two years have separated the men from the boys. Data collated
by my colleagues Ashwin Ramarathinam and Ravindra Sonavane in Mints research wing show
that private banks are surging ahead of their counterparts in the public sector who are starved of
capital and suffering from a larger mound of bad assets. Going by the latest available data, there
are 43 foreign banks in India, but they are not taken into consideration for this analysis.
Collectively, they account for 0.33% of the branch network, a little less than 4% of bank deposits
and around 4.5% of advances. There are a few unlisted small private banks too, but for this
analysis, I am focusing on the 14 listed private banks and 25 listed public sector banks.
In almost every parameter, private banks are doing better than their peers in the public sector
and their market share has been growing. In fiscal year 2014, private banks operating profit was
almost flat, but in 2015, it rose 19%. In contrast, public sector banks operating profit dropped

close to 6% in 2014 and rose about 8% in 2015. After setting aside money for bad loans, private
banks net profit rose 17.66% in 2014, while in 2015, the growth was 18.11%. Public banks net
profits dropped a little more than 26% in 2014 and just about 1% in 2015. Public banks gross
NPAs grew close to 25% in 2015 after surging 37% in the previous year, while gross NPA growth
for private banks was 30% and 15% in those two years respectively, albeit on a lower base. Post
provisions, net NPAs of public banks grew 42% in 2014 and 26% in 2015. The comparable
figures for private banks are 45% and 43%again on a relatively smaller base.
What is more interesting to note is that public sector banks are lagging behind private banks both
in deposits and advances growth. In 2015, public sector banks business growth has been almost
half that of private banks. For instance, public banks deposit growth has been 9.13%, against
private banks 16.16%; similarly, private banks advances grew close to 19%, compared to 8.13%
for public banks.
As a result, private banks market share has been growing steadily. In the past two years, their
share in operating profit has grown from 29.13% to 32.59%, while that of net profit has jumped
from close to 35% to more than 50.5%, even as their deposits and advances continue to remain
one-fifth of public sector banks despite steady growth. Public sector banks market share of
deposits in the past two years has slipped from 81.82% to 80.92%, and that of loan advances
from 80.72% to 78.72%.
In other words, with roughly one-fifth of market share in bank deposits and advances, private
banks account for more than half the net profit of the industry. This is possible because their
market share of gross NPAs is a shade less than 10% and net NPAs around 7%. Incidentally, the
14 listed private banks total net profit is about 25% more than their gross bad assets, while the
25 listed public sector banks gross bad assets are almost seven-and-a-half times their net profit.
Do we need to say more on why the market does not see value in most public sector banks?
Every country has an organisation that works as the central bank. The main function of the
central bank is to control and monitor the banking and finance system of a country. In India, The
Reserve Bank of India (RBI) serves as the Central Bank.
There are many things for which the RBI is responsible such as controlling inflation, regulating
banking system, issuing bank notes, acting as lender to banks, controlling credit, and monetary
policy and so on and so forth.
Here are things to know about the functioning of RBI:
1. Control of inflation: Inflation is the supply of excess money relative to the goods and services
produced resulting in increased prices. It occurs when the demand increases and there is
shortage of supply. RBI controls inflation using monetary policy. It controls borrowing rates for
banks by setting the repo rate. When RBI wants to control inflation it increases these rates. As a
result, banks and other lenders are required to pay a higher interest rate to the Central Bank in
order to obtain money. They pass this on to their customers by charging a higher rate of interest
for lending money. This reduces the availability of money in the economy as well as demand and
helps in controlling inflation.

2. Issuer of Bank Notes: The RBI has the sole right to issue currency notes. At present, notes of
Rs 10; Rs 100; Rs 500; and Rs 1,000 are only printed. The printing of Re 1, Rs 2 and Rs 5 has
been stopped. However, the RBI has powers to print currency notes of up to Rs 10,000
denomination. But, an amendment to the Reserve Bank of India Act, 1934 will be needed if any
note of higher denomination has to be printed.
3. Banker to Government: As banker to the government the RBI manages the banking needs of
the government. It has to maintain and operate the governments deposit accounts. It collects
receipts of funds and makes payments on behalf of the government. It represents the
Government of India as the member of the IMF and the World Bank.
4. Payment system: The RBI takes part in the payment system as a user of the system, a service
provider and is also the regulator of the systems. As a user it deals with the cheque based clearing
operations. It also participates as a user in the Electronic Clearing Service (ECS) and (Electronic
Funds Transfer) EFT systems for making its own internal payments to its employees, vendor
payments etc. Similarly, RBI transactions in Repo / Reverse Repo under LAF, Open Market
Operations, would also be settled through the respective components of payment systems. As a
provider it manages the Centralised Funds Management Systems (CFMS), Negotiated Dealing
System (NDS) and Real Time Gross Settlement (RTGS) systems have been fully developed,
operationalised and maintained by RBI. Besides the above, RBI (through IDRBT) has also
provided the communication backbone to the financial system in the country in the form of
Indian Financial Network (INFINET).
5. Regulates banks: RBI regulates banks in the country. All those aspiring to start a bank or
acquire an existing one, have to seek RBI approval. RBI also monitors financial stability of banks
and keeps a check on lending in the system. Banks have to maintain a portion of their deposits
for cash reserve ratio or CRR and at all times maintain minimum capital adequacy. RBI monitors
risks to the financial system by keeping a check on banks.
6. Exchange rate stability: RBI may intervene in the market to influence the exchange rate or to
reduce volatility. The basic intention in such actions is to maintain the demand-supply
equilibrium. The Central Bank may transact in the market on its own for this purpose or on
behalf of the government. Under the Flexible Exchange Rate System currently in operation, the
RBI is under no obligation to defend any particular exchange rate but still can intervene to
influence the market sentiment.
7. Custodian of Cash Reserves of Commercial Banks: The commercial banks hold deposits in the
Reserve Bank and the latter has the custody of the cash reserves of the commercial banks.
8. Custodian of Countrys Foreign Currency Reserves: The Reserve Bank has the custody of the
countrys reserves of international currency, and this enables it to deal with crisis connected with
adverse balance of payments position.
9. Lender to banks: The commercial banks approach the Reserve Bank in times of emergency to
tide over financial difficulties, and the Reserve bank comes to their rescue though it might charge
a higher rate of interest.
10. Controller of Credit: Since credit money forms the most important part of supply of money,
and since the supply of money has important implications for economic stability, the importance

of control of credit becomes obvious. Credit is controlled by the Reserve Bank in accordance with
the economic priorities of the government.

Short notes on Accounts for NRI/PIO in India

What are the different types of accounts which can be maintained by an NRI/PIO in India?

Types of accounts which can be maintained by an NRI / PIO in India:

A. Non-Resident Ordinary Rupee Account (NRO Account)

NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed
deposit accounts. Interest rates offered by banks on NRO deposits cannot be higher than those
offered by them on comparable domestic rupee deposits.
Account should be denominated in Indian Rupees.
Permissible credits to NRO account are transfers from rupee accounts of non-resident banks,
remittances received in permitted currency from outside India through normal banking channels,
permitted currency tendered by account holder during his temporary visit to India, legitimate dues
in India of the account holder like current income like rent, dividend, pension, interest, etc., sale
proceeds of assets including immovable property acquired out of rupee/foreign currency funds or
by way of legacy/ inheritance.
NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one
million per financial year, subject to payment of applicable taxes.
The limit of USD 1 million per financial year includes sale proceeds of immovable properties
held by NRIs/PIOs.

B. Non-Resident (External) Rupee Account (NRE Account)

1) NRE account may be in the form of savings, current, recurring or fixed deposit accounts.
2) Such accounts can be opened only by the non-resident himself and not through the holder of
the power of attorney.
3) Account will be maintained in Indian Rupees.
4) Accrued interest income and balances held in NRE accounts are exempt from Income tax.

5) Authorised dealers/authorised banks may at their discretion allow for a period of not more than
two weeks, overdrawings in NRE savings bank accounts, up to a limit of Rs.50,000.
6) Loans up to Rs.100 lakh can be extended against security of funds held in NRE Account either
to the depositors or third parties.
C. Foreign Currency Non Resident (Bank) Account FCNR (B) Account
FCNR (B) accounts are only in the form of term deposits of 1 to 5 years
Account can be in any freely convertible currency.
Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit
either to the depositors or third parties.
The interest rates are stipulated by the Department of Banking Operations and Development,
Reserve Bank of India.