ECONOMIC GROWTH AND DEVELOPMENT Introduction Economies grow and develop, they expand and advance, and they

progress and prosper. There are phases when they decline too, and there are economies that experience continuous decay. If one considers long stretches of human history, one knows that economies (civilizations) disappeared altogether. We will not take into account such long stretches of time. We shall not consider too distant a past either. We will leave them to historians, may be, economic historians. Let us take a normal view. We shall then accept decline as an occasional, temporary phenomenon. We shall, therefore, use positive terms only. Of the positive terms, which have been used to describe changes as well as to prescribe changes, two have survived. They are growth and development. Because we shall primarily look at nations and countries as economies, and use terms such as economic growth and economic development. We shall often try to distinguish economic from noneconomic though there are cases where it becomes difficult to do so. In order to accommodate decline in level, we use phrase negative growth and to describe perverse tendencies, we may use words de-development or maldevelopment though, we will not have occasions to use them. You may find that, sometimes in many scientific treatises and very often in colloquy, words growth and development are used in interchangeable fashion. But, normally a distinction is made between the two, particularly in economics literature. It is maintained along the following lines. You might have noticed that the word growth is used to describe increase in stature or size. It is used to describe a uni-dimensional change, as in the case of stature of a child or a uniform expansion in all directions, as in the case of size of a balloon. Even when we refer to development of a child, we refer to various dimensions of its personality. When we do not refer to dimensional aspects we use the word growth. Even schools and institutes, colleges and universities, hotels and hospitals grow. But, we are often quick to point out certain features that are not captured by word growth. It is rare, if ever, that growth takes place without development or development takes place without growth. In most cases, they would accompany each other. There may be cases when one is dominant and the other is dormant. In such cases, people talk of growth without development or development without growth. It is, therefore, good to make an analytical distinction between the two. Economic Growth Comprehensive view of the economy, taking all activities together, and call its growth as economic growth. Let us look at it from the view point of production. The total quantum of goods and services produced in an economy in a given year is referred to as Gross Domestic Product. Let us measure it at factor cost and write it in its abbreviated form GDPFC. The GDPFC in 2000-01 was around Rs 17,00,000 crore. This is a flow of goods and services produced during the year 2000-01, measured in value terms. We may be interested in knowing whether the flow this year is larger than the flow last year. If so, we should know the measure of the flow last year. In order to see that we measure the real change in flow, we should compute the magnitude of flows in both the years in the same prices. The prices may belong to 2000-01 or 1999-2000 or to 1993-94; the point is that the prices should relate to only one common year so that we measure only the change in flow of output, not a mix of change in output and change in prices. Such GDPs are said to be measured at constant prices. Suppose you look into a recent issue of the National Accounts Statistics published by the Central Statistical Organisation and find that at 1993-94 prices, the GDPFC for 1999-2000 and 2000-01 are Rs.10,00,000 crore and Rs.10,60,000 crore respectively. The growth in flow called GDPFC in absolute terms is Rs.60,000 crore. In relative terms it is 6 per cent and it is called growth rate. If we prepare a whole series for 10, 20 or 50 years then we often add words per annum or per year to growth rate. The growth rate is often expressed in terms of per cent per annum. This is a positive change; there could be a negative change also. Suppose, we look at a twenty-year period and use yearly figures for flow of output of goods, which is measured in terms of GDPFC at constant prices. The growth rates calculated on yearly basis would

differ from year to year. Shall we use nineteen year-to-year figures of growth rate, some of which may be negative, to describe the change? Or, should we just compare the initial figure with the final figure? If we adopt the former, how to summarise the nineteen figures? If we adopt the latter, it is possible that one of these (initial or final) figures is just abnormal as it does not fall in line. Would it not be a good idea to speak of general tendency and ignore abnormal fluctuations around the general tendency of increase? Economic growth should, therefore, be taken as a long-term tendency reflected by increase in flow of final goods and services produced by the economy. If there is a general tendency of growth but there are occurrences of decline, the rates of growth will be negative in certain years. Shall we then say that, while the potential of economy to produce is continuously increasing, the potential is sometimes not realised? There could be various reasons for occasional decline. In economies that depend to a large extent on external trade conditions in other countries may affect the realisation. Monsoon may widely fail in certain years and economy may get derailed for a while. Internal demand may for a variety of reasons fail to make full use of the potential. Some economists put too much emphasis on supply potential and ignore demand conditions. They define economic growth as long-term increase in production potential of the economy. Some economists feel that it is growth of per capita GDPFC, not GDPFC, that should be used to gauge the growth of an economy. But the point to be noted is that economic growth is a long-term phenomenon about the change in total economic activity of an economy. Economic Development Some economists hold a view that the economic development is not much different from economic growth. For them, both are processes of long-term increase in per capita income. Some other economists believe that development is distinctly different process than growth and covers other dimensions of change besides growth. Still others hold that, development is nothing but the level of per capita income achieved in a particular year. Whole human history may be thought of as a succession of developments or changes, largely in positive direction. Looking from a distance, we find that production structure of the economy has changed: from hunting-gathering to settled agriculture, from agriculture to manufacturing, from manufacturing to automatic production, from production of goods to production of services. It does not mean services were not produced, say thousand years ago; it only means that its relative importance has changed and that this might have occurred with increase in all activities in a broad sense. However, economics takes most of its lues from the economic history of the West during the last two centuries or so. During this period, a variety of sweeping changes took place in Europe, which may broadly be categorized as technological and institutional. Early economists working in the field of development economics took notice of change in the composition of output and deployment of labour in activities. They called it structural change. Structural change meant relative increase in terms of proportion of non-agriculture/nonprimary output and concomitant changes in proportion of employment of labour in non-agricultural activities (and also in that of allocation of capital and land). However, this structural change has to take place along with increase in output of all (or majority of) goods, not with decrease. They defined economic development as economic growth with structural change in favour of nonagricultural activities. And structural change was understood in terms of composition of GDP and industrial distribution of labour. This was a reflection of changing demand for goods and services on the one hand and changing demand for labour by production technology in different sectors on the other. Most of the mainstream economists believed that all economies in the West traversed the same path and believed that other economies would also follow the same path. When they did not find it happening they pointed out that institutional changes are equally important. Institutional changes could mean emergence of new institutions in governance, as also in capital market and money market. Some pointed out necessity of attitudinal changes in people a leap from traditional value system to modern value system. In order to accommodate this thought, economic development could be defined as economic growth plus, that is, something more than economic growth. There were attempts to emphasize technological dimension of development. It was pointed out that economic growth should be accompanied by rise in productivity. Then, we could define economic development as economic growth accompanied by rise in productivity. Development is, however, just not concerned with description of economic history. It is to be pursued

as a deliberate mechanism of deliverance of the masses from poverty and idleness in a relatively short period of time. Developments in the fifties and sixties did not perceptibly change the scene in these crucial areas. Many economists felt disillusioned and started showing their anguish. One such Western economist who had been dealing with problems of development asserted in a World Conference in Delhi: The questions to ask about a countrys development are: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all the three, it would be strange to call the result development even if per capita income doubled. Indeed, here is a reference to conscious attempts made to develop an economy by adopting a strategy. If the strategy brings in growth in capacity to produce more and in actual output, transformation in structure of economy in terms of composition of output of goods and services or even in deployment of labour force, emergence of institutions in terms of variety of banks, and technology making use of machines and power instead of men and cattle, but makes no significant dent on basic problems of underdeveloped countries, what use are the efforts or the strategy? This implies that development has to be related to welfare of people. It was suggested much earlier that welfare of people depends on the size of the cake as well as its distribution. One is entitled to ones wages when one is employed. One should get adequate wages, if employed or should get remunerative prices for what one produces, if self-employed. Mass poverty was one particular problem we attributed to the colonial rule and wanted to secure self-governance in order to eradicate it. If that scourge still persists on a large scale, we have a cause to worry about. In short, the suggestion is that the income should get redistributed in favour of relatively worse-off. Keeping this in view, some economists prefer to define economic development as economic growth with redistribution of resources in favour of the relatively worse off. In this concept, it is believed that reduction in inequality will reduce poverty and will lead to reduction in unemployment too. Sustainable Development In recent years an important issue has arisen. The issue is whether the level of development, even in a developing country where it is fairly low, is sustainable. In developed countries, the major cause of worry about sustainability of development is supposed to be a wasteful consumption style and in many developing countries, the cause of such worry is said to be large and increasing population. In this context, there are two facts, which are brought to our notice. One, present production technology makes use of non-renewable (exhaustible) natural resources such as fossil fuels (coal, gas and petroleum) or even of renewable natural resources (such as forests, animals and water) to such an extent that their regeneration becomes difficult. Two, present production technology (along with disposal practices of waste) pollutes atmosphere and water bodies with garbage, litter, smoke and other poisonous gases. The more goods you produce, more non-renewable natural resources get exhausted and our environment become further polluted. Nature has some assimilative capacity. But, if pollution level is too high, the nature may not be able to assimilate it. Clean air and clean water may not be available to us. There may not be enough trees around us to clean our atmosphere and we may have to suffer from various health problems. If non-renewable natural resources deplete fast, future generations may not have enough stock for its use. It means that if we continue growing our economies the way we do, there may come a point when it may become impossible to continue with the level of development reached. Sustainable development may, therefore, require the preservation of stocks of resources, including environmental resources and exhaustible natural resources. A study in 1972 had tried to show that limits to growth on the planet will be reached sometime in next hundred years if present growth trends in world population, industrialization, pollution, food production and resource depletion were to continue unchanged. There is little reliance, in this view, on future development of technology, which may enhance productivity through efficiency. Some do point out that there would then be no mining and no industry. However, it is always prudent to be cautious.

Before constraints loom large, it is not a bad idea to apply restraint. The message is that the pattern of growth may have to be changed in certain economies and in others, the level reached may have to be maintained rather than substantially enhanced. Many analysts do not segregate environment; they suggest that it does not respect national boundaries. Irrespective of where green house gases are produced, global warming will take place. If ozone layer withers, whole humanity will suffer from its consequences. Concerned with environmental degradation, a world commission was set up in the recent past, which produced a report in 1987 under the title Our Common Future. This report defines sustainable development as that level which takes care of the needs of the present generation without compromising the needs of the future generations. We normally discussed development as process not as level. The definition of sustainable development can, therefore, be modified as a path of development in which options of future generations are not compromised by the path taken by the present generation. It is indeed difficult to determine the path that is sustainable or to find out whether the path is unique. It simply makes us cautious about our choice over consumption style and efforts in inventing technology and perhaps restraining growth in population. Quality of Life One shred of quality of life is already indicated in earlier section on sustainable development. If quality of air, quality of water and quality of sanitation are not good, the quality of life also will not be good. If our surroundings are littered, if the air is polluted or if we do not get safe drinking water, then we will not have a good life, no matter how much of many desirable goods we are able to buy from market. One can add availability of food, clothing, shelter, education facilities, health care, legal aid and security to the list of clean water, clean air and clean surrounding in order to define the quality of life. However, there is another shred of thinking which is not altogether unrelated to it. Those who suggest the other line, point out that the items listed above are determinants of well-being. We can think about quality of life in terms of its constituents too. The items listed above lead to better health, welfare, freedom of choice, and basic liberties, which are all indices of well-being. One should also be interested in distribution of well-being along gender, caste, class or regional lines. Many analysts hold that a society with somewhat overall lower literacy rate but equality between male and female literacy rates is better than another that has somewhat higher overall literacy rate but has gross inequality between male and female literacy rates. Some people also think that certain rights, which people enjoy in certain societies, are denied in others. These rights should also be included in this set of well-being indicators even though they do not fall in the economic category. This argument is acceptable in the sense that life cannot be separated into economic and non-economic compartments. Most of us would not prefer to be put in prison for any considerable period even if food, clothing, shelter and healthcare provided in the prison is far superior to what we normally get outside. Therefore, it is said that, political rights and civil rights or some indicators reflecting these rights should be added to the quality of life. With increasing concern for human rights, it would be a good idea to incorporate these indicators of well-being and welfare. After all, the whole purpose of consciously developing a society is to raise the level of wellbeing and welfare of its people. The idea of quality of life enriches the concept of standard of living, which is generally thought of in terms of rich food, expensive clothing, luxuriant cars and palatial houses, often manifestation of high income. In societal terms, it is captured through per capita income. But the quality of life idea adds the dimensions, which at times may not be captured through monetary valuation.

Indicators of Development Introduction You may recall that we have defined economic development as a process but also referred to it as a level. In this subunit, our attention would be focussed on the level of development achieved at a given point of time (given year). In fact, in this conception, you may note that growth is a quantitative change between two levels of development or levels of development at two points of time. Growth is basically an inter-temporal comparison. For comparison between two economies, which we often resort to, there exists no such term. But such a comparison is often made. Most people would agree that development is a process and the process is multi-dimensional. When any process is conceived as multi-dimensional, it becomes difficult to adequately capture its character through any index. However, some attempts have been made to measure the level. We shall discuss four alternatives to measure the level of development: Per Capita Income, Physical Quality of Life Index, Human Development Index and Quality of Life Index. Per Capita Income Gross domestic product is supposed to measure the level of output produced by the economy during an accounting period. However, the command of people over goods is somewhat different than GDP. We have our property outside our own national economy and some of our nationals work in other countries. As a result, we earn wage income or property income outside the country. Similarly, foreigners have property in our economy and some foreigners do work here. Adjusting for these incomes, we get gross national product (GNP). In the case of large countries and countries having little interaction with other countries for factors of production, GDP and GNP are not very different. But, there are economies where GNP and GDP are quite different. In our case, GNP is somewhat less than GDP. It may be noted that GNP better represents the entitlement of the nationals of a country (individuals and their collectivities) while GDP actually shows the output of the activities carried out within the economic boundaries of the country. Still further, we should take account of consumption of fixed capital in the process of production. We should ensure that the capital stock is kept intact during the year; otherwise, we shall, one day, eat away the whole of our fixed capital. So, we should subtract that amount of capital, which we think has been consumed in the process of production. Then, what we shall get is known as Net National Product (NNP). Net national product is also known as the national income. We shall use a particular version of net national product known as net national product at factor cost and designate as NNPFC. Now, if we want to compare the welfare of people at two points of time or of two economies at the same point of time, it becomes necessary to find out the size of population. From the view point of welfare or well-being of the people, for which development is pursued, it is suggested that the NNPFC, valued at constant prices, should be divided by the size of the population. NNPFC divided by population is popularly known as per capita income. It helps us to compare the level of development of the country in 2001 when we are 100 crore with that in 1961 when we were 43 crore only. In order to render international comparisons meaningful, national incomes should be divided by sizes of their respective populations. Otherwise a country like Canada, which by all standards, is considered a rich country, could be found to be poorer than India. The population of India may be 30 times that of Canada. Such a division (deflation/normalisation) is needed even to assess the progress over time. For example, our NNPFC has grown a little more than eight fold over the last fifty years but the population has also almost trebled during this period. As a result, per capita income has grown less than three times. Our living conditions can be expected to have become better by a factor of three rather than by a factor eight. With this in view, per capita national income has come to be increasingly used. In short, it helps us to compare the development of India with that of the USA or with that of Pakistan for any given year as also our own development over time. We may further note that it is this indicator, which is often used

to categorise countries as developed/ underdeveloped countries or high/ middle/low income countries. In the case of international comparison, per capita incomes of different countries have to be brought to a common currency. However, it is very often pointed out that its scope is quite limited. Most of the limitations arise from the numerator whatever it may be, namely, GDP, GNP or NNP. These concepts do not account for the economic activities performed inside the household, which are non-marketed. Bulk of womens household work gets ignored, while it is equally important from the point of view of well-being and welfare of people. It does not adequately capture activities performed even outside household. As production is valued in terms of market prices, activities for which there does not exist market do not adequately get accounted for. It is also pointed out that economic welfare, which it can measure, even though imperfectly, is not the total welfare that the people look for. The following three suggestions have been made for correcting the weaknesses of the measure of per capita income: Distribution of national income over individuals is an important dimension, which cannot be ignored. National income and its distribution, both, have to be considered together. It has been argued that the welfare of a society depends on what is the size of the cake and how it is distributed over people. Over time, people have come to enjoy more leisure, which, according to many, may be the ultimate aim of all activities. It has, therefore, been argued that its value needs to be added to the national income in order to make it yield a better measure of welfare. A suggestion was also made to deduct the social cost of harmful effects in terms of variety of pollutions that many economic activities entail.

Evolution of Alternative Measures These corrections, however, did not leave many people satisfied and national income or its per capita variant as indicators of welfare have been in use for long though with reservations. However, in the last few decades, some attempts have been made to develop some alternative indicators of economic welfare and of social development. Search for better indicators of social development has continued. We often read in the newspaper that Sri Lanka has a fairly high life expectancy, low infant mortality and good literacy levels. The levels in Sri Lanka are comparable to their counterparts in developed countries. Our own state Kerala has done wonders on literacy front as well as on demography front. Tamil Nadu is also faring well. Therefore, it was natural for researchers to try to develop such indices as would capture these social dimensions. There is an UN institution called United Nations Research Institute for Social Development (UNRISD). In this institute, people tried to develop such indices as would encompass social, political and economic variables (indicators) impinging upon industrialisation, urbanisation and modernisation. They went on enlisting indicators, which they thought, reflected some or the other dimension of development. At one stage, they listed as many as 73 indicators though, finally, they selected only 16 as it was found that many of the indicators were reflected through others. hospital beds and number of doctors per lakh of population. They also included enrolment rates, electricity consumption and steel consumption per head. Length of metalled roads, number of villages electrified and availability of post offices also got their way into it. So did the character of agricultural organisation. These are important indicators and are considered by many as the ends in themselves. A question was, however, raised: whether inputs can be taken as development indicators. While enrolment rate indicates an input, literacy rate shows the output. While hospital facilities indicate inputs, life expectancy shows the output. If you have better sanitation, you have better health and you require less of hospital facilities. Even income is in a way an input. Researchers and policy-makers were not very happy with such alternatives to national income as welfare measures as they did not find the approach suitable to produce a meaningful social indicator. Attempts were, then, made to

develop composite index of development, purportedly based on aims and objectives of development or outcomes of the development process rather on the means thereof. Quality of Life Indices We may recall the constituents of quality of life in the previous chapter. They were generally indicated as health, freedom, education, environment, etc., the things that you directly enjoy. Based on these parameters, attempts have been made in the recent past to construct indices, which may, broadly, be called indices of quality of life. In fact, longevity and Foreign trade per capita, 1960 US $ Percentage of salaried and wage earners to total economically active population While at your level, it is not necessary to go into the nitty-gritty of the ways the indices were developed, an idea of the variables that were included in such attempts could be of some interest. The variables included are per capita income, literacy have undisputedly been accepted as parameters of quality of life. We shall be studying two popular indices, viz., Physical Quality of Life Index (PQLI) and Human Development Index (HDI), which have both used longevity and literacy as basic constituents. There is, indeed, an attempt to measure quality of life and we will make reference to it towards the end. It is important to remind at this stage that these indices were developed in the international context and were used for ranking different countries according to numerical value of achievement in descending order. The indices are simple arithmetic averages of normalised aggregates for society/groups. Physical Quality of Life Index Towards the end of the seventies of the past century, Morris David Morris perused the variables adopted by several UN Committees, the UNRISD, and the OECD development economists. He found that most of the indicators were inputs to development process rather than result of the development process. These indicators reflected the belief that there exists only one course of development. It implied that economically less developed countries are simply underdeveloped versions of industrialised countries. This view has certain biases and value-bias of Europe. It overlooks the diversity among the underdeveloped countries and the differences in social organisation in different economies. Moreover, such efforts seem to measure development as an activity rather than as an end. He, therefore, proposed a set of criteria for developing a composite index of development. He further proposed that indicators chosen should reflect results and social distribution of results and should not reflect values of specific (Euro-American) societies. Composite index should be simple to construct and easy to comprehend and should lead itself to international comparison. Choice of Indicators Morris, therefore, tried to look for those indicators, which were the results of the development efforts, were not the values of particular societies as there could be non-market, non-urban, non-industrial or non-plan ways to develop. They should create no problems in international comparison. Out of hundred and odd indicators, he could find only three which could have universal appeal as ends in themselves and meet the criteria laid down. These are: 1. Life Expectancy (LE), 2. Infant Mortality (IM), and 3. Basic Literacy (BL). These three indicators could be improved in a variety of ways. Whether a country should attain higher life expectancy through better medical facilities or better sanitation or better nutrition, is not really important. But it is universally accepted that a country should have high life expectancy. Whether a country should have a higher rate of basic literacy through formal channels or non-formal channels is not important. But a country should try to attempt for higher level of literacy is the point. This is also almost universally accepted. Whosoever is born will die, is accepted but those who have been born should not die as children in infancy. This is the point generally accepted. Now, there is a technical issue. Normally, life expectancy at birth is the index used. Infant mortality refers to deaths before age

one. Therefore, Morris suggested that life expectancy at age one should be used instead of life expectancy at birth. In case, the figure for life expectancy at age one was not available, it could be worked out by using a formula, which relates life expectancy at birth, infant mortality and the proportion of children. Normalization of Indicators We know that life expectancy is measured in terms of years, infant mortality rate in terms of per thousand and basic literacy rate in terms of percentage. They cannot be simply added. Further, while basic literacy rate can have a natural zero for minimum and 100 for maximum, there exist no natural minimum or maximum values for other indicators. For the purpose of comparison, each of the levels should, therefore, be normalised. Morris chose the best and worst levels in each of the three cases. In the case of positive indicators of life expectancy and basic literacy, the best is denoted by the maximum and the worst by the minimum. But, in the case of negative indicator of infant morality, the best is represented by the minimum and the worst by the maximum. For converting the actual levels of a positive variable into normalised indicators, first the minimum values are subtracted from their respective actual values and then, the gap so obtained is divided by the range (between the maximum and the minimum). In other words, for positive indicators: Actual Value Minimum Value Achievement Level= Maximum ValueMinimum Value For the negative indicator of infant mortality, first the actual value has to be subtracted from the maximum value and then the gap has to be divided by the range. In other words, Maximum Value Actual Value Achievement Level= Maximum ValueMinimum Value

Index Construction There are, now, three such indicators. We may call them (i) Life Expectancy Indicator (LEI), (ii) Infant Mortality Indicator (IMI), and (iii) Basic Literacy Indicator (BLI). These three indicators are averaged to give what is called the Physical Quality of Life Index (PQLI): PQLI = (1/3) (LEI + IMI + BLI ) Choice of Minimum and Maximum Values As in the case of life expectancy and infant mortality, there exist no natural minimum and maximum values, one has to choose reasonable values. After a lot of considerations, which need not hold us, Morris chose the following set of values They may need revision in the light of recent experience of countries. For example, maximum life expectancy could now be raised to 85 years. The conversions from values to indices are linear. Put the actual values of the country in the expressions below and obtain the component indices as also the Physical Quality of Life Index. The expressions are given below: Actual Life Expectancy at Age 1 38 LEI = 39 229 Actual Mortality Rate

IMI = 220 Actual Literacy Rate 0 BLI = 100 Suppose for India, life expectancy at age one is 70 years, infant mortality rate is 70 per thousand live births and adult literates constitute to be 55 per cent of adult population. Try step by step and you will find that LEI is 0.82, IMI is 0.72 and BLI is 0.55. The PQLI is, therefore, about 0.70. Human Development Index Only ten years passed since the PQLI was developed, another index came into being. Since 1990, an agency of the United Nations, viz. the United Nations Development Programme (UNDP) has been publishing every year a report called Human Development Report. This report, besides discussing various aspects of human development, has been ranking various countries according to the level of human development index. Before the human development index is described, it would be an interesting idea to look at the GDP/GNP from a fresh angle. It is pointed out that these measures are measures of activity and they concentrate on production of commodities -- goods and services. We should, it is suggested, instead focus on capabilities and measure improvement in capabilities of people. Living long and healthy life is a capability and so is to be able to read and write. With rising capabilities, we have wider choices and development is what if not widening of choices! The idea has an added dimension that these capabilities cannot be accumulated. In a way it is close to PQLI except that now the theoretical scaffolding is strong. But at the same time, a non-physical entity will enter in the making of index and it will create problem for international comparison. The Index Human Development Index is broadly an average of social aggregates/averages of longevity, knowledge and access to resources. To put it more concretely, it is an equi-weighted average of : 1. Life Expectancy Index (LEI) 2. Education Attainment Index (EAI) 3. Standard of Living Index (SLI) where the sub-indices were to be calculated by the same old method of the PQLI. In other words, HDI=(1/3)(LEI+EAI+SLI) Components Life expectancy here refers to life expectancy at birth, not at age one, because infant mortality is not entering this index as a separate indicator. Educational attainment is literacy plus. To begin with, it was only adult literacy. Later on, it became a combination of adult literacy rate and mean years of schooling. In highly developed countries, adult literacy was complete but education level was still rising. This could be reflected through mean years of schooling or enrolment ratio. Now, mean years of schooling have been replaced by combined enrolment ratio. The weight assigned to adult literacy rate (ALR) is 2/3 while that for combined enrolment ratio (CER) is 1/3. Therefore, educational attainment index may be given as: EAI = (2/3) ALR + (1/3) CER Standard of living is represented here by a transformation of per capita income. Besides longevity and knowledge, it has been argued, there are many things which people desire. It is difficult to capture them. For living a decent life, people need resources. Per capita national income is the simplest measure of resources at the command of people. Since this exercise has basically been conducted for international comparison, per capita incomes of different nations have per force to be brought to some

common denominator. Per capita incomes are first converted into purchasing power parity dollars (PPP$). The second step concerns with the fact that the returns to a dollar of income is not the same throughout the whole range of income. The increase in returns should diminish as income increases and should eventually become zero. This idea was handled by the UNDP in a variety of ways. Presently, standard of living is being captured by the log-transform of per capita income (PCI) in PPP$. In other words, Standard of living = log (PCI in PPP$) You know very well that, at base 10, logarithms of 10, 100, 1000, and 10000 are 1, 2, 3, and 4 respectively. Thus, returns to additions in income are diminishing as income goes on increasing. There could be many other ways to accomplish this feature. The UNDP has tried other formulae in past but thought it proper to change to simple logarithm conversion. Normalisation Since we are using only positive indicators in this index, we can write only one formula for computing the component indices (CI): Actual Value of the Component Minimum Value of the Component CI = ------------------------------Maximum Value of the Component Minimum Value of the Component where CI stands for LEI, ALRI, CERI and SLI. It may be noted that ALRI and CERI are just ALR and CER respectively, each divided by 100. Minimum and Maximum Values After a lot of debate over years and following the norms for various components, the UNDP has finally fixed the following minimum and maximum values for various components of Human Development Index. HDI and India The United Nations Development Programme (UNDP) has been compiling human development indices for different countries for which it had access to relevant data. These indices are published in Human Development Report, brought out annually by the UNDP. We can notice that the data compilation takes time. We can also notice Between the last two years, we find, Indias rank improved by 13 while number of countries dropped by 12. It is quite possible that most of the countries excluded were above India. We should also notice that Indias rank improved by 2 from 123 in 1988 to 121 in 1990 while the HDI value actually fell. It is possible because of change in methodology and components used. Despite these weaknesses, we can see that Indias HDI value is improving since 1990 when it recorded its lowest value. Fortunately, HDR 2001 has calculated HDI values for different countries on uniform basis with same methodology by ensuring comparability across nations and over time, at an interval of five years since We should notice that our HDI is improving since the mid-seventies. Perhaps we are improving on all fronts, life expectancy (reflecting health to some extent), education (including literacy) and general standard of living (represented by per capita income). The UNDP has been categorising various countries as countries with high human development, with medium human development and with low human development, depending upon whether a country had HDI value above 0.8, between 0.5 and 0.8 or below 0.5. Prior to 2000, India was considered as low human development nation. In 2000, it has become a country with medium human development. It will not be out of place to inform that some scholars have done interstate comparison for India while

some state governments have come out with state-level exercises for human development index. These reports do contain more information on human development than are available in compilation of HDI. Since March 2002, our Planning commission has also come out with a report known as National Human Development Report. Quality of Life Index Some economists still feel that, though human development approach talks of many dimensions, the human development index encompasses only very few of them, though important ones. They feel that political and civic dimensions, if not environmental ones, need to be incorporated in any such exercise. In one such contribution On Measuring the Quality of Life, Dasgupta and Weale have considered six parameters what they have called living standards indicators or constituents of well-being. These are: (i) per capita income in PPP$, (ii) life expectancy at birth in years, (iii) infant mortality rate in per thousand live births, (iv) adult literacy rate in per cent of adult population, (v) index of political rights in seven-point scale and (vi) index of civil rights in seven-point scale. We may note that civil rights are rights of individuals vis-a-vis the State, while political rights are citizens right to play a part in governance of their country. Governance will mean who will govern and under what laws. While the first four could be called socio-economic indicators, the last two could be said to be political and civil indicators. These indicators are aggregated in a peculiar way. First, countries are ranked according to each of the indicators in ascending order from worst to best. Second, the ranks for different indicators of country are added and thus for each country a rank-score is obtained. Third, countries are again ranked according to their rank-scores. Though, this work was done from late 1970s to early 1990s, using the data relating the results are interesting. Of 48 countries listed, Mauritius comes the best and Sri Lanka, the second best. China and India come 10th and 12th best from the top, while Bangladesh and Pakistan come 26th and 30th from the top. In both the pairs, scores in socio-economic indicators are found to diverge from those in political and civil indicators. In socio-economic indicators, China scores better than India, Pakistan and Bangladesh but in Political and Civil indicators, India scores better than China, Bangladesh and Pakistan. Though the story is a bit old, it may hold even today. Growth and Structural Change in the Indian Economy Introduction In this chapter you will study the growth of and structural change in the Indian economy in the last fifty years since 1950-51 for which data on most of the macro aggregates are available on an annual basis. We shall concentrate on the growth of gross domestic product at factor cost valued at 1993-94 prices. We shall consider the growth of per capita national income, also valued at 1993-94 prices, which can be taken as the simplest indicator of the level of living or development. In an earlier chapter, one of the notions of development was posed in terms of structural change along with growth. What do we mean by structure? Most people mean by it production structure, that is, composition of output produced by the economy. Some would like to find out how and where our labour is absorbed. Other factors such as land and capital are not given equal importance. Some would also like to find out how the production of output is divided between rural and urban areas of the country or between public and private sectors of the economy or between organised and unorganised sectors. We shall discuss all of them. But we can appreciate developments since Independence better once we have a little hint about the scene on the eve of Independence.

Economy on the eve of Independence We had inherited an economy, which was basically geared to the interest of our colonial masters. The rate of growth of per capita income during the hundredyear period before Independence, from whatever scanty information is available, was just 0.5 per cent per annum. It has further been noted that there were long spells when the economy actually stagnated or declined. In the past, we were known for producing fine cotton fabric, handicrafts and other merchandise. Even during the early British Raj, that is, before the onset of industrial revolution in Britain, our economy was an industrial economy by the standards of those days whereas the European economies had yet to usher in modern civilisation. Yet, by the time we got Independence, our economy was primarily reduced to an agricultural economy and we used to export mainly raw materials and minerals for the British industries and even foodgrains while we might have been hungry ourselves. In 1950-51, our per capita income was no more than Rs 3,700 at 1993-94 prices (while in 1999-2000, it is a little more than Rs 10,000). The contribution of agriculture sector (including animal husbandry and livestock) to the GDP was around 54 per cent by current prices and 50 per cent by constant prices of 1993- 94. If we include forestry and logging and fishing in this sector, then the contribution turns out to be 57-58 per cent. And, if we add mining and quarrying and call the combined sector as primary sector, the contribution of primary sector is found to be about 60 per cent. Manufacturing contributed only around 10 per cent. Contribution of the service sector was thus around 30 per cent. Most of the people were engaged in agricultureas cultivators on their own tiny holdings or as wage labourers on others fields. Growth of GDP since 1950-51 Growth of an economy is reckoned with growth in its GDP at constant prices. We have now a complete series of gross domestic product at 1993-94 prices from 1950-51 onwards but we give here the GDP series at five yearly interval (see above table). However, in order to give you a feel about the general tendency of rise and occasional decline in a few years in comparison to their respective preceding years, we give here a graphical presentation of the whole series. We notice from the graph that there were occasional drops in the GDP which we do not notice in the abridged Table presented here. But, generally it has been rising. Over the period of last fifty years, it has increased more than eight times. But we are and should be more interested to know whether growth rate itself has risen over time. We can also calculate rates of growth for different plan-periods or different decades or for periods divided by significant events. All such breakups have been used by scholars. We shall calculate growth rate per annum by decades only. We shall use two popular methods of calculation of annual rate of growth for long periods, viz. average annual growth and compound annual growth rate. Growth of Per Capita Income Per capita income is the ratio of net national product to the (mid-year) size of population. Net national product is likely to follow the pattern of gross domestic product, as the component of net factor income from abroad is small in comparison to the total. Population has been secularly rising in the last fifty years though, of late, the rate of growth of population has started declining. We can remember that, in the case of population, we have only decennial figures and, therefore, can calculate only a single rate of growth of population. Using this technique, population size for each mid-year is interpolated. Dividing net national product by the size of population, per capita income is calculated. Annual per capita income has risen a little less than three times from a little less than Rs 3,700 in 1950-51 to over Rs10,000 in 2000-01, at constant prices of 1993-94. In none of the years shown here, there is a decline over the year in the previous row. But, one can notice that there is hardly any rise in 1965-66 over 1960-61, that is, after a gap of five years. Generally, there is some rise in normal years. It means that 1965-66 was a particularly bad year. In fact, 1965-66 and 1966-67 were years of severe drought, though they gave us green revolution. However, with a view to giving you an idea about the wider fluctuations in case of per capita income, we give here the graphical presentation. Growth and Structural Change in the Indian Economy

Introduction In this chapter you will study the growth of and structural change in the Indian economy in the last fifty years since 1950-51 for which data on most of the macro aggregates are available on an annual basis. We shall concentrate on the growth of gross domestic product at factor cost valued at 1993-94 prices. We shall consider the growth of per capita national income, also valued at 1993-94 prices, which can be taken as the simplest indicator of the level of living or development. In an earlier chapter, one of the notions of development was posed in terms of structural change along with growth. What do we mean by structure? Most people mean by it production structure, that is, composition of output produced by the economy. Some would like to find out how and where our labour is absorbed. Other factors such as land and capital are not given equal importance. Some would also like to find out how the production of output is divided between rural and urban areas of the country or between public and private sectors of the economy or between organised and unorganised sectors. We shall discuss all of them. But we can appreciate developments since Independence better once we have a little hint about the scene on the eve of Independence. Economy on the eve of Independence We had inherited an economy, which was basically geared to the interest of our colonial masters. The rate of growth of per capita income during the hundredyear period before Independence, from whatever scanty information is available, was just 0.5 per cent per annum. It has further been noted that there were long spells when the economy actually stagnated or declined. In the past, we were known for producing fine cotton fabric, handicrafts and other merchandise. Even during the early British Raj, that is, before the onset of industrial revolution in Britain, our economy was an industrial economy by the standards of those days whereas the European economies had yet to usher in modern civilisation. Yet, by the time we got Independence, our economy was primarily reduced to an agricultural economy and we used to export mainly raw materials and minerals for the British industries and even foodgrains while we might have been hungry ourselves. In 1950-51, our per capita income was no more than Rs 3,700 at 1993-94 prices (while in 1999-2000, it is a little more than Rs 10,000). The contribution of agriculture sector (including animal husbandry and livestock) to the GDP was around 54 per cent by current prices and 50 per cent by constant prices of 1993- 94. If we include forestry and logging and fishing in this sector, then the contribution turns out to be 57-58 per cent. And, if we add mining and quarrying and call the combined sector as primary sector, the contribution of primary sector is found to be about 60 per cent. Manufacturing contributed only around 10 per cent. Contribution of the service sector was thus around 30 per cent. Most of the people were engaged in agricultureas cultivators on their own tiny holdings or as wage labourers on others fields. Growth of GDP since 1950-51 Growth of an economy is reckoned with growth in its GDP at constant prices. We have now a complete series of gross domestic product at 1993-94 prices from 1950-51 onwards but we give here the GDP series at five yearly interval (see above table). However, in order to give you a feel about the general tendency of rise and occasional decline in a few years in comparison to their respective preceding years, we give here a graphical presentation of the whole series. We notice from the graph that there were occasional drops in the GDP which we do not notice in the abridged Table presented here. But, generally it has been rising. Over the period of last fifty years, it has increased more than eight times. But we are and should be more interested to know whether growth rate itself has risen over time. We can also calculate rates of growth for different plan-periods or different decades or for periods divided by significant events. All such breakups have been used by scholars. We shall calculate growth rate per annum by decades only. We shall use two popular methods of calculation of annual rate of growth for long periods, viz. average annual growth and compound annual growth rate. Growth of Per Capita Income

Per capita income is the ratio of net national product to the (mid-year) size of population. Net national product is likely to follow the pattern of gross domestic product, as the component of net factor income from abroad is small in comparison to the total. Population has been secularly rising in the last fifty years though, of late, the rate of growth of population has started declining. We can remember that, in the case of population, we have only decennial figures and, therefore, can calculate only a single rate of growth of population. Using this technique, population size for each mid-year is interpolated. Dividing net national product by the size of population, per capita income is calculated. Annual per capita income has risen a little less than three times from a little less than Rs 3,700 in 1950-51 to over Rs10,000 in 2000-01, at constant prices of 1993-94. In none of the years shown here, there is a decline over the year in the previous row. But, one can notice that there is hardly any rise in 1965-66 over 1960-61, that is, after a gap of five years. Generally, there is some rise in normal years. It means that 1965-66 was a particularly bad year. In fact, 1965-66 and 1966-67 were years of severe drought, though they gave us green revolution. However, with a view to giving you an idea about the wider fluctuations in case of per capita income, we give here the graphical presentation. Changes in Production Structure of the Economy As an economy grows, its production structure changes. It moves from agriculture towards manufacturing and structure changes. It moves from agriculture towards manufacturing and services. It is understandable. You might have noticed that relatively well-off families spend proportionately less on food items and more on manufactured items. You may also note in your family that, as income increases, expenditure on items other than food increases more than proportionately. But, you should note that normally absolute amount of expenditure does not, broadly speaking, decline; in fact, increases but less than proportionately. It implies that production structure should shift away from agriculture. Moreover, many agricultural products, which used to directly reach the households, will now reach after some processing and through long channel of distribution. Bread, noodles, sauces and juices are good examples. It means activities of manufacturing and trade will increase. So, let us see how the production structure has changed. We know that hundreds of thousands of activities are always in operation in any modern economy. Many activities emerge and some of them die down; some of them even re-emerge, may be, in a modified form. But, it is difficult to discuss in terms of each single item. We often aggregate them on the basis of similarity of products or nature of activities. Our Central Statistical Organisation uses nine broad categories, called sectors. Six of them are further subdivided in two/three/four subcategories. Industry as a sector does not occur in it; industry is accommodated in mining (and quarrying), manufac-turing and electricity. In total, there are 18 categories, sectors and sub-sectors, in which total economic activity of the country is presented in the National Accounts Statistics. There are, however, two three-fold classifications in which economists discuss changes in production structure. One is agriculture, manufacturing/ industry, and services and the other is primary, secondary and tertiary. Besides cultivation of crops, agriculture includes livestock and animal husbandry. But forestry and logging and fishing are clubbed with agriculture to make a broad sector of agriculture, forestry and fishing. If we add the sector of mining and quarrying to this sector, we can call it primary sector as these activities are associated with nature. The manufacturing sector is further subdivided into registered and unregistered manufacturing, depending upon whether manufacturing units are registered under Factories Act 1948. Industry may include manufacturing and mining and quarrying. On the other hand, if we club the sectors of electricity, gas and water supply and construction with manufacturing, we can call it secondary sector. This is just a matter of convention. There may be differences between countries and within a country changes in classification may occur over time. We did not have exactly the same classification always. While new products gain entry with each major revision of national accounts, some swapping of activities is possible. For example, earlier LPG gas was included in the sector of electricity, gas and water supply, now it is part of manufacturing. While we shall highlight some salient features of production structure or composition of output, it would be interesting for you to do your own exercises

and develop your own views on contributions of different sectors. Absolute Contribution of Different Sectors It is easy to see that agriculture production has been continuously on increase and has increased about fourfold. Since our Table does not include all the years, we do not find any drop in agricultural production. There are many periods when agricultural production actually fell. Whenever we notice a fall in the gross domestic product, a major reason is likely to be a fall in agricultural production as its contribution to GDP had been substantial. We were most severely hit in agriculture in the consecutive years of 1965-66 and 1966-67. These years, however, gave us green revolution. We are now quite comfortable with the overall performance of agriculture. Yet, we had had two-three years of setback in each of the decade. We should remember that agriculture gives us food, milk and meat and gives to industry the raw material needed particularly for consumer goods industries. Compared to agriculture, other sectors included in primary sectors are small; the contribution of primary sector is found to have risen only four times. Manufacturing which contributed about Rs 12,500 crore in 1950-51, contributed to the tune of Rs. 2,00,000 crore in 1999-2000, almost sixteen-fold increase over the period. Annual construction activity also rose ten times. Construction does not mean only houses but also roads and railway lines, dams, and canals, bridges and flyovers, etc. and also huts. Electricity, gas and water supply were in nascent stage in the wee hours of Independence, contributing less than Rs 500 crore at 1993-94 prices. Its contribution rose 60 times in 50 years. Overall contribution of the secondary sector rose fifteen-fold. Trade along with hotel and restaurant business rose fourteen-fold over the period while transport along with storage and communication rose eighteen-fold. Financial and business services including insurance and real estate also rose fifteen times while community, social and personal services, including public administration and defence rose only eleven-fold. Thus, in the second half of the twentieth century while the contribution of primary sector to GDP rose to four fold that of secondary and tertiary sectors rose by fifteen fold each. Relative Contribution of Different Sectors Relative contribution of a sector depends on its own performance as well as that of other sectors. As a result, despite positive contribution, a sector may lose relative position. Thus, while agriculture contributed 50 per cent to the making of GDP in 1950-51, it contributes less than 25 per cent at the close of the century despite four-fold increase in its output. The contribution of primary sector came down from close to 60 per cent to less than 30 per cent over the period. The share of manufacturing in GDP has gradually risen from 9 per cent to 17 per cent over the period. The share of electricity, gas and water supply, which was hardly one third of one per cent rose to close to 2.5 per cent. The activity of construction, despite good rise in absolute terms, is considered to be slackening; during the first twenty years, while the share rose from 4 per cent to 6 per cent, during the last thirty years it fell back to 5 per cent. Secondary sector as a whole raised its contribution from about 14 per cent to more than 24 per cent. The secondary sector is closely contesting the primary sector as far as its contribution to the GDP is concerned. Let us look at the tertiary sector. The share of contribution of activities of trade, hotel and restaurant business rose from 8-9 per cent to 14-15 per cent while that of transport, storage and communication rose from 3.3 per cent to 7.3 per cent over half the century. The contribution of financial and business services increased from 6.7 per cent to 12.7 per cent while that of community and personal services increased from 9.4 to 13.4 per cent. It may be noted that, among the sectors within tertiary sector, in 1950-51, the contribution of community and social services dominated the scene but it gradually gave way to trade but in the nineties sector of financial and business services emerged as close contestant. However, it may be pointed out that public administration and defence, which contributed to the tune of 3 per cent in 1950-51, are now contributing more than 6 per cent. Within the broad category of community and social services, the share of public administration and defence has risen from 1/3 to 1/2 over the period Growth of Different Sectors

we can also derive a table giving us the rate of growth of different sectors. We have computed only compound annual growth rates (Table 3.7). We should take these rates with a pinch of salt as they crucially depend upon initial and final figures. Roughly speaking, agricultural situation during sixties and seventies can be said to be bad as the rates of growth fell below that of population. Foodgrains dominate in our agriculture and we cannot afford to import it. Even if we import some agricultural produce, being a large country, we ought to produce enough foodgrains ourselves. During the nineties, the growth of foodgrains production is somewhat slackening. So long as it does not create bottleneck for raw material for industry and supply of foodgrains does not fall short of domestic demand, we can afford a little lower growth rate in future. The rate of growth of primary sector has always been lower than that of secondary and tertiary sectors, which is a major reason for decline in its share. Manufacturing sector activity grew at twice the rate of agriculture. The seventies were bad for all sectors. Electricity, gas and water supply accorded a very low rate of growth of 4 per cent per annum during the seventies. So was the case with construction. Secondary sector as a whole did pretty well during the eighties, better than during the nineties. The nineties belong to the tertiary sector, which grew at the rate of 7.8 per cent per annum. All service sectors are growing faster in the nineties than they did in the eighties wherein performance was better than that in the seventies in terms of growth. There are, one can see, a couple of exceptions to this observation. The overall movement seems to be away from primary/agricultural complex to secondary and tertiary sectors. The drop in the share of agriculture is shared between secondary and tertiary sectors; and as time passes the share of tertiary sectors is increasing faster than the share of secondary sectors. Changes by Other Segregations of Production Three important divisions of activities are often discussed by scholars so far as production structure is concerned. One is the division regarding location of activities, location being divided between rural and urban areas. The second is on the basis of ownership of production establishments, division being made between public and private. The third one is about organised and unorganised sectors. Division between Rural and Urban Areas Agriculture is the industry of the country-side and manufacturing is the industry of the town, said Adam Smith, father of Economics. As a habitation diversifies its economic activities, it changes its status from rural to urban at some point meeting certain definitional marks. In India, in last fifty years, the number of towns has increased from 2800 to 3600 and population living in them has increased from a little over 6 crore to 26 crore. The proportion of population living in urban habitation is now well over 25 per cent, which in 1950-51 used to be around 16 per cent. On the other hand, the number of villages is now about six lakh and a village may have more than one hamlet. The number of rural habitations is over 10 lakh. Not only agricultural and pastoral activities are carried out in rural habitations, manufacturing (handicrafts), trade (retail), transportation (bullock carts and tractors) are also part of rural activities and rural folk benefit from them. We do not have regular annual series of production output of the activities according to rural-urban division. The CSO has made available such a division for the years 1970-71, 1980-81 and 1993-94 but only at current prices and for net domestic product. With the help of these figures, we gather some broad idea about the shift in activities. From the perusal of these statistics, one would notice that in 1970-71 only 62.5 per cent net domestic product was generated in the rural area where more than 80 per cent population resided (and worked) while in the urban area population residing (and working) was less, 20 per cent, the net domestic product generated was 37.5 per cent. Thus, per capita net domestic product in the urban area was 2.45 times that in the rural area. When we look at the data for 1993-94, we gather that while population proportion in rural area has reduced by about 6.7 per cent points, its contribution to net domestic product has reduced by 8.6 per cent points but just the reverse could be said to be the case with the urban area. But the loss of 6.7 points

in 80.2 points is not the same as gain of 6.7 points in 19.8 points. Therefore, net accretions to the two areas on per capita basis show that per capita net domestic product in the urban area is 2.39 times that in the rural area. Though this ratio is not deteriorating over time, it is high enough to make people move to urban areas even if unemployment rate is somewhat higher in urban areas. Division between Public Sector and Private Sector Ever since there has been the state, there has been public sector. But the presence of public sector in production, beyond public administration and control, was very little before Independence. It has been increasing over time as we pursued a policy of state intervention in various sectors for variety of reasons. There is not one broad sector of economic activities where public sector is altogether absent. We have firm data on contribution of public sector in different production sectors since1960-61. A cursory look suggests that the importance of public sector had been on increase with the passage of time in practically all sectors. The share of public sector, which was barely 9 per cent even in 1960-61, has increased close to 27 per cent though of late the speed of rise has slackened. Public administration is purely a public sector activity and in fishing, it has just shown its presence. In agriculture its presence has increased but it predominantly seems to be irrigation as this activity is accounted for within the sector of agriculture. Its contribution in forestry and logging sector is drastically reducing. Most of the mining activity is under public sector and it is now around 80 per cent. Even in the sector of manufacturing its share has gradually increased from around 7 per cent in 1960-61 to around 20 per cent in 1998-99. The share in construction activity has increased from less than 5 per cent in 1960-61 to almost 16 per cent in 1998-99. It is in trade that public sector has withdrawn since 1980-81 when it participated to an extent of 8.5 per cent. Its role in transport has also plummeted to some extent yet it plays a great role. The railways are completely with the Government of India. In road transport, state corporations play a significant role at least in passenger transport. In financial sector too, the presence of public sector rose significantly; it rose from 6.5 per cent in 1960-61 to 17 per cent thanks due to nationalisation of 14 major banks. A further dose of nationalisation in 1975-76 led to its further rise to 27 per cent by 1980-81. Even 6.5 per cent in 1960-61 should owe a great deal to the nationalisation of Imperial Bank as the State Bank of India. Division between Organised and Unorganised Sectors Organised sector includes all public sector establishments and private sector establishments registered under one or the other act, such as Company Act, Factory Act, Societies Act or Cooperative Act, etc. They are supposed to maintain accounts. Net domestic product was found divided between organised sector and unorganised sector in 25:75 ratio in 1960-61. With passage of time, the proportion of organised sector went on increasing, with some fluctuation, and reached around 30 per cent by 198081. Since then, its share has been rising and it is expected to be around 40 per cent by the close of the century. Within organized sector, manufacturing accounts for 40 per cent and community and personal services, 30 per cent while trade and finance may account for 25 per cent. Industrial Structure of Employment All able-bodied persons should work. Children should not be allowed to work. Old, sick and infirm should not be permitted to work. Even if production is almost mechanised, there is a man behind the machine. People who are employed and people who employ as well as people who are self-employed are all treated as workers. Their numerical strength is known as work force. People who are willing to work at the prevailing wage rate but are not employed, are treated as unemployed. Despite the general feeling that a large number of people are unemployed, the percentage of people who are unemployed is not very large. (However, in the composition of the unemployed, a large number comes from the educated lot). The reason is that poor people cannot afford to be unemployed. They work on somebody elses farm, shop or factory or engage themselves in some or the other activity on their own account. We should, however, remember that statistics used by us do not include people engaged in activities carried out in homes and hearths by the members of the family/household. The proportion of people working in total population in our country is around 40 per cent. This proportion is higher in the case of male members and those living in villages. There is a

variety of ways in which employment data is presented. One classification is sectoral (or industrial) and the other is occupational. They are made for each of basic four categories, viz., rural male, rural female, urban male and urban female. Employment data is available from the census as well as the NSS. The census data for 2001 is not yet available in as much detail as we need them in this chapter. We opt for the NSS data. However, comparable NSS data is available from 1972-73 only at an interval of five years .

Major Industries of India 1 Cotton Textile Most important industry in terms of employment and production of export goods. In Maharashtra (Mumbai, Sholapur, Pune, Kolhapur, Satara, Wardha, Hajipur), Gujarat (Ahmedabad, Vadodara, Rajkot, Surat, Bhavnagar), Tamil Nadu (Coimbatore Manchestor of South India). Tamil Nadu has the largest number of cotton textile mills in India 2 Jute India manufactures the largest quantity of jute goods in the world. Mainly located in West Bengal, followed by Andhra Pradesh, Bihar, UP, MP 3 Silk Textile The location of silk industry is governed by two factors - prevalence of sericulture practices and availability of skilled labour. Karnataka is the leading producer, followed by West Bengal, Bihar, etc 4 Woollen Textiles In Punjab (Dhariwal, Amritsar, Ludhiana, Ferozpur), Maharashtra (Mumbai), UP (Kanpur, Mirzapur, Agra, Tanakpur), etc 5 Iron and steel Located near the sources of raw materials and fuel (coal). In Jamshedpur (Jharkhand), Durgapur, Burnpur (W.B.), Bhadrwati (Karnataka), Bokaro (Jharkhand), Rourkela (Orissa), Bhilai (Chhatisgarh), Salem (T.N.), Vishakhapatnam (A.P.) 6 Aluminium Smelting Located mainly near the sources of raw materials, means of transport and cheap electricity. In Hirakud, Koraput (Orissa), Renukoot (UP), Korba (MP), Ratnagiri (Maharashtra), Mettur (TN), Alwaye 7 Copper Smelting In Khetri, Alwar, Jhunjhunu (Rajasthan), Singhbhum (Jharkhand), Agnigundala (A.P.) 8 Heavy Machinery Machine Tools Industry In Ranchi, Vishakapattnam, Durgapur, Tiruchirapalli, Mumbai, Naini it forms the basis for the manufacturing of industrial, defence equipments, automobiles, railway engines and electrical machinery. In Bangalore, Pinjore (Haryana), Kalamassery (Kerala), Hyderabad, Secunderabad, Srinagar, Ajmer. 9 Heavy Electrical Equipments Power generation equipments. In Bhopal, Tiruchirapalli, Jammu, Ramchandrapuram (Hyderabad), Hardwar, Bangalore, and Jagdishpur (UP). 10 Railway Equipments Locomotives: In Chittaranjan (WB), Varanasi, Jamshedpur, Bhopal. Coaches: Perambur(TN), Kapurthala (Punjab), also at Bangalore and Kolkata. 11 Ship Building Hindustan Shipyard at Vishakhapatnam, Cochin Shipyard, Mumbai (Mazgaon Dock) and Kolkata (Garden Reach Workshop). For Indian Navy, only at Mazgaon 12 Cycles In Mumbai, Asansol, Sonepat, Delhi, Chennai, Jalandhar and Ludhiana 13 Tractors At Faridabad, Pinjore, Delhi, Mumbai, Chennai 14 Fertilizers The location of fertilizer industry is closely related to petro-chemicals. About 70% of the plants producing nitrogenous fertilizers use naphtha as raw material Naphtha is a by-product of oil refiners. Phosphate plants are dependent on mineral phosphate found in UP and MP. Now natural gas based fertilizer plants are also being set up. The Fertilizer Corporation of India (FCL) was setup up in 1961. National Fertilizer Limited (NFL) was set up in 1974. In Sindri (Bihar), Nangal, Trombay, Gorakhpur, Durgapur, Namrup, Cochin, Rourkela, Neyveli, Varanasi, Vadodara, Vishakhapattnam, Kota and Kanpur 15 Pharmaceuticals and Drugs Antibiotics are prepared at Pimpri and Rishikesh. The Indian Drugs and Pharmaceuticals Limited has 5 plants at Hyderabad, Rishikesh, Chennai, Gurgaon and Muzaffarpur. A number of other units are concentrated in Mumbai, Baroda, Delhi, Kolkata and Kanpur. 16 Pesticides Delhi and Alwaye 17 Sugar Industry UP, Maharashtra, AP, TN, Karnataka and Bihar

18 Aircraft Hindustan Aeronautics India Ltd. Was formed by merging two aircraft factories at Bangalore and Kanpur. Four other factories are at Nasik, Hyderabad, Koraput (Orissa), Lucknow 19 Rubber Industry Bareilly (UP), Baroda (Gujarat) - Synthetic Rubber Units, Mumbai, Ahmedabad, Amritsar - Reclaimed Rubber Units Five Year Plans: 1 First Plan (1951 - 56) It was based on Harrod-Domar Model. Community Development Program was launched in 1952. Emphasized on agriculture, price stability, power & transport. It was more than a success, because of good harvests in the last two years. 2 Second Plan (1956 - 61) Also called Mahalanobis Plan after its chief architect. Its objective was rapid industrialization. Advocated huge imports which led to emptying of funds leading to foreign loans. It shifted basic emphasis from agriculture to industry far too soon. During this plan, price level increased by 30%, against a decline of 13% during the First Plan. 3 Third Plan (1961 - 66) At its conception time, it was felt that Indian economy has entered a take-off stage. Therefore, its aim was to make India a 'self-reliant' and 'self-generating' economy. Also, it was realized from the experience of first two plans that agriculture should be given the top priority to suffice the requirement of export and industry. Complete failure due to unforeseen misfortunes, viz. Chinese aggression (1962), Indo-Pak war (1965), severest drought in 100 years (1965-66). 4 Three Annual Plans (1966-69) Plan holiday for 3years. The prevailing crisis in agriculture and serious food shortage necessitated the emhasis on agriculture during the Annual Plans. During these plans a whole new agricultural strategy involving wide-spread distribution of HighYielding Varieties of seeds, the extensive use of fertilizers, exploitation of irrigation potential and soil conservation was put into action to tide-over the crisis in agricultural production. During the Annual Plans, the economy basically absorbed the shocks given during the Third Plan, making way for a planned growth. 5 Fourth Plan (1969 - 74) Main emphasis on agriculture's growth rate so that a chain reaction can start. Fared well in the first two years with record production, last three years failure because of poor monsoon. Had to tackle the influx of Bangladeshi refugees before and after 1971 Indo-Pak war. 6 Fifth Plan(1974-79) The fifth plan prepared and launched by D.D. Dhar proposed to achieve two main objectives viz, 'removal of poverty' (Garibi Hatao) and 'attainment of self reliance', through promotion of high rate of growth, better distribution of income and a very significant growth in the domestic rate of savings. The plan was terminated in 1978 (instead of 1979) when Janta Govt.came to power. 7 Rolling Plan (1978 - 80) There were 2 Sixth Plans. One by Janta Govt. (for 78-83) which was in operation for 2 years only and the other by the Congress Govt. when it returned to power in 1980. 8 Sixth Plan (1980 - 85) Objectives: Increase in national income, modernization of technology, ensuring continuous decrease in poverty and unemployment, population control through family planning, etc. 9 Seventh Plan (1985 - 90) The Seventh plan emphasized policies and programs which aimed at rapid growth in food-grains production, increased employment opportunities and productivity within the framework of basic tenants of planning. It was a great success, the economy recorded 6% growth rate against the targeted 5%. 10 Eighth Plan (1992 - 97) The eighth plan was postponed by two years because of political upheavals

at the Centre and it was launched after a worsening Balance of Payment position and inflation during 1990-91. The plan undertook various drastic policy measures to combat the bad economic situation and to undertake an annual average growth of 5.6% Some of the main economic performances during eighth plan period were rapid economic growth, high growth of agriculture and allied sector, and manufacturing sector, growth in exports and imports, improvement in trade and current account deficit. 11 Ninth Plan (1997- 2002) It was developed in the context of four important dimensions: Quality of life, generation of productive employment, regional balance and self-reliance. 12 Tenth Plan (2002 - 2007) To achieve the growth rate of GDP @ 8%. Reduction of poverty ratio to 20% by 2007 and to 10% by 2012. Providing gainful high quality employment to the addition to the labour force over the tenth plan period. Universal access to primary education by 2007. Reduction in gender gaps in literacy and wage rates by atleast 50% by 2007. Reduction in decadal rate of population growth between 2001 and 2011 to 16.2%. Increase in literacy rate to 72% within the plan period and to 80% by 2012. Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012. Increase in forest and tree cover to 25% by 2007 and 33% by 2012. All villages to have sustained access to potable drinking water by 2012. Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012. Plan Target Actual First Plan (1951 - 56) 2.9% 3.6% Second Plan (1956 - 61) 4.5% 4.3% Third Plan (1961 - 66) 5.6% 2.8% Fourth Plan (1969 - 1974) 5.7% 3.3% Fifth Plan (1974 - 79) 4.4% 4.8% Sixth Plan (1980 - 85) 5.2% 6.0% Seventh Plan (1985 - 90) 5.0% 6.0% Eighth Plan (1992 - 97) 5.6% 6.8% Ninth Plan (1997 - 2002) 6.5% 5.4% Tenth Plan (2002 - 2007) 8.0% -

Employment Generation Programs 1 Swaranjayanti Gram Swarozgar Yojana (SGRY) Started on April 1, 1999. It has replaced the following programs: Integrated Rural Development Program (IRDP) : Started in 1978 - 79). Training Rural Youth for Self -Employment (TRYSEM): Started in 1978-79. Development of Women and Children in Rural Areas (DWCRA): Started in 1978 -79. Ganga Kalyan Yojana (GKY): Started in 1997. Million Wells Scheme (MWS): Started in 1989. Supply of Improved Tool-kits to Rural Artisans (SITRA). The yojana takes into account all the strengths and weaknesses of the earlier self-employment programs. Every assisted family will be brought above the poverty line. It is proposed to cover 30% of the rural poor in each block. To Target at atleast 50% Scheduled Castes and Scheduled Tribes, 40% women and 3% disabled. 2 Pradhan Mantri Gramodaya Yojana (PMGY) It was introduced in 2000-01 with the objective of focusing on village level development in five critical areas I.e., primary health, primary education, housing, rural roads and drinking water and nutrition with the overall objective of improving the quality of life of people in rural areas. Rural electrification was added as an additional component from 2001-02. It has the following components:

Pradhan Mantri Gram Sadak Yojana (PMGSY) Pradhan Mantri Gramodaya Yojana (Gramin Awas). Pradhan Mantri Gramodaya Yojana (Rural Drinking Water Project). 3 Sampoorna Gramin Rozgar Yojana (SGRY) It was started on Sept. 25,2001, with the mergence of the Employment Assurance Scheme (EAS) and the Jawahar Gram Samriddhi Yojana (JGSY). Earlier Jawahar Rozgar Yojana, which started in 1989, was merged with Jawahar Gram Samriddhi Yojana. The objective of the program is to provide additional wage employment in rural areas and also to provide food security. 4 Swarna Jayanti Shahari Rozgar Yojana (SJSRY) The SJSRY came into operation in Dec, 1997, through a restructuring and streamlining of the earlier urban poverty alleviation programs, the Nehru Rozgar Yojana (NRY), the Urban Basic Services for the Poor (UBSP) and the Prime Minister's Integrated Urban Poverty alleviation Program (PMIUPEP). It seeks to provide employment to the urban employed or underemployed living below poverty line and educated up to IX standard through encouraging the setting up of self-employment ventures or provision of wage employment. 5 Antyodaya Anna Yojana Launched on Dec. 25,2000. The scheme aims at providing food security to poor families. The scheme contemplates identification of 10 million 'poorest of the poor' families and providing the \m with 25kg of food grains per family per month at a low price of Rs.2 per Kg for wheat and Rs.3 per Kg for rice. 6 Annapurna Yojana Inaugurated on March 19, 1999. Initially the scheme provided 10 kg food grains to senior citizens who were eligible fore old age pension but could not get it due to one reason or the other. Later on, it was extended to cover those people who get old age pensions. Food grains are provided to the beneficiaries at subsidized rates of Rs.2 per kg of wheat and Rs.3 per kg of rice.

Explain micro and macro economics including their scope. Micro-economics The term micro has been derived from the Greek word micros. Which means small .in microeconomics attention is concentrated on a very small part of individual units. The micro-economics is the study of the particular firms, house hold, individual prices, wages, incomes ext. it studies for example the motive of a business man in diverting his capital from the cotton textile industry to the Weller industry for increasing the production of commodity A rather than B. WIKKIAN FELLNER has termed micro economics as the study of individual decision making units. It implies that an individual buyer or sellers behavior in the marketing the face condition of demand or supply of a particular commodity, is the object of study in micro-economics SCOPE OF MICRO-ECONOMICES: Micro-economics analysis explains the allocation of resources assuming that the total resources are given. The following chart given of view of the scope of micro-economics. MACRO-ECONOMICES: This also derived from Greek word macros, meaning large. It implies the study of economics aggregates or the wholes. The problems like full employment, unemployment, economic stability and economic growth cannot be accurately investigated through the examination of infinitesimally Small units like individual consumer, producer, workers or firms. The action of a single employer cannot have a perceptible impact upon the employment situation of a country. The production or investment by a single firm is unlike to generate cyclical fluctuations. The proper analysis of such problem requires an aggregated thinking. Full employment, economic growth and instability are concerned with entire economic system. Their analysis and solution in the right perspective can be possible only if a macro approach and aggregative instrument of analysis and policy are employed. HANSON has interpreted macro economics as that branch of economics which considers relationship between large aggregated such as volume of employment, total amount of saving and investment, the national income, etc.

This indicates that the scope of our analysis is not simply restricted to the investigation of the total magnitude of the economic variable but their inter relations too are essential part of the macroeconomic analysis What is managerial economics? Support your own answer with the various definitions Answer: managerial economics is an applied branch of micro economics, which studies the topic which are of great interest and importance to a manager these topics involve component like demand, supply, production. Cost revenue, government regulation etc. managerial economics is the application of the economic analysis to evaluate business decisions. It concentrates on the decision process, decision model and decision variable at the firm level is viewed as a micro-economics unit located within as industry, which exists in the context of a given socioeconomic environment of business. Managerial economics is concerned with economics with economics behavior of the firm it is assumed that firm maximizes profit. In general managerial economics can Be used by the goal oriented manager. DEFINATIONS: There are many managerial economics, some of them are 1. Prof Spencer Siquelman Managerial economics deals with integration of economics theory with business practice for the purpose of facilitating decision making and forward planning. 2. Prof Hague Managerial economics is concerned with using logic of economics mathematics and statistics to provide ways of thinking about business decision problem. 3. Mc Nair and Meriam Business economics and managerial consists of the use of economic. Define demand and explain various types of demand. Demand: the demand for the product is the desire for that product backed by willingness as well as ability to pay for it. It is always defined with reference to a particular time, place price and given values of other variables on which it depends. Demand for the product implies (a) Desire to acquire it. (b) Willingness to pay for it. (c) Ability to pay for it. Various type of demands are 1) Direct and derived demands. Direct demand refers to demand for goods meant for final consumption. By contrast, derives derived demand refers to demand for goods which are needed for further production. It is the demand for producers goods like industrial raw material, machine tools and equipments. 2) Autonomous and induced demand When the demand foe the product is tied to the purchase of some parent product, its demand is caved induced or derived. For example the demand of cement is derived from demand for housing. Autonomous demand, on the other hand is not derived or induced. All direct demand may be loosely called autonomous. 3. Perishable and durable goods demand Both consumers goods and producers goods are classified into perishable and non durable, single use goods, durable, non perishable, repeated use goods. Non-durable goods meet immediate demand, but durable goods are designed to meet current as well as future demand as they are used than ones. When durable items are purchased, they are considered to be an addition to stock of assets or wealth. Due to continuous use, durables suffer depreciation and thus call for replacement. Thus the demand for durable goods has two aspects-replacements of old products and expansion of total stock. 4. New demand and replacement demand If the purchase of an item is meant as an addition to stock, it is a new demand. If the purchase of an item is meant for maintaining the old stock of capital/asset intact, it is replacement demand. Such replacement expenditure is to overcome depreciation in the existing stock. Explain consumers surplus with support of figure diagram. What difficulties one faces in measuring consumers surplus consumer surplus is equal to the difference between the amount of money that a consumer actually pays to buy a certain quantity of a commodity x, and amount that he would be willing to pay for this quantity rather than do without it.

Graphically the consumers surplus may be found by his demand curve for commodity x and the current market price, which is assumed, he cannot affect by his purchases of this commodity. Assume that the consumers demand for x is a straight line (AB in below fig) And the market price P. at this price consumer buys q units of x and pays an amount (p) for it. However, he would be willing to pay p1 for q1.P2 for q2, p2 for q3 and so on. the fact that the price in the market is lower than the price he would be willing too pay for initial units of x implies that is actual expenditure is less than he would willing to spend to acquire the quantity q. the difference is the consumers surplus, and is the area of the triangle PAC in the fig. below Thus consumer surplus may be defined as the excess of utility or satisfaction obtained by the consumer and is measured by the difference between what we are prepared to pay and what we actually pay. DIFFICULTIES IN MEASURING CONSUMERS SURLUS: 1. The cardinal measurement of utility is difficult Because it is close to impossible for a consumer to say that the first unit of commodity gave him 10 units of satisfaction and the second unit of commodity gave him 5 units of satisfaction. 2. Marginal utility for the same commodity id different to different consumers . Marginal utility for a particular commodity varies from person to person depending upon their income, tastes and preferences. 3. Existences of substitutes: In the real world a number of substitutes for a commodity exist, thus making the work of measuring consumers surplus a complicated task. 4. Marginal utility of money is not constant: Marshall based his concept of consumers surplus on the simplifying assumption that the marginal utility of money is constant. As the consumer buys more and more units of a commodity x, the amount of money with him diminished, in this case, the marginal utility of money is bound to increases rather than remain constant. 5. Lack of awareness of different price It is not possible for a consumer be t aware of the entire demand schedule.

Define demand forecasting .explain types of forecast and steps to be followed in forecasting. Demand forecasting is a specific type of forecasting, which enables the manager to minimize elements of risk and uncertainty. The likely future event has to be given form and content in terms of projected courses of variable, i.e. is forecasting. The manager can conceptualize the future in definite terms. If he is concerned with future events in its order, intensity and duration, he can predict the future. If he is concerned with the course in like of future variable of future variables like demand, price or profit, he can project the future. TYPES OF FORECASTS: 1. ECONOMIC AND NON-ECONOMIC FORECASTS: SOCIAL technological and political forecasts are all example of non economic forecasts, for example, one can forecast the crime rate, technological obsolescence, election result and so on. 2. MICRO AND MACRO-FORECASTS: Micro-forecasts are at firm level. E.g. a demand or sales forecast. On the other hand, macro-forecasts are at the industry level or the economy level for e.g. five year plan projections. 3. ACTIVE AND PASSIVE FORECASTS If the firm extrapolates the demand of previous years to yield the likely estimated demand for the coming year, it is and example of passive forests. if the firm, on the other hand ,tries to manipulate demand by changing price, product quality promotional efforts ,etc. then it is an example of active forecast. 4. CONDITIONAL AND NON-CONDITIONAL FORECASTS IN conditional forecasting we estimate the likely impact of certain known or assumed changes in the independent variable on the dependant variables. Non conditional forecasting, in contrast, requires the estimation of the change in the independent variable themselves. 5. SHORT-RUN AND LONG RUN FORECASTS In a long term forecast, one has to consider long-term changes in population, tastes preferences of the buyers, technology, and product life cycle etc. by

contrast short-run forecasting concentrates on a few selected variables, here simple techniques based o analysis of past experience and information give fairly accurate forecasts. DEFINE LAWS OF VARIABLE PROPORATION? WHAT IS THE ASSUMPTION OF THE LAW? The law of variable proportions is a short-run production function. Where some factors are fixed and other variable, like land may be fixed and labour may be variable. Variable means its quantity can be changed. STATEMENT OF THE LAW: As equal increment of one point are added , the inputs of other productive services being held, constant, beyond a certain point the resulting increment of products will decrease i.e. the marginal product will diminish . The law of variable proportion is also know as the law of diminishing returns this law refers to the amount of extra output secured by adding to a fixed input more and more of variable inputs. If, for example we add increasing quantities of some variable factors (say labour) to a fixed factor (say land) and as ea result we get production more than proportionately, then it is known as increasing return to scale. When, however, the resulting production is in the same proportion it is known as constant returns and when he output is less than input it is the decreasing returns of scale. ASSUMPTION OF THE LAW 1. THERE IS ONLY ONE VARIABLE FACTOR.ALL THE OTHER ARE CONSTANT. 2. THE UNITS OF VARIABLE FACTORS ARE HOMOGENOUS IN CHARACTER. 3. IT IS POSSIBLE TO CHANGE THE PROPORATION IN WHICH THE VARIOUS FACTORS ARE COMBINED TOGETHER. 4. THE STATE OF TECHNOLOGY REMAINS UNCHANGED. 5. THE TIME PERIOD IS SHORT

DESCRIBE COST FUNCTION, ALSO MENTION THE CONCEPT OF COST. Cost functions are derived functions. They are derived from the production function .they are derived from an actable efficient methods of production at any one time. Short run costs are the cost over a period durin capital, equipment and management) are fixed The long run term costs are the costs over a period long en production. In long run, all factors become variable. Both in short run and in long run, total cost is multivar by many factors. Symbolically we may write the long-run function as C=f(X, T, ,K) And short run cost function as C=f(X, T, ,K) WHERE C=TOTAL COST X=output T=technology K=PRICE OF FACTORS =FIXED FACTORS(S) Cost is the function of output c=f(X)

CONCEPTS OF COSTS There are many types of concepts where coats are concerned 1. MONEY COST Cost is not unique concepts on the contrary there are various types of costs. The most accepted is the mon which means the total money involved in production of a commodity. For example money spends on rent, m etc, from a producers point of view this is the most important cost concept. 2. OPPORTUNITY COST This is a very important concept in modern economic analysis. We can understand this concept best by an e many things to buy he can buy a watch or a book or a T.V anything for that matter he will choose one out o items in known as opportunity cost. We could say that the alternative or opportunity cost of any factor in th maximum amount which the factor could have cared in some alternative use. 3. REAL COST:

According to marshall , the real cost of production of a commodity express not in terms of money but in effo of a commodity. Money is paid to factors of production to compensate them for their effort and sacrifice. We entirely a different question the main difficulty with this concept is that is purely subjective and psychologic 4. ACCOUNTING COST AND ECNOMIC COSTS Accounting cost is also know as explicit costs or expenditure cost. We can say that these costs are contractu production which do not belong to the employer himself. For example payments made for raw materials, po also known as implicit costs or non-expenditure costs. This arises in the case of those factors which are pos For example, an employer may contribute his own land, his own capital and may work as the manager of th for himself. 5. FIXED COSTS AND VARIABLE COSTS VARIABLE COST REFERS TO THOSE FACTORS WHICH ARE VARIABLE IN SHORT RUN.THESES COSTS NATU output of the firm, increasing with an increase and diminishing with decrease in the output. For example if a will have to increase the expenditure of the salary of the workers. They are direct costs because all the unit them. Fixed costs are those costs which cannot be increased in short-run even if the employer wishes to do do not change with every change in output, for e.g. if the output is doubled the rent of the land where the f important for a firm to cover the variable costs

(a)JOIN STOCK COMPANY IT is also know as association of individuals knows as shareholders who are authorized by the government t become a popular type of business organization large scale commercial and industrial enterprise and genera capital of the firm is contributed by large number of shares holders, who are the real owner of the business entrusted to aboard of directors who are elected among the shareholders. The joint stock company invariab Consquentis, all the economics of large scale production accure to it which finally result in cutting down its p lays down the general policy of the company. But the actual implementation of the policy is left to the well t partnership, join stock can raise capital on much larger scale, by selling shares of various types it can raise The share of the joint stock company can be easily bought and sold on the stock exchange. If any sharehold get out of the company by selling his shares But there are some demerits due to delays in decision, lack of establishment.

(E)ISOQUANTS Isoquants are a geometric representation of the production function. The same level of output can be produ Assuming continues variation in the possible combination of labour and capital, we can draw a curve by plot given level of output. This curve which is the locus of all possible combinations is called isoquants or iso-pro Properties of isoquants: 1. Each isoquants correspondence to a specific level of output and shows different ways of technological eff 2. The isoquants are downward sloping and convex to the origin. The slope of isoquants is significant becau L (where L is labour , K is capital) can be substituted for each other while a constant level of output is main other as it is not possible to have two output levels for a particular inputs combination. ISOQUANT MAP Q= (K, L) For a given value of Q, alternative combination of K and L can be possible because labour and capital are su alternative combination of factors for a given output level will be such that if the use of one factor input is in and vice versa.

(H) KEYNES LIQUIDITY PREFERENCE THEORY According to Keynes, money is the perfect liquid asset. The main motives which impel an individual or busin assets are transaction motive, precautionary motive and speculative motive. 1. Transaction motive: A substantial amount of money is required by the community for carrying out day to day transactions. 2. Precautionary motive. Most of the spending units hold some of cash in excess of the minimum required to meet the day to day tra to deal with emergencies unforeseen contingencies like illness, accidents, unemployment and any other eco bargains when the goods can possible be purchased on attractive terms with pavements ,made in terms of 3. Speculative motive:

The speculative motive for the holding of money relates to the taking advantage of future market movemen the objective of securing profit from knowing better than market what the future will bring forth. The relationship between liquidity preference and the rate of interest is inverse. The liquidity is maximum w individual will not lose anything even if they keep all their money in liquid form. As the rate of interest incre amount of money as liquid cash.

(C)LONG RUN COSTS In the ling run cost managers have enough time to change the scale or size of the production unit. There ar is increases in The demand for the product, there is time to increase the production of the firm. In long run labour or be it machinery, when the scale of operation is changed, we need to draw new short run curve of outdated due to change in the scale of operations. Now I m going to explain on long run average cost curve cost curves depicting different production plan A at different time periods. Lets understand the long run ave term average cost curve(SAC),lets denote them by SAC1,SAC2,and SAC3.there are three minimum points e points of the SAC, because at this point it incurs the least cost. The LRAC curve to the short-run average co The LAC is flatter than SAC, it also known as envelope curve. The firm will choose the point e2 because it is production is still decreasing in long run and at e3 the cost of production increases which means that outpu (d)OLIGOPOLY AND ITS MAIN FEATURES: Oligopoly means competition among the few. There is no limit b numbers of seller are between two to ten. In an oligopolistic market there are a small number of firms, so t interdependence. Thus each firm must take into account the rivals reactions. The competition is not perfect they make collusive agreement. The seller must guess the rivals reactions. Their decision depends upon on forecasts to intervene between own action and the rivals reactions. We can broadly divide oligopology into oligopology . Collusive is the one which the producers come together and determine a fixed price or output oligopology is the one which the competition applies own managerial skills to capture the market and is alw THE MAIN FEATURES 1. Interdependence: The producers are interdependence on each other for decision making .this is because change in price, output, product etc. by firms can have some effect on the other producer . 2. Importance of advertising and selling cost: To occupy the bigger share of market the producer plans a l have to incur a good deal of costs on advertising. 3. Group behaviors: in this type of market the producers come together to take decisions in every members