INTRODUCTION

The term ``basic economic infrastructure'' signifies a group of improvements in land-areas

which are typified by physical forms of capital investments in the usefulness of land for
production and habitation.

( BOOK + PHOTOCOPY)

Banking in India originated in the last decades of the 18th century. The first
banks were The General Bank of India, which started in 1786, and Bank of Hindustan,
which started in 1790; both are now defunct. The oldest bank in existence in India is the
State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three presidency banks,
the other two being the Bank of Bombay and the Bank of Madras, all three of which
were established under charters from the British East India Company. For many years
the Presidency banks acted as quasi-central banks, as did their successors. The three
banks merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India.

Finance in India
The Indian money market is classified into: the organised sector (comprising private,
public and foreign owned commercial banks and cooperative banks, together known
as scheduled banks); and the unorganised sector (comprising individual or family
owned indigenous bankers or money lenders and non-banking financial
companies (NBFCs)). The unorganised sector and microcredit are still preferred over
traditional banks in rural and sub-urban areas, especially for non-productive purposes,
like ceremonies and short duration loans.

Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in

1980, and made it mandatory for banks to provide 40% of their net credit to priority
sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to
ensure that the banks fulfill their social and developmental goals. Since then, the
number of bank branches has increased from 10,120 in 1969 to 98,910 in 2003 and the
population covered by a branch decreased from 63,800 to 15,000 during the same
period. The total deposits increased 32.6 times between 1971 to 1991 compared to 7
times between 1951 to 1971. Despite an increase of rural branches, from 1,860 or 22%
of the total number of branches in 1969 to 32,270 or 48%, only 32,270 out of
5 lakh (500,000) villages are covered by a scheduled bank. [3][4]

As of 2007, banking in India is generally mature in terms of supply, product range and
reach-even, though reach in rural India still remains a challenge for the private sector
and foreign banks.[7] In terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent balance sheets relative to other
banks in comparable economies of Asia.[7] The Reserve Bank of India is an autonomous
body, with minimal pressure from the government. The stated policy of the Bank on
the Indian Rupee is to manage volatility but without any fixed exchange rate. [8]

Economy and Infrastructure of India -

CONCLUSION
India is the seventh largest and second most populous country in the
world. A new spirit of economic freedom is now stirring in the
country, bringing sweeping changes in its wake. A series of
ambitious economic reforms aimed at deregulating the country and
stimulating foreign investment has moved India firmly into the front
ranks of the rapidly growing Asia Pacific region and unleashed the
latent strengths of a complex and rapidly changing nation. India's
process of economic reform is firmly rooted in a political consensus
that spans her diverse political parties. India's democracy is a known
and stable factor, which has taken deep roots over nearly half a
century. Importantly, India has no fundamental conflict between its
political and economic systems. Its political institutions have fostered
an open society with strong collective and individual rights and an
environment supportive of free economic enterprise. 

India's time tested institutions offer foreign investors a transparent

environment that guarantees the security of their long-term
investments. These include a free and vibrant press, a judiciary that
can and does overrule the government, a sophisticated legal and
accounting system and a user-friendly intellectual infrastructure.
India's dynamic and highly competitive private sector has long been
the backbone of its economic activity. It accounts for over 75% of its
Gross Domestic Product and offers considerable scope for joint
ventures and collaborations.
 Today, India is one of the most exciting emerging markets in the
world. Skilled managerial and technical manpower that match the
best available in the world and a middle class whose size exceeds the
population of the USA or the European Union, provide India with a
distinct cutting edge in global competition.

The road transport sector has been declared a priority and will have
access to loans at favorable conditions. The Monopoly and Restrictive
Trade Practices Act (MRTP Act) was passed in order to encourage
large industry to enter the road sector.

The National Highways Act has been modified to help the reduction
of tolls on national motorways, bridges and tunnels. Calcutta's
Howrah Bridge is the world's busiest with a daily flow of 57,000
vehicles and innumerable pedestrians. Private participation in the
energy sector has been encouraged with the reduction of import
duties, a five-year tax exemption for new energy projects and a 16%
return on equity. 

The government is also following a new telecommunications policy

that aims for the improvement of quality to a worldwide standard
and, as a result, India could emerge as a major producer and
exporter of telecommunication systems. Advantageous policies in
this sector are encouraging private and foreign participation.

What Are The Functions Of The State Bank Of India?

The State Bank of India acts as an agent of the Reserve Bank of India and performs the
following functions:

(1) Borrows money:- The Bank borrows money from the public by accepting deposits such as
current account deposits, fixed deposits and savings deposits.

(2) Lends money:- It lends money to merchants and manufacturers for short periods. It also
lends to farmers and co-operative institutions. It lends mostly on the security of easily realizable
commodities like rice, wheat, cotton, oil-seeds, cloth, gold and government securities. The Bank
can lend against agricultural bills upto a maximum period of fifteen months and incase of other
bills upto a maximum period of six months.

(3) Government’s Bank:- The State Bank of India also acts as the agent of the Reserve Bank
of India. As an agent, the State Bank of India maintains the treasuries of the State Government.
The Bank also manages the debts floated by the State Governments.

(4) Remittance:- The State Bank of India facilitates remittance of money from one place to
another. It also helps in the transfer on the funds of the State and Central Government. 

 (5) Subsidiary functions:- The State Bank performs various subsidiary services also. It

collects checks, drafts, bill of exchange, dividends interest, salaries and pensions on behalf of
its customers. It purchases and sells securities on behalf of its customer. It receives valuables
and documents for safe custody and maintains safe deposit vaults.

What Are The Functions Of Regional Rural Banks?

Regional Rural banks (RRB) were created to provide the sufficient institutional credit for
agriculture to the rural areas of a state. The function of RRB is

 to provide loans to the small marginal farmers and agricultural laborers.

 However, the functions of an RRB are limited to a specific area which is specified by the
state.
 Agricultural growth plays an important role in boosting the economic growth of a
country, therefore, RRB are created as a helping hand to foster the agricultural growth.
 Some rural banks also work for the development of the rural areas. Landlords who
reside in rural areas also encourage these banks to be developed in such areas. In this
way rural banks also provide a way to such people to deposit their money. 

Functions of Commercial Banks

The functions of a commercial banks are divided into two categories:

i) Primary functions, and

ii) Secondary functions including agency functions.

i) Primary functions:

The primary functions of a commercial bank include:

a) accepting deposits; and

b) granting loans and advances;

a) Accepting deposits

The most important activity of a commercial bank is to mobilise

deposits from the public. People who have surplus income and

savings find it convenient to deposit the amounts with banks.

Depending upon the nature of deposits, funds deposited with

bank also earn interest. Thus, deposits with the bank grow along

with the interest earned. If the rate of interest is higher, public

are motivated to deposit more funds with the bank. There is also

safety of funds deposited with the bank.

b) Grant of loans and advances

The second important function of a commercial bank is to grant

loans and advances. Such loans and advances are given to

members of the public and to the business community at a higher

rate of interest than allowed by banks on various deposit accounts.

The rate of interest charged on loans and advances varies

depending upon the purpose, period and the mode of repayment.

The difference between the rate of interest allowed on deposits

and the rate charged on the Loans is the main source of a bank’s

income.
i) Loans

A loan is granted for a specific time period. Generally,

commercial banks grant short-term loans. But term loans,Functions of Commercial Banks :: 23

that is, loan for more than a year, may also be granted.

The borrower may withdraw the entire amount in lumpsum

or in instalments. However, interest is charged on the full

amount of loan. Loans are generally granted against the

security of certain assets. A loan may be repaid either in

lumpsum or in instalments.

ii) Advances

An advance is a credit facility provided by the bank to its

customers. It differs from loan in the sense that loans may

be granted for longer period, but advances are normally

granted for a short period of time. Further the purpose of

granting advances is to meet the day to day requirements

of business. The rate of interest charged on advances varies

from bank to bank. Interest is charged only on the amount

withdrawn and not on the sanctioned amount.

Modes of short-term financial assistance

Banks grant short-term financial assistance by way of cash credit,

overdraft and bill discounting.

a) Cash Credit

Cash credit is an arrangement whereby the bank allows the

borrower to draw amounts upto a specified limit. The amount is

credited to the account of the customer. The customer can

withdraw this amount as and when he requires. Interest is charged

on the amount actually withdrawn. Cash Credit is granted as per

agreed terms and conditions with the customers.

b) Overdraft

Overdraft is also a credit facility granted by bank. A customer

who has a current account with the bank is allowed to withdraw

more than the amount of credit balance in his account. It is a

temporary arrangement. Overdraft facility with a specified limit

is allowed either on the security of assets, or on personal security,

or both.

c) Discounting of Bills

Banks provide short-term finance by discounting bills, that is,

making payment of the amount before the due date of the bills

after deducting a certain rate of discount. The party gets the

funds without waiting for the date of maturity of the bills. In

case any bill is dishonoured on the due date, the bank can recover

the amount from the customer.

ii) Secondary functions

Besides the primary functions of accepting deposits and lending money,

banks perform a number of other functions which are called secondary

functions. These are as follows -

a) Issuing letters of credit, travellers cheques, circular notes etc.

b) Undertaking safe custody of valuables, important documents, and

securities by providing safe deposit vaults or lockers;

c) Providing customers with facilities of foreign exchange.

d) Transferring money from one place to another; and from one

branch to another branch of the bank.

e) Standing guarantee on behalf of its customers, for making

payments for purchase of goods, machinery, vehicles etc.

f) Collecting and supplying business information;

g) Issuing demand drafts and pay orders; and,

h) Providing reports on the credit worthiness of customers.

DEVELOPMENT ECONOMICS

VICIOUS CIRCLE OF POVERTY

1. intro
   a) meaning
   b) nurkse's definition
2. VIcious circle of poverty
   a) its detailed concept:
        in reference to nurkse model.
   b) to what extent it is true for developing countries (like INDIA)
    c) what is solution to it(suggestions).
3. conclusion.

VICIOUS CIRCLE OF POVERTY

Nurkse, Ragnar (1907–1959) An economist whose work examined and sought solutions for the vicious circle
of poverty in underdeveloped countries, which he viewed as linked to insufficient investment. Nurkse
contended that investment is subject to external economies of scale—that is, the more investment there is, the
more profitable further investment becomes. Contrary to neoclassical claims, Nurske argued that poor
countries might never follow the development path of the industrialized countries because they might never
attract enough capital to fuel the development cycle. The gap between rich and poor countries, in this case,
would only …

VICIOUS CIRCLE OF POVERTY OR A COUNTRY IS

POOR BECAUSE IT IS POOR
 poverty is a great curse. It is the biggest hurdle in the way of economic development. Ranger
Nurkse in ''Problems of Capital Formation in Underdeveloped Countries'' describes 'vicious circle of
poverty as the basic cause of under-development of poor countries. According to him, a country is
poor because it is poor. Being poor, a country has little ability or incentive to save. The low of saving
leads to low level of investment and to deficiency of capital. The low of investment leads to low level
of productivity. When the productivity per worker is low, the real income will obviously be low and so
there poverty and vicious circle is complete.

     On the side of demand when people have low real income the demand for goods is bound to be
small. In the small size of market, there is no incentive of invest in real or human capital. When the
rate of investment is low, the productivity of the factors of production is bound to be low. Low
productivity leads to low per capital income which is rapidly absorbed by the rising population
growth. The country, therefore, remained poor.

The vicious circle of underdevelopment

  Lower per capita incomes make it extremely difficult for poor nations to save and invest, a condition
that perpetuates low productivity and low incomes. Furthermore, rapid population growth may
quickly absorb increases in per capita real income and thereby may negate the possibility of
breaking out of the underdevelopment circle.

How to break this vicious circle of poverty? (suggestions)

      Remaining poor is certainly no crime. The accepting of poverty and allowing it to continue is
certainly a crime. Briefly, the vicious circle of poverty can be broken in developing countries including
Pakistan by adopting following measures.

 (1)  Increase in savings. The vicious of circle of poverty can be broken by making serious efforts in
increasing the volume of real savings both at the level of in development the govt. The govt. can also
mobilize foreign savings for capital formation country.
  (2) Higher per capital growth rate.  The per capital growth rate should be higher than the rate of
growth of population. This objective be achieved by increasing the level of employment in the
country and reducing the rate of population growth. If the rate of increase in real per capital income
is the same as the rate of growth of population, the real income per person will remain unchanged.
  (3)  Efficient use of natural resources. The less developed countries (LDC) are not making the
efficient use of the natural resources available to them. At present the multi national companies
(MNCs) of the advanced countries are exploiting these resources more for their own economic
benefits. The economic advantages of the natural resources must pass on to the benefits of the poor
masses of the LDCs.
  (4) Employment of human resources. Many of the less developing countries including Pakistan
are faced with serious unemployment problem. The quality of labour force is also poor. The low level
of literacy, malnutrition, absence of proper medical care etc are all barriers to economic development
Effective measures have to be taken for sufficient investment in human capital to break the poverty
barrier of the LDCs.
 (5) Increasing the stock of capital goods. The LDCs can come out of the vicious circle pf poverty
if the wealthy class is motivated to make their savings available for investment in productive
activates rather than using their wealth on the purchase of urban real estates, precious metals etc.
 (6) Technological advance.  The people in less developed countries (LDCs) can break the poverty
barrier by adopting and applying advance technologies which are appropriate to the resources
available to them.
(7) Role of the advanced nations. The advanced nations san help the less developed countries in
breaking the poverty barrier by:
 (i) expanding volume of trade with them.

  (ii) increasing the flow of private and public capital in basic infrastructure.

  (iii)  provision of direct aid in basic social sectors such as education, health etc.

  (iv) provision of soft loans for development.

  (v)  writing off loans.

  (8)  Role for the government. The government in the less developed country is in the key position
to deal effectively with social institutional obstacles to growth and breaking out the vicious circle of
poverty. It can greatly root out political corruption and bribery. It can provide incentives to save and
invest. It can increase agricultural production by introducing effective land reforms in the country’s…

To what extent it is true for developing countries (like india)

For poor countries, there is a point of view that they are destined to remain poor. The rationale behind the above
statement is that, for poor countries, taking resources out of the production of consumer goods is very difficult
because they are living so close to subsistence levels and the lack of saving can make it difficult for them to
accumulate capital and grow.

That is called the vicious circle of poverty, which illustrates that the poor counties will remain poor if
not poorer, while rich countries will grow even richer following the same circle. This essay will analyze the two types
of countries, more specifically, the rich ones—the developed countries—such as the US and the European countries
and the poor ones—the developing countries like China, India and most of the African countries. It will also examine
how they function differently during the process of accumulating capital and grow. Further, this essay will explore
ways as well as evaluating their feasibility for developing countries to break the vicious circle of poverty. Finally, this
essay will draw some conclusion based on the overall analysis and give suggestions for the sustainable development
of developing countries.

Comparison of developed countries and developing countries

First and perhaps the most important, is that in order for capital goods to be accumulated to produce greater
quantities of consumer goods in the future, consumer goods have to be given up in the present. This can be
illustrated using the production possibilities frontiers (PPF) model (see graphic 1). It shows the combinations of output
that the economy can possibly produce given the available labor and resources as well as the available production
technology with the two axis being the consumption goods and capital goods(). Given the limitation of resources and
technology, if the country uses up more good for consumption, then it will leave fewer capital goods for investment
(Mankiw, 2007).

Figure 1: PPF model of economic allocation

Second, apply the same model to the two different types of countries—developed and developing counties, and
compare the choices by them. The two major differences between the two types of countries are the resources and
technology. More often than not, developed countries are always having both more resources and much better
technology than their developing counterparts. As a result, a developed country's PPF curve will be much larger
relative to its population. Graphic 2 illustrates the comparison of two countries, one developed and one developing,
which both have similar population. As shown in the graphic, the developing country has a much smaller PPF curve
than the developed country, which reflects its fewer resources and lower level of technology. What is worse, in the
real cases, developing countries are always having much greater number of people as well as greater population
growth rates.

Figure 2: comparison of PPF model in a developed country and a developing country

Third, consider the relationship between investment and consumption and see how it works differently in developed
and developing countries. Assume the replacement level of investment represents the threshold level of investment
(Ir as shown in figure 3)—the level of production that would just exactly replace the capital is worn out in the current
period. Similarly, assume the subsistence level of consumption (Cs as shown in figure 3) equals that level of the
production of consumption goods just sufficient to feed a country’s population without starvation.

Figure 3: Comparison of PPF model of economic growth

As seen from figure 3, the developed country has the ability to both feed its population at or above the substance
level, and at the meantime, replace or expand its stock of capital. For example, the country can choose its production
pattern on the PPF curve where shaded. In this area, it can feed its population and expand its production possibilities
in the future.

While people in the developing country are living so close to subsistence levels and the country is lack of savings. So
the choice for it becomes an “either or” question. It can choose between either feeding its population or expanding its
production possibilities. Unfortunately, it cannot do both as in the shaded area, which is obviously beyond its
production limit.

Finally, figure 4 illustrates how the vicious circle of poverty comes into being. If the developing country, for instance,
decides to feed its population at the expenses of replacing worn out capital, the country must produce less than the
replacement level of investment. As a result, in the future its production ability will further decrease and its PPF curve
will shift back, making the decision even worse. At that moment, feeding its population would require an even lower
level of production for capital goods, which will in turn lead to an even more serve shift back in its PPF curve.
Consequently, if the country continues to choose to feed its population, the PPF curve will shift back to a point that it
will be unable to either replace its capital or feed its population. Figure 4 illustrates these sequences by the
movement over time from production possibility frontier P0 to production possibility frontier P1 and P2.

Figure 4: PPF model of vicious circle of poverty in a developing country

Ways to beak the vicious circle

While on a theoretical basis, the above analysis justify that the statement for poor countries, taking resources out of
the production of consumer goods is very difficult because they are living so close to subsistence levels and the lack
of saving can make it difficult for them to accumulate capital and grow. It seems that the poor counties are destined to
remain poor, if not poorer. Supposedly, a poor country cannot get the capital investment to improve industry. Of
course, that statement begs the question: how did any country ever get out of poverty? How did the first country get
out of poverty? Clearly, there are ways that poor countries can lift themselves out of their “vicious circle of poverty.”
Normally, there are three ways to break the vicious circle, to set the threshold of investment higher than required, to
starve some of the population at the present in trade for the sustainable development in the future, and to get foreign
aid from developed countries.

First of all, one of the solutions is for the developing country to decide to set its production of investment at more than
the replacement level (that is higher than Ir shown in figure 3). From the perspective of the future, this choice has two
advantages. First, it will expand the country's PPF curve in the future (rightward to the new Ir level), reducing the
poverty problem in the future. In fact, eventually the PPF will shift out enough so that the developing country will
eventually be able to both feed its population and expand its production possibilities in the future (Goff, 2003).

Second, choosing to allow some of their population to starve will also move the country in the direction of being able
to both feed its population and increase its PPF curve. Although it is not the ideal choice for a county, it is the only
internal choice that may result in fewest deaths and the most future productive growth. This is true because some
people will die through starvation, presumably those who are least productive. In the future, since the population is
lower, the subsistence level of consumption will fall. Because it is the least productive who will starve, their deaths will
not have a large adverse effect upon the PPF curve.

Finally, there is another more palatable solution exists, which is through foreign investment into developing countries.
The vicious circle of poverty can be avoided if the country either has more resources or better technology. Foreign aid
from developed countries can give developing countries either or both of these, allowing them to avoid the
unpalatable choices discussed above and increase their PPF curves outward. Moreover, helping a developing
country develop will also develop markets for the goods and services from developed countries, gaining economic
benefits for them (World Bank, 2006).

Conclusion
From the analysis above, the economic growth and development refer to the expansion of economic choices, i.e.,
rightward or outward shifts in the PPF. For poor countries, there are limited resources and inferior technology, it is
difficult for them to accumulate capital and grow.

While poor countries cannot afford to divert resources away from the production of consumption goods, they can
escape from this situation with additional investment in capital from foreign aid. In absence of foreign investment,
poor countries can also set its investment threshold higher than necessary or sacrifice few people in exchange of the
sustainability of its economy, though not that favorable.

Solutions of Poverty
It is difficult to found any ready made solution for poverty. There is no universal formula that can be practically
implemented in all parts of world. History proves this fact that every country who achieved good economic condition
has tailored its route. For defining best tool to eliminate poverty form some country it is important to find out the root
cause of poverty thenstart form addressing there onward there are brighter chances to get rid.  
Poverty and financial happiness is to opponent extremes, so the best possible way to overcome poverty is creating
ways for self sufficiency.  Health and education are the basic solution which can work in all conditions. According the
geographical and demographic conditions there could be customized solution. For example in Asian developing
countries like Pakistan there is great opportunity to start working on agriculture. For this purpose there should be
implementation of best methods to increase production of agricultural products and sell them to rest of the world to
earn foreign exchange. Basic health facilities, Quality education, consistent and good political infrastructure, better
management system, control over corruption and correction of balance of payments are some basic issues which are
likely to be addressed on priority bases to get rid of vicious circle of poverty….

Salary Shall Gain Beneath Manarega

New Delhi. Prime clergyman Manmohan Singh on Wednesday said the government’s rustic task
scheme, Mahatma Gandhi, National rustic Employment warrantly Act [Manarega] beneath the workers
according to inflation shall be higher wages.
Manmohan Singh at a function held on the fifth anniversary of the scheme that we based on the
increase in the customer cost Index has determined to increase salary. In this program, Congress
President Sonia Gandhi also spoke.
The Prime clergyman said that fresh memories when the scheme began in 2006, the least everyday
wage of a worker was Rs 65. “Now is the least everyday wage of Rs 100, which in itself is a
gargantuan increase.

United Progressive Alliance [UPA] President Sonia Gandhi to brainstorm on flaws existing in the
scheme and it is time to move in new directions. Sonia said it plans to construct  jobs for rustic people
has been very successful, particularly for weaker sections and women. But the devise also complaints
of irregularities and corruption is. He plans to analyze the gaps existing in the implementation,
preparing new directions and an possibility to move forward.
Manmohan Singh said a gargantuan collection of beneficiaries of Manarega Scheduled Castes,
Scheduled Tribes and women’s. The scheme has proven to be capable to strengthen the rustic
economy. Singh said the devise to erase poverty to fulfill the dream of Mahatma Gandhi, the UPA
government is a big step.