Economic Environment Of Business Low Standard Of Living : Low Income /Poverty :

Salient Features Of Indian Economy

With a population of just over 1.2 billion, India is the worlds largest democracy. In the past decade, the country has witnessed accelerated economic growth, emerged as a global player with the worlds fourth largest economy in purchasing power parity terms, and made progress towards achieving most of the Millennium Development Goals. However, poverty remains a major challenge though it is declining steadily but slowly. Based on the new official poverty lines, 42% of people in rural areas and 26% of people in urban areas lived below the poverty line in 2004-05. In 2009-10 the combined all India poverty rate was 32% compared to 37% in 2004-05. As per 2011 the poverty rate has come down to 22%
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Vicious Cycle Of Poverty

Salient Features Of Indian Economy

Low Productivity : Low level of technology Low quality of Human Resource High Level Of Unemployment : Underemployment. Disguised unemployment.
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Salient Features Of Indian Economy

Substantial dependence on Agricultural sector : Contribution to GDP 17% Employment 60%

Dependence and Vulnerability in International Relations: Dependence on developed nation for Foreign Aid Foreign Capital
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Low Standard Of Living :

Limited Or Low Level of Education.

Inadequate Housing. Poor Health. High Income Mortality.
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Human Development Index(HDI)

Country Norway Rank 1 Index .943

Australia
Netherlands US

2
3 4

.929
.910 .910

UK
China India Source : UN HDI report.

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101 134

.863
.687 .547

Salient Features Of Indian Economy Male Adult Literacy (age Poverty : Rural 15 and older): 73% 42%;Urban 26%. Female Adult Literacy Fertility Rate: 2.5 (age 15 and older):48% births per woman. Access to improve d Life Expectancy at water source(% of pop) :89% birth :64 years Infant Mortality(per Access to improved sanitation : 33% 1000 live births) : 57

Maternal Mortality(per 100000 live births):450

Indias GDP & GNP

Circular Flow Of Income

In a modern monetary economy where money is extensively and comprehensively used as a medium of exchange and where the process of monetization is nearing completion, none of us produce goods and services for our own consumption barring unavoidable self help and free services. Today everything is produce for the market i.e for exchange unlike in a barter economy where substantial part of the production was used for self consumption with very little marketable surplus.
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Production and consumption is carried out by two different economic identities called households and firms in a modern economy. When household sector receives the payments ,they spend it on the on the goods and services produced by the firms .It is obvious from the circular flow of income that national output is equal to national income which is equal to national expenditure.
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National income is the money value of all economic activities of a nation conducted in a given year. An economic activity refers to production of goods and services which can be valued at market prices. It includes agricultural ,industrial and services production .Goods and services which do not have exchange value or market value are non-economic in nature. For instance ,service of a house wife /husband, service or members of family to other members .The national income of a country can be defined as the total market value of all final goods and services produced in the economy in a given year.
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What is National Income?

Further ,for the accurate calculation of national income ,all goods and services produced in a year must be counted only once. Generally ,goods are produced in different stages before they reach the markets in their final form. Hence ,components of goods are exchanged many times .Thus to avoid multiple counting ,national income includes only the market value of all final goods.
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What is National Income?

National income can be viewed from different angles .It represents total receipts land it also represents total expenditure. When goods and services are valued at their market price ,three identities are created ,namely :the value of receipts equal to value of payments equal to value of goods and services produced and sold. These three identities can be put as : National Income = National Expenditure = National Product. There are thus three measures of national income of a country ,namely: I. The total value of all final goods and services produced . II. The total of all incomes received by the factor owners in a year. III. The total of consumption expenditure ,net investment expenditure and government expenditure on goods and services. These three measures denote the three fundamentals functions of economic system : Production , Distribution and Expenditure. 12

Concepts Of National Income

Gross National Product (GNP) Net National Product(NNP) Personal Income(PI) Disposable Income(DI) Personal Savings(PS) Gross Domestic Product (GDP) Net Domestic Product(NDP)
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The GNP is the most widely used measure of national income .It is the basic accounting measure of the total output of goods and services .GNP is defined as the total market value of all final goods and services produced in a year. It measure the market value of yearly output and therefore it is monetary measure of national income. The term gross refer to the fact that depreciation or capital consumption of goods has not been subtracted from the value of output. While measuring the GNP ,only the final value of goods and services is taken into account, i.e ,the value is added in each stage of the production process.
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Gross National Product (GNP)

Gross National Product (GNP)

The rate of growth of GNP is the most important indicator of the nations economy. It shows the rate at which the national income of a country is increasing or decreasing. It is the broadest statistical aggregate of an economys output and growth.

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The value of GNP at market price may be symbolically stated as follows: GNP(MP) = C + I + G + Xn +Rn Where, GNP(MP) = Gross National Product at market price C = Consumption Goods I = Investment Goods. G = Government services X(N) = Net Exports (Exports Imports) R(N) = Net Receipts (Receipts Payments)

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Net National Product (NNP)

NNP is defined as GNP less depreciation . NNP = GNP Depreciation (D) Depreciation is that part of total productive assets which is used to replace the capital worn out in the process of creating national output. The monetary value of finished goods and services produced by a country's citizens, whether overseas or resident, in the time period being measured (i.e., the gross national product, or GNP) minus the amount of GNP required to purchase new goods to maintain existing stock (i.e., depreciation). In other words, NNP is the amount of goods that can be consumed within a nation each year without reducing the amount that can be consumed in following years. It is 17 also called National Income at Market Price.

National Income Or National Income At Factor Cost

National Income at factor cost refers to the sum of all incomes earned by factor owners for their contribution of factor services namely: land ,labor , capital and enterprise in the form of rent , wages , interest and profits. National Income at factor cost can be stated as follow: NI = NNP or NI(MP) Indirect Taxes (IT) + Subsidies(S). The differences between national income at factor cost and national income at market prices is because of the fact that indirect taxes and subsidies cause market prices of output to be different from the factor incomes.

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For example If one liter of oil paint is sold for Rs100 and it includes Rs10 as excise duty and sales tax, the factors would receive only Rs90 per liter. For subsidies let us assume that one kilogram of ground nut oil sold at Rs50 through the PDS and the government gives subsidy of Rs10 ,then the consumer pays Rs40 only. Thus the value of one kilogram of groundnut oil at factor cost would be equal to its market price plus the subsidies paid on it .Thus NI (FC )= NNP IT + S
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Personal Income(PI)

Personal income is the sum of all incomes received by all individuals or household during a given year. It is the income actually received by the individuals and households .Personal Income can be derived as follows: PI = NI (social security Contribution + Corporate Income Taxes + Undistributed Profits) + Transfer Payments. Social security contribution, Corporate Income Taxes and undistributed profits are actually not received by individuals and households and therefore the sum of these receipts is subtracted from the national income. Similarly ,transfer payments such as old- age pension, unemployment compensations ,relief payments ,interest payments on public debts are not currently earned by received by individuals and households. Therefore ,transfer payments are added to national income to obtain personal income. 20

Disposable Income (DI)

When income tax, wealth tax etc are deducted from Personal Income ,we get Disposable Income .

Disposable Income(DI) = Personal Income (PI) Personal Taxes (PT)

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Personal Savings (PS):

Personal savings refers to the difference between disposable personal income and personal consumption expenditure. It can be stated as follows:

PS = DI - C

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Gross Domestic Product at Market Price (GDPMP)

GDP refers to the value at market prices of goods and services produced inside the country in a given year. GDP(MP) = C + I + G + (x-m) Where, C = Consumption Goods. I = Capital Goods or Gross Investments G = Government Services X = Exports, and M = Imports.
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Gross Domestic Product at Factor Cost (GDP )

FC

GDP at factor cost refers to the sum of net value added by the factors of production plus capital depreciation minus indirect taxes plus subsidies given by government. GDP at market price includes indirect taxes and does not take into account the subsidies given by the government. Hence to arrive at GDP at factor cost ,indirect taxes must be subtracted and subsidies should be added to GDP at market prices. GDP(FC) = GDP(MP) - IT + S.
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India GDP Growth(%)

GDP %
10 9 8

7
6

5
4 3 2 1 0 200405 200506 200607 200708 200809 200910 201011

GDP %

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GDP Of BRIC Nation %

Country Brazil 2006 4.0 2007 6.1 2008 5.2 2009 -0.6 2010 7.5

Russia
China India Source : World Bank

8.32
12.7 9.3

8.5
14.2 9.8

5.2
9.6 4.9

-7.8
9.2 9.1

4.0
10.4 8.8

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GDP Of BRIC Nation %

20 15 10 5

2006
2007 2008 2009 2010 Brazil Russia China India

0
-5 -10

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Per Capita Income

A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity.
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GDP Projection For Some Countries

Country 2010 gdp(bill US$) US China Japan Germa ny France UK Brazil Italy India Canada 14,527 5,878 5,459 3,286 2,563 2,250 2,090 2,055 1,632 1,577 Estimated Projection For (billion US $)(as on Oct 2011) 20011 15,065 6,988 5,855 3,629 2,808 2,481 2,518 2,246 1,843 1,759 2012 15,495 7744 6126 3708 2889 2604 2617 2288 2013 1826 2013 15991 8609 6249 3759 2970 2743 2789 2322 2235 1895 2014 16623 9560 6440 3820 3062 2894 2971 2364 2477 1965 2015 17399 10608 6611 3875 3161 3053 3166 2417 2738 2036 2016 18251 11780 6783 3929 3268 3224 3373 2476 3027 2106

Korea Source:

1,014 IMF

1,164

1275

1365

1465

1572

1686

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Per Capita Growth Of India

Year 2006 2007 2008 2009 2010 Source:Worldbank.org GDP Per capita($) 857 1150 1067 1192 1475

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Per Capita $
1600 1400

1200
1000 800 600 400 200 0 2006 2007 2008 2009 2010 Per Capita $

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GDP QoQ Growth.

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Yr(1)

GDP By Industry Of Origin

(FC)

Agri,forst&fis hing,minning (2)

Manuf,const, gas&water supply ,electricity(3)

Trade hotels,transp ort,communic ation(4)

Insu,realest,fi nancing,and business services(5)

Public Distribution& defenceand other service(6)

GDP at factor cost(2+6)=7 In crores(at constant price)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Source:cso

650454 680628 711768 751077 751362 760974

744755 824256 928592 1023866 1071676 1158000

727720 816696 911553 1011812 1087575 1193282

437174 492478 561378 628375 706712 771763

411361 440158 452720 483828 545184 609724

2971464 3254216 3566011 3898958 4162509 4493743

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Annual Growth Rate Of GNP(constant)

Year 1st Plan(1951-56) 2nd Plan(1956-61) 3rd Plan (1961-66) 3 Annual Plan(66-69) 4th Plan (1969-74) 5th Plan (1974-79) Annual Plan(79-80) 6th Plan (1980-85) 7th Plan (1985-90) GNP(FC) 3.7 4.2 2.8 3.9 3.4 5 -5 5.4 5.5 NNP(FC) 4.4 4.0 2.6 3.9 3.1 4.9 -6 5.4 5.5 Per capita % 2.6 2.0 0.4 1.6 0.8 2.6 -8.2 3.1 3.3

2 Annual Plan(90-92) 8th Plan (1992-97) 9th Plan(1997-2002) 10th Plan (2002-07)
Source:CSO

3.2 6.6 5.5 7.9

3.1 6.7 5.3 7.8

1 4.5 3.3 6.9

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 The preparation of a five year plan is usually spread over a period of two to three years. The two stage in formulation of the plans are : (1) General Approach, involving an examination of state of economy. (2)studies which are intended to lead to a consideration of the physical content of the plan .
The Planning Commission is the apex body of the planning machinery and it was set up in March 1950 and Prime Minister as Chairman. It has a Deputy Chairman and full time member which include eminent economists and experts. On the basis of above mention (stage) study planning committee start discussions with respective parties and then come to a conclusion.
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Formulation Of the Plan

Plan Wise Analysis

The First Plan(1952-56) :

It was primarily a reconstruction plan as it was early year of independence. Its Objective : a)To correct the disequilibrium caused by World War II and partition. b)Balance economy development. The plan was a success . National Income increased by about 18%,per capita income by 11%,rate of investment by 2.3%. Agricultural production increased by 38%,BOP was less due to less food imports.
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The Second Plan (1956-61)

The plan outlay was 7900cr(public sec Rs4800cr and Rs3100 for private). It was a development plan . Its Objectives: Rapid Industrialization(heavy industry) 25% increase in NI. Employment & reduce income inequalities. The achievements was behind the said target.NI increase by 19.5%,per capita income by 8%.Agricultural production increased substantially .The index of industrial production rose by about 40%. The major constraints were, the uncertain monsoons, shortage of food and industry raw materials .Foreign exchange resource crisis developed which paralyzed our ambitious heavy industrialization programme.
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 The total outlay for this plan was Rs 11690cr(public sec Rs 7500cr & Rs 4190cr for private).This plan was the first attempt of Indian for long term development. Its objective : NI should increase by5%. Self sufficiency in fuel &power. Reduce unemployment . Achievements regarding the NI was below target ,due to the increase in population by 2.5% the per capita income could not be attained. During 1962-63 & 1965-66 there was serious crop failure.
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The Third Plan (Balanced Growth ,1961-66)

 Due to the Indo Pak conflict and two successive years of severe drought ,devaluation of the currency , general price rise and erosion of resource available for plan purposes delayed the Fourth Plan. The objective of Annual plans was to remove the strains and stress in the economy . Regarding the achievements of Annual plans the first two plans were poor. It was basically due to the severe drought ,which impacted the NI .However the NI increased by 9% from 1967-68 but devaluation of currency has impacted the BOP.
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The Annual Plan (1966 69)

The Fourth Plan(1969-74)

Total outlay of Rs 24882cr (Public sec Rs 15902cr & private sec Rs 8980cr) aimed at accelerating the tempo of development oriented towards establishing social justice. Its Objective: Self reliance . Economy growth of 5.7% ,agricultural growth rate 5.6%,industry growth 8%-10%.

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 Stabilize the food price level. In real sense this plan was big and bold too. The growth rate was averaged @3%. The plan failed to achieve the production and employment target .This basically happened due to the hyper inflation due to strikes and social unrest
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The Fifth Plan (1974-79)

The outlay was Rs 53411cr(public sec Rs37250cr and Rs 16160cr for private sec). Its Objective : Removal of poverty & Self Reliance .
The objective was to be achieved by developing and promoting entrepreneurship, self employment and small scale industry . This plan was never implement with spirit.

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The Sixth Plan (1980-85)

Due to certain change in government in centre This plan was actually revised from 1981. Its objective : The foremost objective was removal of poverty . Apart from this environmental development ,Promoting population control policies and improving quality of life. Regarding achievements the agricultural sec grew by 4.3% (target 3.8%),mining & manufacturing grew by 3.7%(6.9%) ,other sectors grew by 6.6%(5.5%). The poverty percentage was reduced from 48.3% to 37.3%.
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The Seventh Plan (1985-90)

This plan was set with the perspective of 15years 1985-2000.It was the plan of 21st century. Objectives : Raising production ,increasing employment and enhancing productivity . Plan outlay was Rs 180000cr.Some thrust areas was identified for next 15yrs such as fertilizers ,petrochemicals aluminum, electronics, telecommunications and computers. Review: Severe rate of inflation & gulf crises has made resource crunch. Due to resources shortage India has gone for mobilizing internal resource through floating debts. The maximum of the amount raised was used for meeting current expenditure due to which hardly any amount was left for financing capital expenditure. Which latter put us into an internal debt trap. 44

The eight Five Year Plan(1992-97)

The objective of Eight Plan : Continued reliance on domestic resources for financing investment, increasing technical capabilities for the development of science and technology , modernisation and competitive efficiency so that economy can keep pace with world .Literacy, population control, health. Agricultural sector is expected to grow at an average annual rate of a little more than 4%in terms of gross value of output. The Total outlay of the plan is Rs 871000cr of which Rs73000cr is current outlay on public sector.To finance the total out lay 89% will be from domestic resources,6.6%from external resource and deficit financing will be 4.6 of the total outlay to be financed.45

The 9th Plan (1997-2002)

This plan aims at a growth of 6.5%per annum during plan year. The 6.5% growth scenario assume an agriculture growth rate of 3.9%,manufacturing aimed at 8.2% per annum . The current account deficit aimed at is 2.1% of GDP. The major thrust area were agriculture ,infrastructure(like power,railways,port etc).
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The Tenth Plan (2002-2007)

The growth target for the 10th plan was set at 8% . The reason was better performance in two previous plan. It also aims to reduce poverty by 5% , increase literacy to 75%. To achieve the above mention targets a sharp increase in economic and social indicators was required. The guidelines was provided to both Central and state government regarding the same. The Mid Term Appraisal of the plan shows that ,public investment have to rise to 31% of the total investment in the country.
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The Eleventh Plan (2007-2012)

The Eleventh Five Year Plan aims at faster and more inclusive growth. Indian economy has been recording robust performance with a growth rate in excess of 8.0 per cent per annum during 2003-04 to 2005-06. The strong growth envisaged during the Eleventh Five Year Plan is to be achieved in an environment characterized by strong macro-economic fundamentals, sustained by services and manufacturing sectors and duly supported by agriculture sector
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 This ensures the growth process to be more broad-based and enduring with less volatility. Although, factors like increasing degree of global integration, enhanced quest for competitiveness and efficiency and evolving favorable demographic composition impart natural strength to our economy, higher mobilization of required resources to finance a higher growth trajectory assumes critical importance.
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Features of 11th Plan

To improve the healthcare system in Chittorgarh, the district administration conceptualized a simple yet effective programme to introduce low cost drugs to the people. The Eleventh Five Year Plan recognizes access to good quality, low cost medicines as a priority policy concern. In India, at least three-fourths of the total outof-pocket expenditure is spent on buying essential medicines. The problem becomes more significant because of marketing techniques practiced by pharmaceutical companies, especially towards influencing doctors to prescribe branded medicines. To change this trend, the Chittorgarh administration took the initiative to make medicines more easily accessible
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Features Of 11th Plan 2007-2012

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