What I object to, is the 'craze' for machinery, not machinery as such. The craze is for what they call labour-saving machinery. Men go on 'saving labour' till thousands are without work and thrown on the open streets to die of starvation... Mahatma Gandhi
Studying about working people gives us insights into the quality and nature of employment in our country and helps in understanding and planning our human resources.
It helps us to analyse the contribution made by different industries and sectors towards national income.
It also helps us to address many social issues such as exploitation of marginalized sections of the society, child labour etc.
Workers and Employment
We know that the total money value of all such goods and services produced in a country in a year is called its gross domestic product for that year.
When we also consider what we pay for our imports and get from our exports we find that there is a net earning for the country which may be positive or negative (if imports exceeded exports in value terms) or zero (if exports and imports were of the same value).
When we add this earning (plus or minus) from foreign transactions, what we get is called the country's gross national product for that year.
Those activities which contribute to the gross national product are called economic activities. All those who are engaged in economic activities, in whatever capacity - high or low, are workers.
Even if some of them temporarily abstain from work due to illness, injury or other physical disability, bad weather, festivals, social or religious functions, they are also workers.
Workers also include all those who help the main workers in these activities. We generally think of only those who are paid by an employer for their work as workers. This is not so. Those who are self-employed are also workers.
The nature of employment in India is multifaceted. Some get employment throughout the year; some others get employed for only a few months in a year. Many workers do not get fair wages for their work.
While estimating the number of workers, all those who are engaged in economic activities are included as employed. During 2011-12, India had about a 473 million strong workforce.
Since majority of our people reside in rural areas, the proportion of workforce residing there is higher. The rural workers constitute about threefourth of this 473 million.
Men form the majority of workforce in India. About 70 per cent of the workers are men and the rest are women (men and women include child labourers in respective sexes).
Women workers account for one-third of the rural more...
Have we ever thought of why some states in India are performing much better than others in certain areas?
Why do Punjab, Haryana and Himachal Pradesh prosper in agriculture and horticulture?
Why are Maharashtra and Gujarat industrially more advanced than others? Why does Karnataka's information technology industry attracts world attention?
It is all because these states have better infrastructure in the areas they excel than other states of India. Some have better irrigation facilities.
Cities like Bengaluru in Kamataka attract many multinational companies because they provide world-class communication facilities. All these support structures, which facilitate development of a country, constitute its infrastructure.
What is Infrastructure?
Infrastructure provides supporting services in the main areas of industrial and agricultural production, domestic and foreign trade and commerce.
These services include roads, railways, ports, airports, dams, power stations, oil and gas pipelines, telecommunication facilities, the country's educational system including schools and colleges, health system including hospitals, sanitary system including clean drinking water facilities and the monetary system including banks, insurance and other financial institutions.
Some of these facilities have a direct impact on production of goods and services while others give indirect support by building the social sector of the economy.
Some divide infrastructure into two categories - economic and social.
Infrastructure associated with energy, transportation and communication are included in the former category whereas those related to education, health and housing are included in the latter.
Relevance of Infrastructure
Infrastructure is the support system on which depends the efficient working of a modem industrial economy. Modem agriculture also largely depends on it for speedy and large-scale transport of seeds, pesticides, fertilisers and the produce using modem roadways, railways and shipping facilities.
In recent times, agriculture also depends on insurance and banking facilities because of its need to operate on a very large scale.
Infrastructure contributes to economic development of a country both by increasing the productivity of the factors of production and improving the quality of life of its people.
Inadequate infrastructure can have multiple adverse effects on health. Improvements in water supply and sanitation have a large impact by reducing morbidity (meaning proneness to fall ill) from major water bone diseases and reducing the severity of disease when it occurs.
In addition to the obvious linkage between water and sanitation and health, the quality of transport and communication infrastructure can affect access to health care. Air pollution and safety hazards connected to transportation also affect morbidity, particularly in densely populated areas.
As consumers in today's world, some of us have a wide choice of goods and services before us. The latest models of digital cameras, mobile phones and televisions made by the leading manufacturers of the world are within our reach.
Every season, new models of automobiles can be seen on Indian roads. Gone are the days when Ambassador and Fiat were the only cars on Indian roads.
Today, Indians are buying cars produced by nearly all the top companies in the world. A similar explosion of brands can be seen for many other goods: from shirts to televisions to processed fruit juices.
Such wide-ranging choice of goods in our markets is a relatively recent phenomenon. We wouldn't have found such a wide variety of goods in Indian markets even two decades back. In a matter of years, our markets have been transformed!
Production Across Countries
Until the middle of the twentieth century, production was largely organised within countries. What crossed the boundaries of these countries were raw materials, food stuff and finished products.
Colonies such as India exported raw materials and food stuff and imported finished goods. Trade was the main channel connecting distant countries.
This was before large companies called multinational corporations (MNCs) emerged on the scene. A MNC is a company that owns or controls production in more than one nation.
MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. This is done so that the cost of production is low and the MNCs can earn greater profits.
In this example the MNC is not only selling its finished products globally, but more important, the goods and services are produced globally. As a result, production is organised in increasingly complex ways.
The production process is divided into small parts and spread out across the globe. In the above example, China provides the advantage of being a cheap manufacturing location.
Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe.
India has highly skilled engineers who can understand the technical aspects of production. It also has educated English speaking youth who can provide customer care services.
And all this probably can mean 50-60 per cent cost-savings for the MNC! The advantage of spreading out production across the borders to the multinationals can be truly immense.
Interlinking Production Across Countries²
In general, MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; more...
Since independence, India followed the mixed economy framework by combining the advantages of the capitalist economic system with those of the socialist economic system.
Some scholars argue that, over the years, this policy resulted in the establishment of a variety of rules and laws, which were aimed at controlling and regulating the economy, ended up instead in hampering the process of growth and development.
Others state that India, which started its developmental path from near stagnation, has since been able to achieve growth in savings, developed a diversified industrial sector which produces a variety of goods and has experienced sustained expansion of agricultural output which has ensured food security.
In 1991, India met with an economic crisis relating to its external debt - the government was not able to make repayments on its borrowings from abroad.
Foreign exchange reserves, which we generally maintain to import petrol and other important items, dropped to levels that were not sufficient for even a fortnight.
The crisis was further compounded by rising prices of essential goods. All these led the government to introduce a new set of policy measures which changed the direction of our developmental strategies.
Background
The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. We know that for implementing various policies and its general administration, the government generates funds from various sources such as taxation, running of public sector enterprises etc.
When expenditure is more than income, the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions. When we import goods like petroleum, we pay in dollars which we earn from our exports.
Development policies required that even though the revenues were very low, the government had to overshoot its revenue to meet problems like unemployment, poverty and population explosion.
The continued spending on development programmes of the government did not generate additional revenue. Moreover, the government was not able to generate sufficiently from internal sources such as taxation.
When the government was spending a large share of its income on areas which do not provide immediate returns such as the social sector and defence, there was a need to utilise the rest of its revenue in a highly efficient manner.
The income from public sector undertakings was also not very high to meet the growing expenditure. At times, our foreign exchange, borrowed from other countries and international financial institutions, was spent on meeting consumption needs.
Neither was an attempt made to reduce such profligate spending nor sufficient attention was given to boost exports to pay for the growing imports.
In the late 1980s, government expenditure began to more...
Geography has made us neighbours. History has made us friends. Economics has made us partners, and necessity has made us allies. Those whom God has so joined together, let no man put asunder. (John F. Kennedy)
Over the last two decades or so, the economic transformation that is taking place in different countries across the world, partly because of the process of globalisation, has both short as well as long-term implications for each country, including India.
Nations have been primarily trying to adopt various means which will strengthen their own domestic economies. To this effect, they are forming regional and global economic groupings such as the SAARC, European Union, ASEAN, G-8, G-20, BRICS etc.
In addition, there is also an increasing eagerness on the parts of various nations to try and understand the developmental processes pursued by their neighbouring nations as it allows them to better comprehend their own strengths and weaknesses vis-a-vis their neighbours.
In the unfolding process of globalisation, this is particularly considered essential by developing countries as they face competition not only from developed nations but also amongst themselves in the relatively limited economic space enjoyed by the developing world.
Besides, an understanding of the other economies in our neighbourhood is also required as all major common economic activities in the region impinge on overall human development in a shared environment.
Developmental Path : A Snapshot View
Do we know that India, Pakistan and China have many similarities in their developmental strategies? All the three nations have started towards their developmental path at the same time.
While India and Pakistan became independent nations in 1947, People's Republic of China was established in 1949.
All the three countries had started planning their development strategies in similar ways. While India announced its first Five Year Plan for 1951-56, Pakistan announced its first five year plan, now called the Medium Term Development Plan, in 1956. China announced its First Five Year Plan in 1953.
In 2013, Pakistan began working on 11 th Five Year Development Plan (2013-18) whereas China's twelfth five year period is 2011-15. The current planning in India is based on Twelfth Five Year Plan (2012-17).
India and Pakistan adopted similar strategies such as creating a large public sector and raising public expenditure on social development.
Till the 1980s, all the three countries had similar growth rates and per capita incomes. Where do they stand today in comparison to one another?
China
After the establishment of People's Republic of China under one party rule, all the critical sectors of the economy, enterprises and lands owned and operated by individuals were brought under government control.
We participate in the market both as producers and consumers. As producers of goods and services we could be working in any of the sectors discussed earlier such as agriculture, industry, or services.
Consumers participate in the market when they purchase goods and services that they need. These are the final goods that people as consumers use.
In the preceding chapters we discussed the need for rules and regulations or steps that would promote development. These could be for the protection of workers in the unorganized sector or to protect people from high interest rates charged by moneylenders in the informal sector.
Similarly, rules and regulations are also required for protecting the environment.
For example, moneylenders in the informal sector adopt various tricks to bind the borrower : they could make the producer sell the produce to them at a low rate in return for a timely loan; they could force a small farmer to sell his land to pay back the loan.
Similarly, many people who work in the unorganised sector have to work at a low wage and accept conditions that are not fair and are also often harmful to their health.
To prevent such exploitation, we have talked of rules and regulations for their protection. There are organisations that have struggled for long to ensure that these rules are followed.
Likewise, rules and regulations are required for the protection of the consumers in the marketplace. Individual consumers often find themselves in a weak position.
Whenever there is a complaint regarding a goods or service that had been bought, the seller tries to shift all the responsibility on to the buyer.
Their position usually is - "If you didn't like what you bought, please go elsewhere". As if the seller has no responsibility once a sale is completed! The consumer movement is an effort to change this situation.
Exploitation in the marketplace happens in various ways. For example, sometimes traders indulge in unfair trade practices such as when shopkeepers weigh less than what they should or when traders add charges that were not mentioned before, or when adulterated/defective goods are sold.
Markets do not work in a fair manner when producers are few and powerful whereas consumers purchase in small amounts and are scattered.
This happens especially when large companies are producing these goods. These companies with huge wealth, power and reach can manipulate the market in various ways.
At times false information is passed on through the media, and other sources to attract consumers. For example, a company for years sold powder milk for babies all over the world as the most scientific product claiming this to be better than mother's milk. It took years of struggle before the company was more...
By goods we means physical, tangible objects used to satisfy people's wants and needs. The term 'goods' should be contrasted with the term 'services', which captures the intangible satisfaction of wants and needs.
As compared to food items and clothes, which are examples of goods, we can think of the tasks that doctors and teachers perform for us as examples of services.
By individual, we mean an individual decision making unit. A decision making unit can be a single person or a group like a household, a firm or any other organisation.
By resource, we mean those goods and services which are used to produce other goods and services, e.g. land, labour, tools and machinery, etc.
In a centrally planned economy, the government or the central authority plans all the important activities in the economy. All important decisions regarding production, exchange and consumption of goods and services are made by the government.
The central authority may try to achieve a particular allocation of resources and a consequent distribution of the final combination of goods and services which is thought to be desirable for society as a whole.
In contrast to a centrally planned economy, in a market economy, all economic activities are organised through the market.
A market, as studied in economics, is an institution which organises the free interaction \pf individuals pursuing their respective economic activities.
In other words, a market is a set of arrangements where economic agents can freely exchange their endowments or products with each other.
It is important to note that the term 'market' as used in economics is quite different from the common sense understanding of a market. The arrangements which allow people to buy and sell commodities freely are the defining features of a market.
In a market system, the central problems regarding how much and what to produce are solved through the coordination of economic activities brought about by the price signals.
In microeconomics, we study the behaviour of individual economic agents in the markets for different goods and services and try to figure out how prices and quantities of goods and services are determined through the interaction of individuals in these markets.
In macroeconomics, on the other hand, we try to get an understanding of the economy as a whole by focusing our attention on aggregate measures such as total output, employment and aggregate price level.
Technological progress is expected to shift the supply curve of a firm to the right.
An increase (decrease) in input prices is expected to shift the supply curve of a firm to the left (right).
The price elasticity of supply of a good is the percentage change in quantity supplied due to one per cent change in the market price of more...
For macroeconomics the 'macro' (meaning 'large9) phenomena affecting the economy as a whole.
Macroeconomics tries to address situations facing the economy as a whole.
Adam Smith, the founding father of modem economics, had suggested that if the buyers and sellers in each market take their decisions following only their own self-interest, economists will not need to think of the wealth and welfare of the country as a whole separately. But economists gradually discovered that they had to look further.
Macroeconomics has, deep roots in microeconomics because it has to study the aggregate effects of the forces of demand and supply in the markets.
However, in addition, it has to deal with policies aimed at also modifying these forces, if necessary, to follow choices made by society outside the markets.
Macroeconomic policies are pursued by the State itself or statutory bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and similar institutions.
Typically, each such body will have one or more public goals to pursue as defined by law or the Constitution of India itself.
These goals are not those of individual economic agents maximising their private profit dy welfare. Thus the macroeconomic agents are basically different from the individual decision-makers.
Secondly, what do the macroeconomic decision-makers try to do? Obviously they often have to go beyond economic objectives and try to direct the deployment of economic resources for such public needs as we have listed above.
Such activities are not aimed at serving individual self-interests. They are pursued for the welfare of the country and its people as a whole.
Emergence of Macroeconomics
Macroeconomics, as a separate branch of economics, emerged after the British economist John Maynard Keynes published his celebrated book The General Theory of Employment, Interest and Money in 1936.
The dominant thinking in economics before Keynes was that all the labourers who are ready to work will find employment and all the factories will be working at their full capacity.
This school of thought is known as the classical tradition. However, the Great Depression of 1929 and the subsequent years saw the output and employment levels in the countries of Europe and North America fall by huge amounts.
It affected other countries of the world as well. Demand for goods in the market was low, many factories were lying idle, workers were thrown out of jobs.
In USA, from 1929 to 1933, unemployment rate rose from 3 per cent to 25 per cent (unemployment rate may be defined as the number of people who are not working and are looking for jobs divided by the total number of people who are working or more...
Have we ever wondered why transactions are made in money? The reason is simple.
A person holding money can easily exchange it for any commodity or service that he or she might want.
Take the case of a shoe manufacturer. He wants to sell shoes in the market and buy wheat. The shoe manufacturer will first exchange shoes that he has produced for money, and then exchange the money for wheat.
Imagine how much more difficult it would be if the shoe manufacturer had to directly exchange shoes for wheat without the use of money.
He would have to look for a wheat growing farmer who not only wants to sell wheat but also wants to buy the shoes in exchange.
That is, both parties have to agree to sell and buy each others commodities. This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature.
In contrast, in an economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants.
It is no longer necessary for the shoe manufacturer to look for a farmer who will buy his shoes and at the same time sell him wheat. Since money acts as an intermediate in ^ the exchange process, it is called a medium of exchange.
Modern forms of Money
Before the introduction of coins, a variety of objects was used as money. For example, since the very early ages, Indians used grains and cattle as money.
Thereafter came the use of metallic coins - gold, silver, copper coins - a phase which continued well into the last century.
Currency
Modem forms of money include currency - paper notes and coins. Unlike the things that were used as money earlier, modem currency is not made of precious metal such as gold, silver and copper. And unlike grain and cattle, they are neither of everyday use.
The modem currency is without any use of its own. It is accepted as a medium of exchange because the currency is authorised by the government of the country.
In India, the Reserve Bank of India issues currency notes on behalf of the central government. As per Indian law, no other individual or organisation is allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.
Money is the commonly accepted medium of exchange. In an economy which consists of only one individual there cannot be any exchange of commodities and hence there is no role for money.
Even if there are more than one individual but they do not take part in market transactions, such as a family living on an isolated island, money has no function for them.
However, as soon as there are more than one economic agent who engage themselves in transactions through the market, money becomes an important instrument for facilitating these exchanges.
Economic exchanges without the mediation of money are referred to as barter exchanges.
However, they presume the rather improbable double coincidence of wants.
Consider, for example, an individual who has a surplus of rice which he wishes to exchange for clothing. If he is not lucky enough he may not be able to find another person who has the diametrically opposite demand for rice with a surplus of clothing to offer in exchange. The search costs may become prohibitive as the number of individuals increases.
Thus, to smoothen the transaction, an intermediate good is necessary which is acceptable to both parties. Such a good is called money.
The individuals can then sell their produces for money and use this money to purchase the commodities they need. Though facilitation of exchanges is considered to be the principal role of money, it serves other purposes as well.
Functions of Money
The first and foremost role of money is that it acts as a medium of exchange.
Barter exchanges become extremely difficult in a large economy because of the high costs people would have to incur looking for suitable persons to exchange their surpluses.
Money also acts as a convenient unit of account. The value of all goods and services can be expressed in monetary units.
If prices of all commodities increase in terms of money which, in other words, can be regarded as a general increase in the price level, the value of money in terms of any commodity must have decreased - in the sense that a unit of money can now purchase less of any commodity. We call it a deterioration in the purchasing power of money.
A barter system has other deficiencies. It is difficult to carry forward one's wealth under the barter system.
Money is not perishable and its storage costs are also considerably lower. It is also acceptable to anyone at any point of time. Thus money can act as a store of value for individuals.
Wealth can be stored in the form of money for future use. However, to perform this function well, the value of more...
