Regional imbalances and income inequalitiies in India: Steps taken by the Government to reduce it.

Regional imbalance is the disparity in economic and social development of two regions. One region/city/area is stronger than another region/city/area. Regions develop when investments are made to set up industries, service sectors, educational institutions, health care facilities etc.

Income inequality is the unequal distribution of household or individual income across the various participants in an economy. Income inequality is often presented as the percentage of income to a percentage of population.

The problem of regional disparities is a global phenomenon and, for India, up to a great extent, an inheritance from the colonial past. For example, in India, the historical factors have guided the development of the port towns of Bombay, Madras, Calcutta and these three cities have in turn worked as nuclei for the development of Maharashtra and Gujarat, and Tamil Nadu and West Bengal respectively which are at present the most industrially advanced states in India. On the other hand, the areas having natural advantages in the form of mineral resources, such as Bihar, Madhya Pradesh, Orissa and Rajasthan have lagged far behind in the process of economic development.

The most important indicator of regional imbalance and disparity among the different states of India is the difference in per capita state income figures. It is revealed from data in 2000-01, that the national average per capita income in India was Rs. 10,254. The states whose per capita income figures were higher than this national average include Punjab, Goa, Haryana, Maharashtra, Gujarat, Karnataka, Tamil Nadu and Kerala.

Among these nine states, Punjab, Haryana, Maharashtra and Gujarat have attained a high degree of agricultural as well as industrial development. Although West Bengal and Karnataka attained per capita income higher than the all India average in 1094-95 but it started trailing behind the all India average in recent years due to its poor rate of economic growth.

Various steps taken by Government to reduce it are:

1.Land Reforms and Redistribution of Ceiling Surplus Land:

In India, income inequalities are mostly resulted from the concentration of agricultural land in the hands of a few big landlords. The Zamindary system prevailing in our country has created a system of absentee landlords in the farm sector who appropriated a major portion of the agricultural produce by exploiting the farmers.

After independence, various legislative measures were introduced for abolishing the system of absentee landlords and other intermediaries and imposing ceiling on land holdings.

 

2. Resource Transfer and Backwardness:

While making necessary award, the Finance Commission in India has been giving due weightage to backwardness of a state as an important criteria for resource transfer from the centre to the states.

Declaration of Backward states and special category states by the government to reduce the regional imbalances.

Under the present system of federal fiscal transfer, the transfer of resources from the Centre to States includes central assistance for State Plans, Non plan transfer as per the recommendations of the Finance Commission, ad-hoc transfer, allocation of fund for centrally sponsored schemes, allocation of both short-term and long-term credit from financial institutions etc.

The share of backward states along with special category states in the Plan outlay as well as in central assistance has been increasing steadily since the First Plan. Accordingly, the share of these states in the total plan outlay had increased from 46 per cent in the First Plan to 51 per cent in the Third Plan and then to 54 per cent in the Fifth Plan.

3. Special Area Development Programmes:

In order to develop hilly areas, tribal areas, drought- prone areas, specific plan schemes have been designed with full central assistance. Besides, other schemes of rural development formulated for the improvement of specific groups such as marginal farmers and agricultural laborers were implemented in the backward regions.

An area based approach of ‘Tribal Sub-Plans’ (TSPs) is now being implemented for the development of scheduled tribes located in the backward rural areas.

In this manner, different special schemes for particular target group located in the backward areas are being included for block level planning for attaining integrated rural development and considerable employment opportunities. All these programmes include SFDA, MFAL, Drought Prone Area Programme (DPAP), Crash Scheme for Rural Employment (CSRE) etc.

 

4. Incentives for Promoting Investment in Backward Regions:

In order to fight the problem of industrial backwardness of some backward regions and also to promote private investment in backward regions, various fiscal and other incentives have been provided by both the Centre, the States and other financial institution under public sector.

 5.Social Security Measures:

Social security measures for the workers are considered as an important step towards reduction of income inequalities. India has adopted some social security provisions for the workers engaged in the organized sector. Workmen’s Compensation Act for providing compensation in case of any injury to industrial workers, Maternity Benefit Act for women workers and Employees

Provident Fund Act for providing the benefit of provident fund to the workers and other employees engaged in organized industries.

6. Employment Programme and Wage Policies:

With the growing menace of unemployment problem in India, the Government of India has introduced some special employment programmes since the Fourth Plan onwards in order to provide some relief and scope for gainful employment to unemployed. These programmes include Crash Scheme for Rural Unemployment, the Drought Prone Areas Programme, Food for Work Programme, self-employment schemes for engineers, employment scheme for educated unemployment etc.

All these programmes were short lived and ad-hoc in nature. During the Sixth Plan period, the Integrated Rural Development Programme (IRDP) was initiated in 1978-79 and after that National Rural Employment Programme (NREP), Rural Landless Employment Guarantee Programme (RLEGP) were also introduced.

More radical socio­economic reforms seem to be in the offing in India. These are some of the measures that can be adopted to reduce inequalities. But inequalities can be reduced, they cannot be eliminated altogether. In fact, absolute equality is unattainable.

 

Additional Information

Recommendations

1. A composite criteria for identifying backward areas (with the Block as a unit) based on indicators of human development including poverty, literacy and infant mortality rates, along with indices of social and economic infrastructure, should be developed by the Planning Commission for the 12th Five Year Plan.
2. Union and State Governments should adopt a formula for Block-wise devolution of funds targeted at more backward areas.
3. Governance needs to be particularly strengthened in more backward areas within a State. The role of ‘special purpose vehicles’ such as backward area development boards and authorities in reducing intra-State disparities needs to be reviewed. It is advisable to strengthen local governments and make them responsible and accountable.
4. A system of rewarding States (including developed States) achieving significant reduction in intra-State disparities should be introduced.
5. Additional funds need to be provided to build core infrastructure at the inter-district level in less developed States and backward regions in such States. The quantum of assistance should be made proportionate to the number of people living in such areas.
6. The approach to all such funding should be outcome driven. The strategy should be to define acceptable minimum norms of human and infrastructure development that every block in the country should attain and funding should be driven by the consideration to achieve the norms so defined.

 

Role of Foreign Capital and Multinational companies in

Industrial development of India

 

The development of any society or country without economic development is a myth. Economic development brings prosperity which in turns is directly proportional to the amount of goods and services produced quantitatively or in broad sense we can say in money equivalent.

So the factor of production depends on the following parameters.

• Land
• Labour
• Capital

 

 

For a country like India which is the second largest populous country in the world, expected to become most populous by 2050 if population growth is continuing at the current pace, where labour is available in abundance. Similarly, land is also available where more economic prosperity can be brought than the currently pursued economic activity. So after considering all these factors, capital played a crucial role.

 

So to fulfill the aspirations of common masses and general wellbeing of the society various governments are competing against each other to attract the foreign capital.

 

 

 

This theory is particularly gained ground after the Latin American crises which resulted in the Washington consensus/Washington model. This is further ascertained by East Asian miracle. India has also experienced the taste of after economic reforms of 1991, which is better known as LPG reforms. However from the experience of various countries various model of foreign capital and model have emerged. It also requires some kind of reduction regulation and restraint.

 

Why there is a need of foreign capital?

 

Foreign capital is required because of following reasons.

1. Inadequate domestic capital to fuel the economic growth.

Foreign capital is perceived as a resource of filling the gap of the capital scarce country. It helps in maintaining the foreign exchange, accelerating government revenue, planning the investment necessary to achieve development target.

For example ‘savings-investment’ gap

To achieve a planned growth rate of 7 percent per annum and the capital-output ration of 3 percent, rate of saving should be 21 percent. For domestic mobilization of 16 percent, there will be a shortfall of 5 percent. Thus the foremost contribution of foreign capital to national development is its role in filling the resource gap between targeted investment and locally mobilized savings.

 

 

 

2. Stability of Foreign exchange.

Foreign capital is needed to fill the gap between the targeted foreign exchange requirements and those derived from net export earnings plus net public foreign aid. This is generally called the foreign exchange or trade gap.

3. Reducing the Balance of Payment deficit.

An inflow of private foreign capital helps in removing deficit in the balance of payments over time if the foreign-owned enterprise can generate a net positive flow of export earnings.

4. Helps in realizing the estimated tax revenue of government

The third gap that the foreign capital and specifically, foreign investment helps to fill is that between governmental tax revenue and the locally raised taxes. By taxing the profits of the foreign enterprises the governments of developing countries are able to mobilize funds for projects (like energy, infrastructure) that are badly needed for economic development.

5. Foreign investment meets the gap in management, entrepreneurship, technology and skill.

These can be transferred to the host country through suitable training programmes and the processes. Further foreign companies bring with them

 

 

 

sophisticated technological knowledge about production processes while transferring modern machinery equipment to the capital-poor developing countries.

In fact, in this era of globalization, there is a general belief that foreign capital transforms the productive structures of the developing economics leading to high rates of growth. Besides the above, foreign capital, by creating new productive assets, contributes to the generation of employment a prime need of a country like India.

Forms and types of foreign Capital

Foreign capital flow in a country can take place either in the form of investment, concessional assistance, foreign aid.

1. Foreign Investment includes Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) / Foreign Institutional Investment (FII).

FPI includes the amounts raised by Indian corporate through Euro Equities, Global Depository Receipts (GDR’s), and American Depository Receipts (ADR’s).

2. Non-Concessional Assistance mainly includes External Commercial Borrowings (ECB’s), loans from governments of other countries/multilateral agencies on market terms and deposits obtained from Non-Resident Indians (NRIs).

 

 

 

3. Concessional Assistance includes grants and loans obtained at low rates of interest with long maturity periods. Such assistance is generally provided on a bilateral basis or through multilateral agencies like the World Bank, International Monetary Fund (IMF), and International Development Association (IDA) etc.

Grants do not carry any obligation of repayment and are mostly made available to meet some temporary crisis. Foreign Aid can also be received in terms of direct supplies of agricultural commodities or industrial raw materials to overcome temporary shortages in the economy. Foreign Aid may also be given in the form of technical assistance.

 

 

 

 

 

 

 

 

 

 

 

Role of Multinational Corporations in the Indian Economy

Prior to 1991 Multinational companies did not play much role in the Indian economy. In the pre-reform period the Indian economy was dominated by public enterprises.

Earlier Industries and firms are regulated through Industrial Policy, 1956 put some kind of restraint on private firms, as a consequence of which they didn’t able to expand beyond a limit.

While multinational companies played a significant role in the promotion of growth and trade in South-East Asian countries they did not play much role in the Indian economy where import-substitution development strategy was followed. Since 1991, with the adoption of industrial policy of liberalization, privatization

And globalization role of private foreign capital has been recognized as important for rapid growth of the Indian economy. So Multinational corporations have been allowed to operate in India subjected to some regulations.

 

Impact of Multinational countries on the country and general population.

1. Promotion Foreign Investment:

In the recent years, external assistance to developing countries has been declining. This is because the donor developed countries have not been willing to part with a

 

larger proportion of their GDP as assistance to developing countries. MNCs can bridge the gap between the requirements of foreign capital for increasing foreign investment in India.

The liberalized foreign investment pursued since 1991, allows MNCs to make investment in India subject to different ceilings fixed for different industries or projects. However, in some industries 100 per cent export-oriented units (EOUs) can be set up. It may be noted, like domestic investment, foreign investment has also a multiplier effect on income and employment in a country.

For example, the effect of Suzuki firm’s investment in Maruti Udyog manufacturing cars is not confined to income and employment for the workers and employees of Maruti Udyog but goes beyond that. Many workers are employed in dealer firms who sell Maruti cars.

Moreover, many intermediate goods are supplied by Indian suppliers to Maruti Udyog and for this many workers are employed by them to manufacture various parts and components used in Maruti cars. Thus their incomes also go up by investment by a Japanese multinational in Maruti Udyog Limited in India.

2. Non-Debt Creating Capital inflows:

In pre-reform period in India when foreign direct investment by MNCs was discouraged, we relied heavily on external commercial borrowing (ECB) which was of debt-creating capital inflows. This raised the burden of external debt and debt service payments reached an alarming figure of our current account receipts.

 

 

 

This created doubts about our ability to fulfill our debt obligations and there was a flight of capital from

India and this resulted in balance of payments crisis in 1991. As direct foreign investment by multinational corporations represents non-debt creating capital inflows we can avoid the liability of debt-servicing payments. Moreover, the advantage of investment by MNCs lies in the fact that servicing of non-debt capital begins only when the MNC firm reaches the stage of making profits to repatriate Thus, MNCs can play an important role in reducing stress strains and on India’s balance of payments (BOP).

3. Technology Transfer:

Another important role of multinational corporations is that they transfer  sophisticated technology to developing countries which are essential for raising productivity of working class and enable us to start new productive ventures requiring high technology. Whenever, multinational firms set up their subsidiary production units or joint-venture units, they not only import new equipment and machinery embodying new technology but also skills and technical know-how to use the new equipment and machinery.

As a result, the Indian workers and engineers come to know of new superior technology and the way to use it. In India, the corporate sector spends only few resources on Research and Development (R&D). It is the giant multinational

 

 

 

corporate firms (MNCs) which spend a lot on the development of new technologies can greatly benefit the developing countries by transferring the new technology developed by them. Therefore, MNCs can play an important role in the technological up-gradation of the Indian economy.

4. Promotion of Exports:

With globalization and producing products efficiently and therefore with lower costs multinationals can play a significant role in promoting exports of a country in which they invest. For example, the rapid expansion in China’s exports in recent years is due to the large investment made by multinationals in various fields of Chinese industry.

Historically in India, multinationals made large investment in plantations whose products they exported. In recent years, Vistara airlines made a large investment in airline industries with a joint collaboration with Tata Industries.

BrahMos missile is a joint venture of Govt. of India with Russia, which is being sold to Vietnam, will bring income to India.

As a matter of fact until recently, when giving permission to a multinational firm for investment in India, Government granted the permission subject to the condition that the concerned multinational company would export the product so as to earn foreign exchange for India.

 

 

 

However, in case of Pepsi, a famous cold -drink multinational company, while for getting a product license in 1961 to produce Pepsi Cola in India it agreed to export a certain proportion of its product, but later it expressed its inability to do so. Instead, it ultimately agreed to export things other than what it produced such as tea.

5. Investment in Infrastructure:

With a large command over financial resources and their superior ability to raise resources both globally and inside India it is said that multinational corporations could invest in infrastructure such as power projects, modernization of airports and posts, telecommunication.

The investment in infrastructure will give a boost to industrial growth and help in creating income and employment in the India economy. The external economies generated by investment in infrastructure by MNCs will therefore crowd in investment by the indigenous private sector and will therefore stimulate economic growth.

In view of above, Make in India initiative, skill India Initiative, current demographic scenario of India, foreign direct investment (FDI) will be encouraged and actively sought, especially in areas of (a) infrastructure, (b) high technology and (c) exports, and (d) where domestic assets and employment are created on a significant scale

 

Social Reforms Movements in Muslim Community: Wahabi Movement & Aligarh Movement

 

The Muslims reformers in India launched many religious movements. Some tried to revive the religion and other tried to reform the religion. During the 19^th century religion reforms movement were on the peak. Movements like Deoband Movement, Ahamadiya movement, Aligarh Movement;Wahabi Movement has influenced the masses and made them think about their religion and their status.

In this article, we will discuss about Wahabi movement and Aligarh Movement.

 

Wahabi Movement

 

Timings of movement:

Wahabi movement expands from 1820 to 1870.

Foundation of movement:

Saiyad Ahmad was the leader of movement in India who was influenced by the teaching of Abdul Wahab of Arab and saint shah Waliullah.

Objective of movement:

Wahabi movement was a reformist movement, which tried to do away with un-Islamic practices in Islam. It was a Islamic purifying movement. However, later the movement turned against Sikh and British Imperials.

Important events of movement:

Saiyad Ahmad led a countrywide movement to spread his movement. He wanted to make India from Dar-ul-Hurb to Dar-ul-Islam. Dar-ul-Hurb means land of Kafirs.

Syed Ahmed criticized all changes and innovations in Islam and encouraged a return to the pure Islam and society of Arabia of the Prophet’s times.

For the achievement of the desired objectives, Syed Ahmad looked for

• the correct leader,
• a proper association and
• a safe territory from where he wanted to launch his Jihad.

At first, he revolted against the Sikh kingdom ruler Maharaja Ranjit Singh. In 1830 they captrured Peshawar but they lost it to Sikhs in 1831 after the battle of Balakot.

After the inclusion of Punjab in 1849 in East India Company British was the target of Wahabi Movement.

Wahabi revolted against British in 1860s but British understood the upcmongdanger. They suppress the movement after attacking Wahabi bases in Sathana, Bihar.

Effect of movement:

Wahabi Movement spread the word of religion in Islam and it accepted Islam as the most important religion in the world. The British in 1870 altogether suppressed the movement.

Aligarh Movement

 

Foundation of movement:

Sir Syed Ahmad Khan launched the Aligarh movement. He started the Mohammedan Anglo-Oriental College at Aligarh in 1875, which was later, become center of Aligarh Movement.

Objective of movement:

Unlike Wahabi movement Aligarh movement was a revivalist movement; which sought change in religion as the need of the hour. Aligarh movement saw western education necessary for the development of individual.

Important events of movement:

The Aligarh Movement was the drive for modern Muslim education.

Itplayed an important role to Indian Muslims by its political foresightedness.

From the early stages, the movement was political in nature.  In 1886 Sir Syed Ahmad Khan founded the All India Muhammadan Educational Conference i to promote more broadly the educational aims of Aligarh Movement.

New trend in Urdu literature was due to Aligarh Movement. Sir Syed Ahmad Khan and his association accepted and promoted simple style, which helped Muslims to understand the main purpose of the movement. It discarded the old writing style of Urdu, which was not for the common people.

The Aligarh Movement promoted adoption of a historical and moral attitude, which influenced the life of the Indian Muslim.

It helped scholars to leave the romantic style of prose and poetry.

Urdu Defense Associationconsidered asderivative of the Aligarh Movement.

The DeobandSchool was opposed to the movement as Aligarh Movement. They considered it as supporters of the British

 

Effect of movement:

The Wahabi movement and other movements before 1857 saw Muslims anti- British. After the revolt, Sir Syed Ahmad Khan thought to have support of British in the development of Islam and Muslims in India.

Aligarh Movement gave political representation to Muslims and improved their social condition.