Current Challenges Facing Indian Economy Class 12 Notes

Human capital is the stock of skill, knowledge, experience and good health embodied in the people of the country, and its formation is the process of adding to that stock through education, training, health and the migration of talent. The richer the human capital, the higher the productivity of every other factor it works with.Human capital treats the people as the means of production; human development treats their welfare as the end. The distinction is the pivot of the whole first section.

• Sources of human capital formation: on-the-job experience, investment in education, investment in health, migration and the foreign investment in the people.
• Investment in education: the spending on schools, colleges and technical training raises the earning power and the productivity of the labour.
• Investment in health: the prevention of disease, the nutrition and the medical care raise the energy and the work capacity of the people.
• Migration: the movement of people to places of higher return raises both their income and the remittances home.
• The role of the state: the education and the health of the people are largely financed by the government, because these services benefit the whole society and the private market under-provides them.
• Advantages of human capital formation: the higher output per worker, the spread of modern technology, the lower birth rate and the better quality of life.

The puzzle the chapter poses is the Indian paradox: a vast population that is under-skilled relative to its numbers, and a literate minority carrying the modern economy. The economic reforms raised the demand for the skilled and the electronic talent while the mass of the population remained poorly schooled, and the gap between the two is the challenge.

• The demographic picture: a large young population, a rising literacy but the heavy burden of the under-educated.
• The declining share of primary education in the total educational spending over the reform years.
• The higher-education paradox: the well-funded institutes produce a skilled elite while the mass education at the base stays starved.
• The major challenges: the rising population pressing on the resources, the unemployment of the young, the regional and the gender imbalances in the education, and the brain drain of the skilled to foreign shores.
• The outcome of the paradox: the growth in the physical capital with the slow growth of the human capital makes the capital idle and the growth unequal.

Rural development is the integrated improvement of the rural areas — the agriculture and its diversification, the credit and the marketing, the infrastructure, and the education and the health of the rural people. Above all, it is a strategy to improve the economic and the social lives of the rural poor.

• Credit and marketing in the rural sector: the cheap institutional credit and the cooperative marketing of the farm produce remove the trader's hold on the farmer.
• The diversification of the production: the shift of the rural work from the crops to the animal husbandry, the fisheries, the horticulture and the processing, raising the income and the employment.
• Organic farming: the rejection of the chemicals in favour of the natural manuring, answering the environmental damage of the green revolution and fetching a premium.
• The infrastructure the challenge demands: the roads, the electricity, the storage and the markets of the rural areas.
• The Kudumbashree programme and the self-help groups: the microfinance and the rural entrepreneurship of the women.

The rural credit works only when the farmer gets cheap credit through the institutions; the rural marketing works only when the farmer's surplus is sold at a fair price without the trader's rake. Both are the classic problem of the Indian agriculture, the unorganised money lenders and the middlemen of the mandi.

• The sources of rural credit: the moneylenders, the cooperatives, the commercial banks, the regional rural banks and the NABARD refinancing them.
• The problem of the sources: the moneylenders still hold a large share at the high rates, while the institutional share is rising.
• The cooperative credit: the primary agricultural credit societies, the district central banks and the state cooperative banks.
• The benefits of rural credit: the farmer can buy the inputs, improve the land and hold the produce for a better price.
• The elements of rural marketing: the sale of the surplus, the fair pricing, the storage, the transport and the information.
• The regulated markets and the gradation of the produce, the cooperative marketing societies and the warehouse receipts protect the farmer's sale.

The employment challenge of India is the mismatch between the large and growing labour force and the slow growth of the productive jobs. The workforce is concentrated in the low-productivity agriculture, the organised sector is small, and the unemployment is large both in the open and in the disguised forms.

• The workforce participation: the share of the workers in the population, higher in the villages than in the cities.
• Disguised unemployment: the surplus workers in the agriculture whose removal would not reduce the output — the hidden form of unemployment in India.
• The composition of the workforce: a majority in the agriculture, the rest in the industry and the services, and the organised sector holding a small share.
• The policy package: the MGNREGA, the national rural employment guarantee of the 100 days of work, the food security acts and the national rural livelihood mission.
• The problem the policy faces: the casual and the unorganised nature of the rural work, and the mismatch between the skills and the jobs.

Sustainable development is the development that meets the needs of the present without compromising the ability of the future generations to meet their own needs. It couples the growth of today with the health of the environment, and it recognises that the over-use of the resources and the emissions of the growth can deny the future its share.

• The meaning: the economic growth that is compatible with the ecological limits and with the needs of the future.
• The problem in the Indian context: the growth is energy- and resource-intensive, and the pollution, the degradation of the soil and the climate risk accompany the industrialisation.
• The strategy for sustainable development: the use of the cleaner fuels and the renewable energy, the conservation of the water and the credit for the green production.
• The renewable and the non-renewable resources: the renewables, the sun and the wind, can be used and replenished, the non-renewables, the coal and the oil, once spent are lost.
• The challenge in one sentence: the present growth must pay for the environmental cost of the future, so the sustainable path is the only prudent one.

The unit is examined through the definitions, the evaluative questions on the four challenges, and the policy questions on the rural credit and the employment. Each challenge has its fixed shape: the definition, the problem, the policy and the appraisal.

• Define human capital and distinguish it from human development.
• State the sources and the advantages of human capital formation.
• Explain the Indian situation of human capital and the paradox.
• Define rural development and state its elements, the credit, the marketing and the diversification.
• Explain disguised unemployment and the employment problems of India.
• Define sustainable development and state the strategies and the risks.
• Appraise the employment and the poverty policies, the MGNREGA and the food security acts.