Economics Cheatsheet (B+ Level)

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ENVIRONMENT AND SUSTAINABLE DEVELOPMENT Environment - Definition and Functions Definition: Total planetary inheritance and all resources. Includes biotic (living) and abiotic (non-living) factors. Biotic elements: birds, animals, plants, forests, fisheries. Abiotic elements: air, water, land, rocks, sunlight. Functions of the Environment Supplies resources: Renewable: Can be used without depletion (e.g., trees, fish). Non-renewable: Get exhausted with extraction (e.g., fossil fuel). Assimilates waste. Sustains life (genetic and biodiversity). Provides aesthetic services (scenery). Two Capacities of the Environment Carrying Capacity: Resource extraction is not above regeneration rate, and waste generation is within assimilating capacity. Absorptive Capacity: Ability of the environment to absorb degradation. Global Warming Gradual increase in Earth's lower atmosphere temperature due to increased greenhouse gases since the Industrial Revolution. Human-induced, caused by burning fossil fuels and deforestation. Long-term effects: Melting polar ice (sea level rise, coastal flooding), species extinction, frequent tropical storms, increased tropical diseases. Kyoto Protocol (1997): International agreement to fight global warming. Ozone Depletion Reduction in the amount of ozone in the stratosphere. Caused by high levels of chlorine and bromine compounds (from chlorofluorocarbons - CFCs). Increased UV radiation reaches Earth, damaging living organisms. UV radiation linked to skin cancer in humans. State of India's Environment Abundant natural resources (soil, rivers, forests, minerals, ocean, mountains). Indo-Gangetic plains: Fertile, intensively cultivated, densely populated. Large deposits of iron-ore, coal, natural gas. Pressing concerns: Air pollution, water contamination, soil erosion, deforestation, wildlife extinction. Priority issues: Land degradation Biodiversity loss Air pollution (vehicular pollution in urban cities) Fresh water management Solid waste management Factors Responsible for Land Degradation Loss of vegetation (deforestation) Unsustainable fuel wood and fodder extraction Shifting cultivation Encroachment into forest lands Forest fires and overgrazing Non-adoption of adequate soil conservation measures Indiscriminate use of agro-chemicals (fertilisers, pesticides) Improper planning and management of irrigation systems Extraction of groundwater in competing land uses. SUSTAINABLE DEVELOPMENT Aims to promote development that minimizes environmental problems and meets present needs without compromising future generations. UNCED definition: "Development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs." Aims to decrease absolute poverty by providing lasting livelihoods that minimize resource depletion, environmental degradation, cultural disruption, and social instability. Meets basic needs of all, especially the poor majority (employment, food, energy, water, housing), and ensures growth of agriculture, manufacturing, power, and services. Brundtland Commission emphasizes: Protecting the future generation. Conservation of natural assets. Preservation of regenerative capacity of natural ecological systems. Avoiding imposition of added costs/risks on future generations. Herman Daly's needs for sustainable development: Limit human population to carrying capacity. Renewable resources extracted sustainably (rate of extraction $\le$ rate of regeneration). Non-renewable resources depletion rate $\le$ rate of renewable substitutes creation. Correct inefficiencies from pollution. Strategies for Sustainable Development Use of Non-conventional Sources of Energy India's reliance on thermal and hydropower has adverse environmental impacts. Wind power and solar rays are eco-friendly alternatives. LPG, Gobar Gas in Rural Areas Rural households use wood, dung cake, biomass as fuel. Adverse implications: Deforestation, waste of cattle dung, air pollution. LPG and Gobar gas plants promoted with loans/subsidy to rectify this. Reduces household pollution, minimizes energy wastage. CNG in Urban Areas Compressed Natural Gas (CNG) as fuel in public transport significantly lowered air pollution in Delhi. Wind Power Windmills in high-wind areas provide electricity without environmental impact. Solar Power through Photovoltaic Cells India has abundant solar energy. Photovoltaic cells convert solar energy into electricity. Uses special materials to capture and convert solar energy. Pollution-free technique. Mini-Hydel Plants Constructed on streams in mountainous regions. Environment-friendly, do not change land use patterns. Generate enough power for local demands. Traditional Knowledge and Practices Indians have historically been close to their environment. Practiced environment-friendly agriculture, healthcare, housing, transport. Bio composting Increased agricultural production led to neglect of compost and reliance on chemical fertilisers. Chemical contamination adversely affected land, health, water bodies. Farmers now use compost from organic wastes. Earthworms convert organic matter to compost faster. This process is widely used. Bio pest Control Green Revolution led to increased use of chemical pesticides for higher yield. Polluted food, soil, water bodies, groundwater; even milk, meat, and fish contaminated. Eco-friendly pest control measures are now used. Pesticides based on plant products. Mixed cropping and growing different crops in consecutive years also help. HUMAN CAPITAL FORMATION IN INDIA Human Capital Transformation of human resources into productive human resources (e.g., child into engineer). Investment in human capital is needed to produce more human capital. Skilled and efficient human resources are called human capital (e.g., doctors, engineers). Sources of Human Capital Investment in education. Investments in health. Investment on-the-job training. Investment in migration. Investment in information. Investment in Education Done to increase future income. Establish schools and higher educational institutions. Ensure proper learning levels with updated syllabi. Provide elementary education to increase literacy. Increases career opportunities. Investment in Health Investment in health is an important input for national development. Increases productivity. Forms of health investments: Preventive medicine (vaccination), curative medicine (medical intervention), social medicine (health literacy), clean drinking water, good sanitation. Provide nutrition, better healthcare facilities. Improves individual health condition (people become more productive). Possible through government investment (e.g., govt hospitals, medical colleges, nutritional food). Investment on Job Training Two types: Under supervision of a skilled labour. Off-campus training. Enhances labour productivity more than its cost. Migration Search for better living standards and unemployment are key reasons. Especially visible from rural to urban areas. Helps to find better income jobs and living standards. Information Necessary for decisions regarding human capital investments and efficient utilization of acquired human capital stock. Physical and Human Capital Comparison PHYSICAL CAPITAL HUMAN CAPITAL Physical capital is tangible. Human capital is intangible. It can be easily sold in the market. It cannot be sold in the market. It depreciates with the passage of time. Depreciation in human capital can be reduced by continuous investments. It is more mobile between countries. Human capital is less mobile between the countries. Physical capital can be separated from its owner. Human capital cannot be separated from the owner. Physical capital is the outcome of conscious decision of owner. Formation of human capital is partly a social process and partly a conscious decision. It can be built through imports. Human capital formations to be done through conscious policy formulations. Human Capital and Economic Growth Conscious investment decisions result in physical and human capital. Entrepreneur's knowledge is basis of physical capital investment. Entrepreneur uses knowledge to calculate expected rate of return and rationally decides investment. Physical capital formation is mainly an economic and technical process. Human capital formation takes place in one's life. Peers, educators, and society influence decisions regarding human capital investments. Human capital formation is partly a social process and partly a conscious decision of the possessor. Economic growth: Increase in real national income. Educated persons contribute more to economic growth than illiterate persons. Healthy persons provide labour supply for a longer period. Education and health, job training, market information, migration increase individual income-generating capacity. Education helps understand societal changes and scientific advancements, fostering invention and innovations. Economic growth in each sector reinforces growth of other sectors. Reports show India's growth is faster due to human capital strength. Human welfare increases through investments in education and health. Human Capital and Human Development Basis Human Capital Human Development Concept It is a narrow concept. It is a broader concept. Means of productivity It considers education and health as a means to increase labour productivity. It considers that education and health are integral to human well-being because only when people have the ability to read and write and to lead a long and healthy life, they will be able to make other choices they value. Human capital considers education and health as means to increase labour productivity. Human development is based on the idea that education and health are integral to human well-being. When people can read, write, and lead healthy lives, they can make valuable choices. State of Human Capital Formation in India Human capital formation is the outcome of investments in education, health, job training, migration, and information. Expenditures on education and health have substantial long-term impact. Expenditures on both education and health must be carried out simultaneously. Various organizations exist in education and health at union and state levels. Education: NCERT, UGC, AICTE. Health: ICMR. Poverty is an obstacle to accessing basic education and healthcare. Programmes – Education ICDS (Integrated Child Development Scheme): 0-6 years: Education + nutrition. Lactating, pregnant women: Nutrition. SSA (2018) (Samagra Shiksha Abhiyan): Integrated from SSA + RMSA. SSA - Sarva Shiksha Abhiyan: Primary education. RMSA - Rashtriya Madhyamik Shiksha Abhiyan: Secondary education. RUSA (Rashtriya Uchchatar Shiksha Abhiyan): Higher education. Skill development programme (national level). Programmes – Health NRHM (National Rural Health Mission): Healthcare facilities for rural people. NUHM (National Urban Health Mission): People residing in slums. Growth in Government Expenditure on Education Expressed as: Percentage of 'total government expenditure'. Percentage of Gross Domestic Product (GDP). Education expenditure as % of total government expenditure indicates its importance. Education expenditure as % of GDP shows commitment of national income to education. Elementary education takes a major share, higher education the least. Educational Achievements in India Indicated by adult literacy level. "Education for All" is still a distant dream. Gender Equity Narrowing literacy gap between males and females is a positive development. Need to promote women's education for economic independence and social status. Women's education positively impacts fertility rate and healthcare. Higher Education Indian education pyramid is steep, with fewer people reaching higher education. Unemployment among educated youth is highest. Government should increase allocation for higher education and improve standards. Economic and social benefits of human capital formation and human development are inseparable. POVERTY Poverty State where an individual cannot fulfill basic necessities (food, clothing, education). Multi-dimensional concept. Measured by the poverty line. Two Measures to Define Poverty Absolute Poverty: Total number of people below the poverty line. Measured by: Minimum Calorie Consumption Criteria: Rural: 2400 calories/person/day. Urban: 2100 calories/person/day. Minimum Consumption Expenditure Criteria: 2011-12 poverty line: Rural Rs 972/person/month (Rs 32/day), Urban Rs 1,407/person/month (Rs 47/day). Relative Poverty: Poverty in comparison to others in different regions/nations. Does not consider how poor the poor are or if basic minimum requirements are met. Compares income and asset ownership inequality. Helps understand relative position of different population segments. Demerit: Only reflects relative position in income hierarchy. Features of Poverty Food shortage and starvation. Illiteracy and less skilled individuals. Limited opportunities. Higher unemployment. Malnutrition. Poor health status. Huge debt burden. Lack of drinking water. Lack of sanitation facilities. Gender discrimination. Poor in Rural and Urban Areas Rural Area: Landless agricultural labourers, cultivators with small landholdings, landless labourers. Urban Area: Migrated people from rural areas, casual labourers, self-employed street vendors. Importance of Poverty Measurement To design schemes to help the poor. For implementing government programmes. To find viable and sustainable strategies to address poverty causes. Poverty Measurement Methods Government uses Monthly Per Capita Expenditure (MPCE) as proxy for household income. Demerits: Groups all poor together; doesn't differentiate between very poor and other poor. Only considers food expenditure and a few select items. Helpful for identifying poor as a group, but not for specific individuals. Does not consider social factors like illiteracy, ill health, lack of access to resources, discrimination, lack of civil/political freedoms. Poverty Line Level of income to meet minimum living conditions. Amount of money needed for basic needs. Money value of goods and services for basic welfare. Differs by country. People below poverty line are poor; above are non-poor. Planning commission defined poverty line based on nutritional requirement (rural 2400 calories, urban 2100 calories). Concept of a Poverty Line: Attempts Dadabhai Naoroji: 'Jail cost of living'. Study Group (1962): Rs 20/month rural, Rs 25/month urban (1960-62 prices). YK Alagh Committee (1979): Calorie basis (2400 rural, 2100 urban). Lakdawala Expert Group (1989): Retained Alagh report. Suresh Tendulkar Committee (2005): Adopted 2004-05 urban poverty line based on Lakdawala committee methodology. Rangrajan Committee (2014): Reverted to separate all-India rural and urban poverty line baskets. Causes of Poverty Low income. High illiteracy rate. Lack of assets. Unemployment. Inequality. Exploitation. Population explosion. Undesirable economic growth. Inflation. Absence of industrialization. Poor and Non-Poor Poverty line separates people into two categories: poor and non-poor. Poor: Absolutely poor Poor Very Poor Non-Poor: Middle class Upper middle class Rich Very rich Absolutely rich Categorizing Poverty Chronic Poor: Always Poor Usually Poor Transient Poor: Churning Poor (move in and out of poverty) Occasionally Poor Non-Poor: Never Poor Development Removing obstacles to individual capabilities (illiteracy, ill health, lack of resources, lack of civil/political freedoms). Sen Index: Government measures are often insufficient for poverty eradication. The Number of Poor in India Number of poor estimated as proportion below poverty line, known as 'Head Count Ratio'. Official data based on Planning Commission. Estimated using consumption expenditure data from NSSO. World Bank (2019): 6% of total population (84 million) in poverty. Asian Development Bank (2019): 7.7% of employed population below $1.90 PPP/day. Unemployment rate (2020): 7.1%. Child mortality (2019): 34 deaths/1000 births for children under 5. 7% of Indian population in extreme poverty, 0.6 Indians escaping poverty every minute. Global Hunger Index (2021): India ranks 101st out of 116 countries, with serious hunger (score 27.5). World Bank (pandemic-induced): Poor population more than doubled to 134 million from 60 million. Years No. of Poor Percentage to total population 1973–74 320 million 55% 2011–12 270 million 22% Methods to Remove Poverty Accelerate economic growth. Reduce income inequalities. Population control. Ensure more employment opportunities. Land reforms (landless labourers can employ themselves). Poverty Eradication Programmes Self-Employment Programmes: Integrated Rural Development Programme (IRDP): Started Oct 1980, renamed Swarnajayanthi Grama Swarojgar Yojana (SGSY) from April 1999. SGSY merged TRYSEM, DWCRA, GKY, MSW, SITRA. Forms Self-Help Groups (SHGs) for poor people, promoting self-employment. Includes development of infrastructure, technology, credit, marketing. Wage Employment Programmes: National Rural Employment Programme (NREP): Renamed Food for Work Programme (1980). Centrally sponsored. Aims at community asset development (wells, roads, schools). Rural Landless Employment Guarantee Programme (RLEGP): Aug 1983, supplement NREP. 100% union government funded. Jawahar Rozgar Yojana (JRY) and Nehru Rozgar Yojana (NRY): Merged NREP and RLEGP into JRY (April 1999). Aims to provide gainful employment in rural unemployed areas. NRY is urban version. Million Well Scheme (MWS): Open irrigation wells, free of cost, for poor SC/ST farmers. Indira Awas Yojana (IAY): Houses for poor SC/ST families, now extended to others. Pradhan Mantri Gramodaya Yojana: Gramin Awas (PMRY): April 2000, housing needs for rural people. National Rural Employment Guarantee Programme (NREGP) 2005: Parliament passed Act in Aug 2005. Guarantees 100 days of unskilled manual work per household per year. Act came into force Feb 2006 in 200 backward districts, extended nationwide. Renamed Mahatma Gandhi National Rural Employment Guarantee Programme (MGNREGP) or Employment Assurance Scheme. Social Security Programmes: Few programmes, some centrally sponsored. Old-age pension for elderly without support. Financial support for breadwinner's death. Support for women of poor households during pregnancy. Food Security Programmes: Essential to ensure food security. Problem is mainly distribution. Public Distribution System (PDS): Food grains at cheaper prices through Fair Price Shops, ration shops, etc. Targeted Public Distribution System (TPDS): Initiated June 1997, ensuring food availability for BPL families. Integrated Child Development Schemes (ICDS): Nutrition for children under 6, pregnant and lactating women. Mid-day Meal at School: Started Aug 1995, now "PM Poshan". Annapurna Scheme (2000-01): Covers poor old people not receiving old-age pensions. Antyodaya Anna Yojana: Food grains for poorest of the poor at highly subsidized prices. Poverty Alleviation Programmes - A Critical Assessment Improved PCI (1950-51: Rs 274; 2010-11: Rs 54835) and average standard of living. No radical changes in asset ownership, production process, or basic facilities for needy. Three major areas of concern: Unequal distribution of land/assets, benefits appropriated by non-poor. Insufficient resource allocation compared to poverty magnitude. Non-participation of local level institutions. Steps for Successful Implementation of Programmes Poverty eradicated when poor contribute to growth via active involvement. Requires social mobilization, encouraging participation and empowerment. Creates employment opportunities, increasing income, skill development, health, literacy. Identify poverty-stricken areas and provide infrastructure (schools, roads, power, telecom, IT services, training institutions). EMPLOYMENT GROWTH, INFORMALISATION & RELATED ISSUES Workers and Employment Economic activities: Contribute to gross national product. Workers: Engaged in economic activities. Employment in India is multifaceted: year-round, seasonal, unfair wages. All engaged in economic activities are employed. 1. Worker Individual involved in productive activity to earn a living, supporting self and family. 2. Casual Wage Labourer Not hired on regular/permanent basis. Do not get social security benefits. 3. Regular Workers Hired on permanent basis. Receive social security benefits (pension, provident fund). 4. Casualisation of Work Force Process of moving from self-employment and regular salaried employment to casual wage work. Kinds of Urban Unemployment Industrial Unemployment: People wishing to work in industrial establishments but unable to find jobs. Educated Unemployment: Educated person unable to find suitable job/work due to lack of employment opportunities. Kinds of Rural Unemployment Seasonal Unemployment: Occurs during certain seasons (e.g., agriculture, fishing). Disguised Unemployment: More people engaged in work than really needed. Formal Sector & Informal Sector Formal Sector: All public enterprises and private establishments employing 10 or more hired workers. Informal Sector: Private enterprises hiring less than 10 workers (e.g., farm workers, small enterprise owners, agricultural labourers). No regular income. No protection/regulation by government; can be dismissed anytime. Live in slums, use outdated technology, don't maintain accounts. Frictional Unemployment: Temporary unemployment during transition from one job to another. 4. Labour Force Labour force = Persons working + Persons seeking & available for work. Excludes: Age above 66, below 15, handicapped, not interested in work. 5. Work Force Number of persons actually employed at a particular time. 6. Labour Force Participation Rate Ratio of labour force to total population. Labour Force Participation Rate = Labour Force / Total Population. 7. Number of Unemployed People Unemployed People = Labour Force - Work Force. Worker Population Ratio (WPR) Refers to participation of people in employment. Helps know proportion of population actively contributing to goods/services production. WPR = (Total number of workers in India / No. of work population in India) $\times$ 100. 8. Full Employment Situation where all capable and willing workers get employment at prevailing wage rate. Employment in Firms, Factories and Offices Sectors of Economy Primary Extraction of Raw Materials, Farming & Fishing Secondary Manufacturing, Electricity, Gas, Construction Tertiary Retail, Financial Service, Health, Education, transportation, Communication, Real Estate, Information Technology Growth and Changing Structure of Employment 1950-2010: GDP grew positively, higher than employment growth. Developmental strategies aimed at reducing dependence on agriculture. Indian economy produced more goods/services without generating employment. Economists call this 'jobless growth'. RURAL DEVELOPMENT Rural Development Process of improving quality of life and economic well-being in rural areas. Focuses on developing lagging areas in the village economy. Covers agricultural development in rural areas. Includes: Development of human resources (literacy, education, skill development, sanitation, public health). Land reforms. Development of productive resources of each locality. Infrastructure development (electricity, irrigation, credit, marketing, transport). Special measures for poverty alleviation. Key Issues of Rural Development Aims to improve all aspects of rural life. Challenging areas: Development of Human Resources. Land Reform. Development of Infrastructure. Alleviation of Poverty. Development of Productive Resources. Rural Credit Provision of loans for agriculture and non-agricultural sectors. Credit facilities increased agricultural productivity and employment. Sources of Rural Credit Rural Credit available broadly in 2 categories: Non-Institutional Sources: Traditional sources (money lenders, relatives, traders, commission agents, landlords). Institutional Sources: Cooperative Credit, Land Development Banks, Commercial Banks, Regional Rural Banks, Govt., NABARD, Self-help groups. Institutional Sources of Rural Credit Cooperative Credit Societies: Advance credit to farmers at reasonable rates. Contribute nearly 30% of rural credit. Objectives: Free farmers from money lenders. Advance credit facilities nationwide. Spread credit facilities nationwide. Ensure timely and continuous credit flow. Land Development Banks: Provide long-term credit against land mortgage. First bank started in Jhang, Punjab (1920). Objectives: Provide long-term credit. Credit for agricultural inputs, permanent land structures. Commercial Banks: Major role after nationalization (1969, 1980). Objectives: Directly help rural farmers. Assistance for small, medium, long-term loans. Help farmers for agricultural marketing. Regional Rural Banks: Set up to fill credit gap in rural areas. First RRB, "Prathama Grameen Bank", Oct 2, 1975. 82 RRBs in India currently. Objectives: Open branches in unbanked areas. Provide credit to small and marginal farmers. National Bank For Agricultural And Rural Development (NABARD): Approved by Parliament (Act 61 of 1981) based on B. Sivaraman committee (1979) recommendations. Apex financing agency for promoting rural development. Measures towards institution building, monitoring, rehabilitation schemes, credit restructuring, personnel training. Coordinates rural financing activities. Maintains liaison with Government of India, state governments, RBI, other institutions for policy formulation. Refinances financial institutions in rural sector. Keeps check on client institutes. Self-Help Groups (SHGs): Village-based financial intermediary committee (10–20 local women/men). Mixed groups generally not preferred. Most SHGs in India. Members make small regular savings contributions for lending. Funds lent back to members or others in village. Many SHGs linked to banks for Micro-Credit (e.g., Kudumbashree in Kerala). 7. Agricultural Marketing Process of assembling, storage, processing, transportation, packaging, grading, and distribution of agricultural commodities. Post-independence, government adopted measures to improve agricultural marketing. Measures to regulate markets: Regulated Markets: Created orderly, transparent marketing conditions to protect farmers from malpractices. Cooperative Marketing: Farmers form societies to sell output collectively, gaining advantage of collective bargaining. Infrastructural Facilities: Govt. provided roads, railways, warehousing, storage, processing units. Standardization and Grading: Quality control helps farmers get good prices. Minimum Support Price (MSP): Government fixes minimum support price for agricultural products (wheat, rice, maize, cotton, sugarcane, pulses). Will buy any amount at a price higher than market price to help farmers recover losses. Defects of Agricultural Market in India Lack of Storage Facility: Damages products by pests or rain. Distress Sale: Farmers lack capacity to wait for better prices due to lack of storage. Lack of Transportation: Farmers cannot reach markets to sell produce at fair price. Long Chain of Middlemen: Reduces producer's profit. Lack of Institutional Finance/Guidance: Disorganizes Indian marketing system. Measures for Improvement of Agricultural Marketing Improvement in storage facilities at farm level. Establishment of regulated markets. Improvement of transport facilities. Establishment of cooperative marketing societies. Provision of cheap credit. Provision for grading to ensure good quality. Prompt supply of marketing information. Diversification of Agricultural Activity Providing gainful employment in allied and non-farm activities to excess agricultural population. Aims to overcome poverty, improve employment, and make rural people fully employed. Diversification includes 2 aspects: Diversification of crop production. Diversification of Productive Activities. Non-farm activities or alternative employment opportunity Animal husbandry Dairy farming Fishers Horticulture Poultry Farming Agro Processing industries Food processing industries Leather industry Tourism Organic Farming Process of producing food naturally, avoiding synthetic chemicals and GMOs. Eco-friendly and essential for sustainable development, zero environmental impact. Advantages of Organic Farming Removes use of costly agricultural inputs (HYV seed, chemical fertilizers, pesticides). Generates income through export due to rising demand for organically grown crops. Provides healthy food with more nutritional value. Can provide more employment opportunities (requires more labourers). Pesticide-free and produced sustainably. Disadvantages of Organic Farming Requires utmost care in agricultural production. Needs popularization through awareness and willingness of farmers. Lacks proper infrastructure and marketing facilities; needs appropriate agricultural policy. Yields are less than modern agricultural farming in initial years, making it difficult for small/marginal farmers to adapt.