Big picture
The 1991 reforms raised India's growth rate, but growth alone does not create a good life for everyone. This chapter looks at four areas where India still faces major challenges:
Human capital formation: building the education, health and skills of people.
Rural development: improving the lives of the majority who live in villages.
Employment: creating enough good-quality jobs.
Environment and sustainable development: growing without destroying the resources future generations will need.
Questions are mostly explanatory: define the concept, explain the problem, and suggest measures, with Indian examples.
Learning goals
Explain human capital, its sources, its role in growth, and the problems of human capital formation in India.
Distinguish human capital and human development.
Explain the sources and problems of rural credit, the role of self-help groups, agricultural marketing and diversification.
Explain organic farming and its benefits.
Explain workers, workforce, the worker-population ratio, types of employment, and formal and informal sectors.
Explain the functions of the environment, environmental problems in India and strategies for sustainable development.
Core ideas
1. Human capital formation
Human capital is the stock of skill, knowledge and expertise that a nation's people have at a point of time. Human capital formation is the process of adding to it: developing people who are educated, trained and healthy.
Sources of human capital
Source | How it builds human capital |
|---|---|
Expenditure on education | The most important source; educated people earn more and contribute more to output |
Expenditure on health | A healthy person can work more and better; includes preventive medicine, curative medicine, social medicine, clean water and sanitation |
On-the-job training | Firms train workers to improve productivity |
Migration | People move to places with better jobs and wages (rural to urban, India to abroad); the cost of moving is offset by higher earnings |
Expenditure on information | Spending on information about jobs, education and health helps people make better decisions |
Human capital and economic growth. Educated and healthy workers are more productive; human capital encourages innovation and adoption of new technology; and it raises participation and equality, since educated people take part more fully in society.
Human capital and human development
Human capital | Human development |
|---|---|
Treats education and health as a means to raise productivity | Treats education and health as ends in themselves, part of well-being |
Investment is worthwhile only if it raises output | Every person has a right to basic education and health, whether or not it raises output |
Problems of human capital formation in India
Rising population reduces the quality of facilities per person (crowded schools and hospitals).
Brain drain: highly skilled people (doctors, engineers) migrate abroad.
Insufficient manpower planning: demand for and supply of skills are not matched, causing unemployment among educated youth.
Long gestation period: the returns from education and health come years later.
High regional and gender inequality in literacy and health.
Low academic standards in many institutions.
Education is a public good with large social benefits, which is why government spending matters. The Right to Education Act, 2009 made free and compulsory education a right for children aged 6 to 14.
2. Rural development
Rural development means action to develop areas lagging behind in village economies. It covers: developing human resources (literacy, skills, health, sanitation), land reforms, infrastructure (electricity, irrigation, roads, credit, marketing), poverty alleviation, and improving the productivity of agriculture and other activities.
Rural credit. Farmers need credit for seeds, fertilisers, implements and family needs, because there is a long gap between sowing and harvest.
Source | Features |
|---|---|
Non-institutional | Moneylenders, traders, relatives, landlords. They charge very high interest and often manipulate accounts, keeping farmers in a debt trap |
Institutional | Commercial banks, regional rural banks, cooperative credit societies and land development banks, coordinated by NABARD (National Bank for Agriculture and Rural Development, set up in 1982 as the apex body for rural finance) |
Self-help groups (SHGs) | Small groups (often of women) who save regularly and lend to members at reasonable interest. They provide microcredit without collateral and build financial habits and empowerment |
Problems of the rural credit system: institutional credit is inadequate and doesn't reach all farmers; many loans go to large farmers; small farmers still depend on moneylenders; repayment default is high; and loan waivers weaken the culture of repayment.
Agricultural marketing covers assembling, storing, processing, transporting, packaging, grading and distributing farm produce. Problems include faulty weighing, manipulation of accounts, lack of storage leading to distress sales, and middlemen taking a large share.
Government measures:
Regulated markets to create orderly and transparent marketing conditions;
Physical infrastructure such as roads, railways, warehouses, cold storage and processing units;
Cooperative marketing, which helps farmers get fair prices (for example, the milk cooperatives of Gujarat);
Policy instruments: minimum support price (MSP) for crops, buffer stocks of wheat and rice maintained by the Food Corporation of India, and the public distribution system (PDS).
Alternative marketing channels let farmers sell directly to consumers: Apni Mandi (Punjab, Haryana, Rajasthan), Hadaspar Mandi (Pune), Rythu Bazaars (Andhra Pradesh and Telangana) and Uzhavar Sandies (Tamil Nadu). Some farmers have contracts directly with food chains and processors.
Diversification reduces the risk of depending only on crops and provides work in the off-season:
Diversification of crop production: from food grains to cash crops, fruits and vegetables;
Diversification into non-farm activities: animal husbandry (India has a large livestock population; Operation Flood made it the largest milk producer), fisheries, horticulture (fruits, vegetables, flowers), and agro-processing and IT-based rural services.
Sustainable development and organic farming. Organic farming uses natural inputs (compost, biopesticides) instead of chemical fertilisers and pesticides. Benefits: it replaces costly agricultural inputs with cheaper local ones, generates income through exports (demand for organic food is growing), produces healthier and tastier food, and is labour-intensive, so it creates jobs. Limitations: yields may be lower in the early years, produce may have a shorter shelf life, and certification and marketing are difficult for small farmers.
3. Employment
Terms
Worker: a person engaged in an economic activity that contributes to GDP, including self-employed people and those helping in family businesses.
Workforce: the number of persons actually working.
Labour force: persons working plus those seeking work (workforce + unemployed).
Worker-population ratio = Workforce ÷ Total population × 100. It indicates the share of the population actively contributing to production.
Example. A town has a population of 2,00,000, of whom 70,000 are working. Worker-population ratio = 70,000 ÷ 2,00,000 × 100 = 35%.
Types of employment
Type | Meaning | Example |
|---|---|---|
Self-employed | Own and operate an enterprise | A shopkeeper, a farmer cultivating own land |
Regular salaried employees | Hired by someone and paid regular wages | A teacher, a bank clerk |
Casual wage labourers | Hired on a daily or temporary basis, without regular pay or benefits | Construction workers, farm labourers |
In India, the self-employed form the largest group. Over time, many workers moved from self-employment and regular jobs to casual work; this is casualisation of the workforce, which leaves workers without security.
Formal and informal sectors
Formal (organised) sector | Informal (unorganised) sector |
|---|---|
Public sector establishments and private enterprises with 10 or more hired workers | Enterprises with fewer than 10 workers, farmers, agricultural labourers, self-employed people |
Workers get social security benefits (provident fund, gratuity, pension), regular pay and protection of labour laws | No regular income, no social security, no protection by labour laws |
About 6–7% of India's workforce | The great majority of India's workforce |
Jobless growth refers to a situation where GDP grows without a proportional increase in employment, because growth comes from capital-intensive sectors or higher productivity.
4. Environment and sustainable development
Environment is the total planetary inheritance: all resources, both biotic (living: plants, animals) and abiotic (non-living: air, water, land).
Functions of the environment
Supplies resources, both renewable (forests, fish) and non-renewable (fossil fuels).
Assimilates waste produced by human activity.
Sustains life by providing genetic and biodiversity.
Provides aesthetic services, such as scenery and clean air.
The environment can perform these functions only within limits. Carrying capacity means resource extraction stays below the rate of regeneration, and waste stays within the environment's absorptive capacity (its ability to absorb degradation). When these limits are crossed, there is an environmental crisis: resources are depleted and pollution accumulates.
Global environmental problems: global warming, a gradual rise in average temperature from greenhouse gases (carbon dioxide, methane) released by burning fossil fuels and deforestation; and ozone depletion, thinning of the ozone layer by chemicals such as CFCs, which increases harmful ultraviolet radiation.
India's environmental problems: land degradation (soil erosion, salinity, overuse of fertilisers), loss of biodiversity, air pollution (especially in cities, from vehicles and industry), water pollution, and pressure on forests.
Sustainable development is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs (Brundtland Commission, 1987).
Strategies for sustainable development
Strategy | Example |
|---|---|
Use of non-conventional sources of energy | Solar, wind and mini-hydel power instead of coal-based thermal power |
LPG and gobar gas in rural areas | Replacing firewood and dung cakes, which cause indoor pollution and deforestation |
CNG in urban transport | Delhi's switch of public transport to CNG improved air quality |
Wind power | Wind turbines in coastal and windy areas |
Solar power through photovoltaic cells | Solar panels for homes and villages |
Mini-hydel plants | Small hydro plants in hilly areas, with little environmental damage |
Traditional knowledge and practices | Ayurveda and traditional farming methods that are eco-friendly |
Biocomposting | Converting organic waste into compost instead of using chemical fertilisers |
Biopest control | Using neem-based pesticides and natural predators instead of chemical pesticides |
A reliable approach to answers
Define the concept first (human capital, rural development, worker-population ratio, sustainable development).
Explain the problem with Indian facts and examples.
Suggest measures linked to each problem.
For numericals, use the formula and state the answer as a percentage.
Connections that matter
Indian economy 1947–1990 and reforms explains the policies whose results are assessed here.
Comparative development experiences compares India's human development with China's and Pakistan's.
National income: externalities like pollution show why GDP is not a full measure of welfare.
Common mistakes
Treating human capital and human development as the same.
Calling NABARD a commercial bank. It is the apex institution for rural credit.
Defining the formal sector by size of output. It is defined by the number of hired workers (10 or more) and by being public sector.
Confusing workforce and labour force. The labour force also includes the unemployed.
Writing that sustainable development means no development. It means development that preserves resources for the future.
Revision checklist
I can explain human capital, its sources, its role in growth and the problems of forming it.
I can explain rural credit, SHGs, agricultural marketing, diversification and organic farming.
I can calculate the worker-population ratio and explain types of employment and the informal sector.
I can explain the functions of the environment, carrying capacity and global problems.
I can explain sustainable development and suggest strategies.