Chapter

Indian Economy

Character and Size of the Indian Economy

Character of the Indian Economy

Indian Economy

• India follows a mixed economy policy.
• In a mixed economy, both government-owned (public sector) and privately-owned (private sector) businesses exist.
• The goal of a mixed economy is to create a socialist society in a welfare state.
• In a mixed economy, the public sector works to achieve social and economic goals and priorities, guided by an economic plan.
• A mixed economy is always planned, and India is a good example of a mixed economy.
• The public and private sectors are seen as working together.

Size of the Indian Economy

• Real GDP or GDP at Constant (2011-12) Prices in the year 2023-24 is estimated to attain a level of ₹172.90 lakh crore, against the FRE of GDP for the year 2022-23 of ₹160.71 lakh crore. The growth rate of GDP during 2023-24 is estimated at 7.6 percent as compared to growth rate of 7.0 percent in 2022-23 (according to PIB).

Nominal GDP or GDP at Current Prices in the year 2023-24 is estimated to attain a level of ₹293.90 lakh crore, against ₹269.50 lakh crore in 2022-23, showing a growth rate of 9.1 percent.

• This was a 5% growth from the previous year (according to revised estimates for 2011-2012).

Agriculture in the Indian Economy

• Agriculture is very important to the Indian economy.
• In 2011-2012, the agricultural sector contributed 14.1% of India’s GDP (at 2004-2005 prices).
• About 10% of the Indian population works in agriculture.

Agriculture in India

• About 43% of India’s land is used for farming.
• More than 70% of people in rural areas rely on farming for their main source of income.
• Most farming in India depends on the monsoon season because there aren’t enough irrigation systems.
• Agriculture, along with fishing and forestry, makes up one-third of India’s economy and is the biggest contributor.
• The average size of a farm in India is small and often divided into smaller pieces.
• India sells about 20% of all the things it makes from farming to other countries.
• India is the second-largest producer of farm goods in the world.
• India is the world’s largest producer of milk, cashew nuts, coconuts, tea, ginger, turmeric, and black pepper.
• India has the most cattle in the world, with about 285 million.
• India is the second-largest producer of wheat, rice, sugar, peanuts, and fish from islands.
• India is the third largest producer of tobacco in the world.
• India is the largest producer of bananas and seprta in the world.
• India produces 10% of all the fruits in the world.
• The government wants the agriculture sector to grow by 4% per year, which is the same goal as the previous five-year plan.

National Income Concepts

• National income is the total value of all goods and services produced in a country during a certain period of time.
• It is different from national wealth, which is the total value of all assets owned by a country’s citizens.
• National income measures how productive an economy is at turning resources into goods and services.
• There are different ways to measure national income, including:

1. Gross National Product (GNP): This is the total value of all goods and services produced by a country’s citizens, regardless of where they are produced.
2. Gross Domestic Product (GDP): This is the total value of all goods and services produced within a country’s borders, regardless of who owns the businesses that produce them.

Gross Domestic Product (GDP):

• GDP is the total value of all goods and services produced within a country’s borders by its citizens over a specific time.

Net National Product (NNP):

• NNP is the value of GDP minus the depreciation of assets.

Personal Income:

• Personal income is the income received by individuals in a country.

Disposable Personal Income:

• Disposable personal income is the amount of money individuals have left after paying taxes.

Planning in India:

• Planning in India is based on the country’s objectives and resources.

Key points about planning in India:

• Plans are made for all aspects of the economy and society.
• The plans are based on economic data, but sometimes the data is not accurate.
• India has completed 11 Five-Year Plans since 1951.
• The main goals of the Five-Year Plans are:
• Economic growth - Becoming self-sufficient
• Reducing unemployment
• Reducing income inequality
• Ending poverty and modernizing the country
• Each Five-Year Plan considers the challenges and opportunities of the time and makes necessary adjustments.
• The Planning Commission is a group of experts that helps the government make plans.
• The National Development Council is a group of government officials and experts that helps the government make plans.
• In 1934, M. Visvesvaryya wrote a book called “Planned Economy of India” in which he argued that India needed to have a plan for its economy.

History of Planning in India:

• In 1944, a department called the Planning and Development Department was created, led by A. Dalal.
• In 1946, the interim government established the Planning Advisory Board.
• In 1947, the Economic Programme Committee was formed, headed by Jawaharlal Nehru.

Purpose of Five Year Plans:

• India is a diverse and democratic country.
• Making decisions requires agreement and consultation between the central government, state governments, and various organizations.
• Over the past 60 years, planning in India has had three main goals:
  1. To create a shared framework of objectives and strategies for making consistent decisions.
  2. To understand the reasons behind these decisions.
  3. To outline a strategy for faster economic growth and improved well-being for all citizens.

Planning Commission (PC):

• The Planning Commission (PC) was established in 1950 to oversee and guide the planning process in India.
• It is responsible for formulating Five Year Plans, which set out the government’s economic and social policies and priorities for the next five years.
• The PC also monitors the implementation of these plans and makes adjustments as needed.

Planning Commission

• In March 1950, the Indian government created a special group called the Planning Commission. The Prime Minister of India is the leader of this group.
• The first person to lead the Planning Commission was Pt Jawaharlal Nehru.
• The Planning Commission’s job was to figure out how much money and resources India had, and then make a plan for how to use them in the best way possible. They also decided which things were most important to focus on.
• The Planning Commission is not part of the official government structure, and it doesn’t have any legal power.

National Planning Council (NPC)

• The NPC is a group of experts who give advice to the Planning Commission. It was started in 1965.
• The NPC includes people who know a lot about different parts of the Indian economy.

National Development Council (NDC)

• The NDC is a group that includes the chief ministers of all the states in India, as well as some other important people.
• The NDC’s job is to give advice to the Planning Commission and the government on how to develop India’s economy. The Planning Commission’s members make up the National Development Council. The Prime Minister of India is in charge of the Council. The NDC was first established in 1952 as an addition to the PC to involve the states in the creation of the plans.

FIVE-YEAR PLANS

The Planning Commission creates development plans to establish India’s economy on a socialistic pattern in successive five-year periods known as the Five-Year Plans. The organization was established to develop fundamental economic policies, create plans, and monitor their progress and implementation. It is made up of:

• Planning Commission of India
• National Planning Council
• National Development Council
• State Planning Commissions

Table 4.1: Five-Year Plans at a Glance

Five Year Plans in India

Third Plan (1961-62 to 1965-66)

• Focused on the long-term development of India’s economy.

Annual Plan (1966-67 to 1968-69)

• A break in the Five Year Plan due to the Chinese and Pakistani wars.

Fourth Plan (1969-70 to 1973-74)

• Introduced a ‘scientific temper’ to Indian agriculture.

Fifth Plan (1974-75 to 1977-78)

• Terminated early by the Janata Government, which introduced the ‘Rolling Plan’ concept.

Annual Plan (1978-79 to 1979-80)

• Launched by the Janata Government.

Sixth Plan (1980-81 to 1984-85)

• Originally launched by the Janata Government, but abandoned by the new Government. A revised plan for 1981-85 was approved.

Seventh Plan (1985-86 to 1989-90)

• Focused on food, work, and productivity.

Annual Plan (1990-91 to 1991-92)

• Emphasized maximizing employment and social transformation.

Eighth Plan (1992-93 to 1996-97)

• Aimed for faster economic growth and faster growth of employment opportunities.

Ninth Plan (1997-98 to 2001-02):

• Focused on agriculture and rural development.
• Aimed to increase the economy’s growth rate.
• Ensured food and nutritional security for all.
• Controlled the population growth rate.
• Empowered women and socially disadvantaged groups.
• Promoted participatory institutions like ‘Panchayati Raj’ institutions, cooperatives, and self-help groups.

Tenth Plan (2002-2007):

• Reduced unnecessary spending.
• Improved the farm sector, financial sector, and judicial system.
• Eliminated harassment, corruption, and red tapism.
• Controlled drought, floods, and population growth.

Growth: The economy grew at a faster pace.

FDI and FPIs: More foreign companies invested in India.

Labor and Economic Growth: More people had jobs and the economy grew.

2007-2012 (Eleventh Plan):

• Agriculture, education, and healthcare improved.
• More people had access to safe drinking water and scholarships.
• Development services and the National Rural Employment Guarantee Scheme reached more people.
• There was a focus on HIV/AIDS, polio, urban development, and care for women and children.
• Communicable diseases were treated.

2012-2016 (Twelfth Plan):

• The goal was faster, more inclusive, and sustainable growth.
• Challenges included energy, water, and the environment.
• The government wanted to create a world-class infrastructure.
• Agriculture needed to perform better for growth to be more inclusive.
• More jobs needed to be created, especially in manufacturing.
• Health and education needed to be improved.

Education and skill development are given importance.

We need to make sure that our education system is helping people learn the skills they need to get good jobs.

We need to improve the effectiveness of programs that help the poor.

We need to make sure that the programs we have in place to help people who are struggling are actually working.

We need to create special programs for socially vulnerable groups.

We need to make sure that we are providing support for people who are at a higher risk of poverty, such as women, children, and the elderly.

We need to create special plans for disadvantaged/backward regions.

We need to make sure that we are providing support for areas that are struggling economically. - The number of people living in poverty in India has decreased.

• In some states, like Himachal Pradesh and Tamil Nadu, poverty has decreased by a lot.
• In other states, like Assam and Meghalaya, poverty has increased.
• Some large states, like Bihar and Uttar Pradesh, have only seen a small decrease in poverty.
• The poorest people in India are from the scheduled tribes and scheduled castes.
• In rural areas, almost two-thirds of scheduled tribes and scheduled castes are poor. - In some states like Manipur, Orissa, and Uttar Pradesh, more than half of the people belonging to certain religious groups are poor.
• Among religious groups, Sikhs have the lowest poverty rate in rural areas (11.9%), while Christians have the lowest poverty rate in urban areas (12.9%).
• In rural areas, Muslims have a very high poverty rate in states like Assam (53.6%), Uttar Pradesh (44.4%), West Bengal (34.4%), and Gujarat (31.4%).
• In urban areas, Muslims have the highest poverty rate in all of India (33.9%).
• Similarly, in urban areas, Muslims have a high poverty rate in states like Rajasthan (29.5%), Uttar Pradesh (49.5%), Gujarat (42.4%), Bihar (56.5%), and West Bengal (34.9%).
• When it comes to different jobs, almost 50% of agricultural workers and 40% of other laborers are below the poverty line in rural areas. In urban areas, the poverty rate for casual laborers is 47.1%.
• As expected, people with regular wage or salaried jobs have the lowest poverty rate. - In the state of Haryana, which is known for its agricultural success, a large number of agricultural workers, about 55.9%, are poor. In comparison, in the state of Punjab, only 35.6% of agricultural workers are poor.
• In urban areas, the number of casual labourers who are poor is very high in certain states. For example, in Bihar, 86% of casual labourers are poor, in Assam, 89% are poor, in Orissa, 58.8% are poor, in Punjab, 56.3% are poor, in Uttar Pradesh, 67.6% are poor, and in West Bengal, 53.7% are poor.
• When we look at the education level of the head of the household, we find that in rural areas, households where the head has only a primary level education or lower have the highest poverty rate. On the other hand, households where the head has a secondary or higher education have the lowest poverty rate.
• In rural areas of Bihar and Chhattisgarh, almost two-thirds of households where the head has only a primary level education or lower are poor. In Uttar Pradesh, this number is 46.8%, and in Orissa, it is 47.5%.
• The trend is similar in urban areas. Households where the head has only a primary level education or lower are more likely to be poor than households where the head has a secondary or higher education.
• When we look at the age and sex of the head of the household, we find that in rural areas, households headed by minors have a poverty rate of 16.7%, households headed by females have a poverty rate of 29.4%, and households headed by senior citizens have a poverty rate of 33.3%. - In cities, families led by children have a poverty rate of 15.7%, while families led by women and senior citizens have poverty rates of 22.1% and 20%, respectively. The overall poverty rate is 20.9%.
• India doesn’t have a single way of measuring poverty.
• The Arjun Sengupta Report says that 77% of Indians live on less than 20 rupees a day.
• The N. C. Saxena Committee report says that 50% of Indians are below the poverty line.
• The Oxford Poverty and Human Development Initiative says that 645 million people in India live in multi-dimensional poverty.
• The NCAER (National Council of Applied Economic Research) Report says that 48% of Indian households earn more than 90,000 rupees (US $1998) per year.
• The World Bank estimates that about 100 million Indian households (about 456 million people) are below the poverty line.
• Note: The Planning Commission of India has accepted the The Tendulkar Committee report found that almost 37 out of every 100 people in India live in poverty.

State-wise Distribution of Industries

• Different industries are not spread evenly across India. Some states have more industries than others.

Major Large-scale Industries

• Large-scale industries include iron and steel, engineering, jute, cotton, textiles, and sugar.

Iron and Steel Industry

• The first steel company in India was the Bengal Iron and Steel Company, which was established in 1870.
• The private sector set up the Indian Iron and Steel Company in 1976.
• The Vishakhapatnam steel plant in Andhra Pradesh was set up under the Sixth Five Year Plan with the help of the Russian Government.
• The Salem steel plant in Tamil Nadu was also set up under the Sixth Five Year Plan.
• The Bhadrawati steel plant in Karnataka was nationalized under the Sixth Five Year Plan. - The Tata Iron and Steel Company (TISCO) was the first large-scale steel plant in India. It was set up in Jamshedpur in 1907.
• The Indian Iron and Steel Company (IISCO) was set up in Burnpur, West Bengal in 1919.
• The Bengal Iron Company merged with IISCO in 1936.
• The public sector steel plants in India are managed by the Steel Authority of India Limited (SAIL).
• The government of India owns most of SAIL’s shares and controls the company.
• SAIL has four integrated steel plants in Bhilai, Durgapur, Rourkela, and Bokaro.
• SAIL also has three special steel plants in West Bengal, Tamil Nadu, and Karnataka.

Steel Industry in India

• SAIL has three subsidiaries:

  • Indian Iron and Steel Company (IISCO) in West Bengal
  • Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
  • Bhilai Oxygen Limited (BOL) in New Delhi

• The first large-scale steel plant in the private sector is the Tata Iron and Steel Company (TISCO) in Jamshedpur.

• Other major steel producers in India include:

  • Essar Steel
  • NMDC
  • Jindal Vijaynagar Steels Ltd.
  • Jindal Strips Ltd.
  • JISCO
  • Lloyds Steel Industries Ltd.
  • Uttam Steels
  • Ispat Industries Ltd.
  • Mukand Steels Ltd.
  • Mahindra Ugine Steel Company Ltd.
  • Tata SSL Ltd.
  • Usha Ispat Ltd.
  • Saw Pipes Ltd.
  • Kalyani Steels Ltd.
  • Electro Steel Castings Ltd.
  • NMDC
  • Sesa Goa Ltd.

Engineering Industries in India

• Engineering industries in India produce machinery, tools, transport equipment, and consumer durables.

• The automobile sector in India has shown the strengths of Indian labor and capital.

• Several Indian firms have successfully integrated into global production chains and achieved rapid growth.

Jute Industry

• Most of India’s jute mills are located in West Bengal.
• The jute industry is important because it brings in foreign money.

Textile Industry

• The textile industry is the oldest and largest employer in India.
• With the end of the quota system under the Multi-Fiber Agreement (MFA) on January 1, 2005, developing countries like India, which have both textile and clothing production, may be able to grow.

Pharma and IT Industry

• These are two of India’s fastest-growing industries.
• The pharmaceutical industry has changed the most in India, while the information technology (IT) industry has made India a well-known brand in the world.
• India has become the best place for business process outsourcing (BPO), which is a big part of the growth of the software and services industries.

Various Organizations Connected with Industries

• Bureau of Indian Standards

Bureau of Indian Standards (BIS):

• BIS is a government organization that was created in 1947.
• Its job is to make sure that products made in India meet certain quality standards.
• BIS gives a special mark, called the ISI mark, to products that meet its standards.

National Productivity Council (NPC):

• NPC is an independent organization that was formed in 1958.
• Its goal is to help industries become more productive.
• NPC has offices all over India, and it works with businesses to use modern methods and techniques to increase production.
• NPC also gives out awards every year to the most productive industries in different sectors.

Principal Manufacturing Regions:

• The table shows the main manufacturing regions in India and the industries that are important in each region.
• For example, the Jharkhand-Bengal Industrial Belt is known for its jute, cotton, electrical, and light engineering goods, as well as chemicals.
• The Mumbai-Pune region is known for its petrochemicals, pharmaceuticals, and automobiles.

Table 4.4: Important Resources

Location of Industries in India

• Aircraft industry: Bangalore and Kanpur
• Aluminum: Alwaye (Kerala), Asansol (West Bengal), Belur (Karnataka), Hirakud (Orissa), Renukoot (UP), Muri (Jharkhand), Korba (Chhattisgarh)
• Automobiles: Mumbai, Burnpur (West Bengal), Calcutta, Jamshedpur (Jharkhand), Chennai
• Cables: Rupnarainpur (West Bengal), Rajpura (Punjab)
• Cement: Bhadravati (Karnataka), Churk (UP), Dalmianagar (Bihar), Gwalior
• Cotton textiles: Ahmedabad (Gujarat), Bangalore, Mumbai, Kolkata, Coimbatore (Tamil Nadu), Indore (MP), Kanpur (UP), Ludhiana and Amritsar (Punjab), Chennai, Madurai (Tamil Nadu), Nagpur and Sholapur (Maharashtra)
• Cycles: Ludhiana (Punjab)
• D.D.T.: Alwaye (Kerala) and Delhi
• Glass Items:
• Bangles: Firozabad (UP) and Belgaum (Karnataka) Here’s the simplified version of the content:
• Lampware: Made in Kolkata and Naini (Uttar Pradesh).
• Thermos flasks: Made in Faridabad (Haryana).
• Glass bottles: Made in Amritsar (Punjab).
• Glass lenses: Made in Jabalpur (Madhya Pradesh).
• Glass sheets: Made in Bahjoi, Balawali, Ghaziabad, Jaunpur (Madhya Pradesh), Bangalore, Mumbai, Kolkata, Hyderabad, and Chennai.
• Fertilizer: Made in Nangal, Sindri (Jharkhand), Gorakhpur (Uttar Pradesh), Nahorkatiya (Assam), Neyveli (Tamil Nadu), Rourkela (Orissa), and Trombay (Maharashtra).
• Hosiery goods: Made in Amritsar, Ludhiana (Punjab), and Kanpur (Uttar Pradesh).
• Jute goods: Made in Kolkata, Gorakhpur, and Kanpur.
• Lac: Made in Jhalda and Kossipore (West Bengal), Mirzapur and Bareilly (Uttar Pradesh).
• Leather goods: Made in Kanpur and Agra (Uttar Pradesh), Batanagar (West Bengal), Mumbai, Kolkata, Chennai, and Delhi.
• Locomotives: Made in Chittaranjan (West Bengal), Varanasi (Uttar Pradesh), and Jamshedpur (Jharkhand).
• Match boxes: Made in Ahmedabad, Bareilly (Uttar Pradesh), Mumbai, Kolkata, Chennai, Pune, Raipur (Chhattisgarh), and Srinagar.
• Paper: Made in Bhadravati (Karnataka), Dalmianagar, Jagadhari (Haryana), and Lucknow.

Chemical and Pharmaceuticals

• Hindustan Organic Chemicals Ltd.: Rasayani, Maharashtra
• Indian Drugs and Pharmaceuticals Ltd.:
• Antibiotics Plant (IDPL): Rishikesh, Uttarakhand
• Synthetic Drugs Project: Hyderabad, Andhra Pradesh
• Surgical Instruments Plant: Chennai, Tamil Nadu
• Hindustan Antibiotics Ltd.: Pimpri, Maharashtra
• Hindustan Insecticides Ltd.: Alwaye, Kerala and Delhi

Fertilizers

• Fertilizer Corporation of India Ltd.:
• Nangal, Punjab
• Sindri, Jharkhand
• Trombay, Maharashtra

Nuclear Power Plants

Heavy Water Plants

Machinery and Equipment

Here is the content rewritten in simpler language:

14. Heavy Vehicles Factory: Located in Avadi, Tamil Nadu.

15. Hindustan Cables Factory: Situated in Rupnarainpur, West Bengal.

16. Hindustan Machine Tools: Has multiple locations, including Jalahalli (Karnataka) near Bangalore, Pinjore (Haryana), Hyderabad (Andhra Pradesh), Kalamassery (Kerala).

17. Hindustan Shipyard: Found in Visakhapatnam and Kochi.

18. Indian Telephone Industries: Has factories in Bangalore, Naini (Uttar Pradesh), Rai Bareilly (Uttar Pradesh), and Mankapur (Gonda, Uttar Pradesh).

19. Instrumentation Ltd.: Located in Kota (Rajasthan) and Palakkad (Kerala).

20. Integral Coach Factory: Has facilities in Perambur (Tamil Nadu) and Kotkapur (Punjab).

21. Machine Tool Corporation of India: Situated in Ajmer, Rajasthan.

22. Machine Tools Prototype Factory: Located in Ambarnath, Mumbai.

23. Mazagon Docks Ltd.: Found in Mumbai.

24. Mining and Allied Machinery Corporation Ltd.: Situated in Durgapur.

25. Nahan Foundry: Located in Sirmur, Himachal Pradesh.

26. National Instruments Factory: Situated in Kolkata.

27. Praga Tools Corporation: Located in Hyderabad.

28. Triveni Structural Ltd.: Situated in Naini, Himachal Pradesh.

29. Tungabhadra Steel Products Ltd.: Located in Tungabhadra, Karnataka.

Projects:

1. National Mineral Development Corporation is in Hyderabad.
2. Hindustan Zinc Limited is in Udaipur, Rajasthan.
3. Bharat Aluminium Co. Ltd. is in Korba, Madhya Pradesh and Ratnagiri, Maharashtra.
4. Hindustan Copper Ltd. is in Agnigudala, Andhra Pradesh, Dariba, Rajasthan, Malanjkhand, Madhya Pradesh, and Rakha, Jharkhand.
5. Bharat Coking Coal Ltd. is in Dhanbad, Jharkhand.
6. Bharat Gold Mines Ltd. is in Kolar, Karnataka.
7. Coal Mines Authority Ltd. is in Kolkata.
8. Neyveli Lignite Corporation is in Neyveli, Tamil Nadu.
9. Zinc Smelter is in Zawar, Rajasthan.

Paper:

1. National Newsprint and Paper Mills Ltd. is in Nepanagar, Madhya Pradesh.

Petroleum:

• Indian Refineries Ltd. is in Barauni, Bihar and Noonmati, Assam.
• Cochin Oil Refinery is in Kochi, Kerala.
• Koyali Oil Refinery is in Koyali, Gujarat.

Steel Plants:

1. Hindustan Steel Ltd. is in Bhilai, Madhya Pradesh.
2. Hindustan Steel Ltd. is in Durgapur, West Bengal. Steel Plants in India

Other Industries in India

Cottage Industries in India

Metal and Brassware Industry in India

• Moradabad is famous for its utensils with engraving.

Brassware/Metalware:

• Jaipur, Kashmir, Varanasi, Madurai, and Tanjore are known for their brassware and metalware.

Ivory Works:

• Andhra Pradesh, Kerala, Karnataka, Tamil Nadu, and Rajasthan are famous for their ivory works.

Petroleum and Natural Gases:

• In 1867, the first oil well was dug in India.
• In 1889, the first successful oil well was dug in Digboi. This oilfield is still working after more than 100 years.
• Until India’s independence, Assam was the only state in India that produced oil.
• Recently, the Hindustan Oil Exploration Company found oil in the Cambay basin near Palej, Gujarat.
• The seabed oilfields of Mumbai High, which were found recently, are also producing a lot of oil and are now the richest oil fields in India.
• The government is exploring the natural resources of oil and natural gas in the country. Organization Set-Up: The Department of Petroleum, which is part of the Ministry of Petroleum, Chemicals, and Fertilizers, is responsible for finding and getting oil and natural gas out of the ground. They also run refineries and distribute these products.

Oil India Limited (OIL): OIL is a company owned by the Indian government. It was started in 1959 in Duliajan, Assam, in partnership with the Burmah Oil Company (BOC).

Government Takeover: In 1981, the Indian government bought all of the shares that belonged to the Burmah Oil Company. This made OIL a completely government-owned company.

Objectives of OIL: OIL’s main goals are to find and get crude oil (which includes natural gas) and to build pipelines to transport the crude oil to government-owned refineries in Noonmati and Barauni.

Important Oil-Bearing States/Areas: Oil can be found in many places in India, including Assam, Tripura, Manipur, West Bengal, the Ganga Valley, Himachal Pradesh, Kuchchh, Andhra Pradesh, and the offshore areas near West Bengal, Orissa, and Andhra Pradesh.

States with Oil Reserves:

• Pradesh, Tamil Nadu, Karnataka, Maharashtra, and Gujarat have oil reserves.

Main Oil Fields:

• Oil-bearing wells have been drilled in the following areas:
  • Gujarat: Khambhat, Ankleshwar, Olpad, Sam, Kalori, and Weinad
  • Assam: Digboi, Rudrasagar, Sibsagar
  • Punjab: Adampur, Janauri, Jwalamukhi

Off-Shore Drilling:

• Bombay High, located in the deep waters of the western coast, is an offshore drilling site. Drilling operations are carried out using the drilling platform, Sagar Samrat.

Corporations:

• Indian Oil Corporation (IOC):

  • Established in 1964 by merging Indian Refinery Limited and Indian Oil Company.
  • Has three divisions:
    • Marketing (headquarters in Mumbai)
    • Refining and Pipeline (headquarters in Delhi)
    • Assam Oil (headquarters in Digboi)

• Bharat Petroleum Corporation Ltd. (BPCL):

  • Formed in 1976 through the acquisition of Burmah Shell as Bharat Refineries Limited.
  • Name changed to Bharat Petroleum Corporation Ltd. on 1 August 1977.
  • An integrated refining, marketing, and distribution company.

  Hindustan Petroleum Corporation Ltd. (HPCL):

• HPCL is a company that works with oil and gas.

• It was started in 1974 by combining two other companies called ESSO and Caltex.

• The government now fully owns HPCL since October 1976.

• HPCL’s main activities include refining crude oil, making petroleum and lubricating products, and selling and distributing these products all over India.

• HPCL is a very important public sector undertaking and has been given the ‘Nav Ratna’ status by the Indian government.

Gas Authority of India Limited (GAIL):

• GAIL is the biggest company in India that sells natural gas.
• It was started in 1984 by the government to take care of transporting, processing, distributing, and selling natural gas.
• GAIL completed a difficult task given by the government to build the HBJ (Hazira, Bijapur, and Jagdishpur) Pipeline across the country in a very short time.
• GAIL now has more than 4000 kilometers of gas pipelines that go all over India.

Refineries

Upcoming Projects

• Indian Oil Corporation Ltd. is planning to set up a new project at Mumbai refinery FCCU, which is expected to be completed by the first quarter of 2010-2011.
• Hindustan Petroleum Corporation Ltd. is working on the Mittal Energy Investment Guru Gobind Refinery in Bathinda, which has a capacity of 9.00 MMTPA. This project is expected to be completed by the end of 2011.
• Bharat Petroleum Corporation Ltd. is planning to set up the Bina Refinery in Bina, District Sagar, Madhya Pradesh, with a capacity of 6.00 MMTPA.

Note: MMTPA equals 20,000 barrels per day.

List of Oil Refineries in India

Note: Telangana is now a separate state from Andhra Pradesh. The information above includes both Telangana and Andhra Pradesh.

Cities and their famous industries:

• Ensils: Calico-printing
• Mysore: Silk
• Nangal: Fertilizers
• Nepanagar: Newsprint
• Neyveli: Lignite
• Perambur: Rail coach factory
• Pimpri (Pune): Penicillin factory
• Pinjore: Machine tool
• Raniganj: Coal mining
• Rourkela: Steel and fertilizers
• Rupnarainpur: Cables
• Sindri: Fertilizers
• Singhbhum: Copper
• Surat: Textiles
• Tiruchirapalli: Cigars
• Titagarh: Paper
• Trombay: Atomic power station
• Vishakhapatnam: Ship building

Inflation:

• Inflation is caused by government policies that lead to financial mismanagement.
• Reducing the budget can lower both demand and supply.
• To control inflation, the government should carefully use incentives to ensure that the desire to speculate does not outweigh the motivation to produce.
• Before creating anti-inflation policies, the government must comprehend the gaps between demand and supply.

Inflation in India

Despite facing various economic challenges from the global economy, India has managed to avoid severe inflation for most of its history since independence. However, the average rate of inflation has gradually increased over the years.

In the 1950s, consumer prices rose by an average of 2.1% per year. This increased to 6.3% in the 1960s, 7.8% in the 1970s, and 8.5% in the 1980s.

There are three main reasons why India has been able to maintain relative price stability:

1. Government intervention: The government has played a direct or indirect role in keeping the prices of certain essential goods, such as wheat, rice, cloth, and sugar, stable.
2. Monetary regulation: The government has also implemented monetary regulations to restrict the growth of the money supply.
3. Weak labor unions: The labor unions in India are relatively weak, which has limited their influence on wages. This has helped to keep inflation in check.

Causes of Inflation

There are several factors that can cause inflation, including:

• Mismatch between money supply, production, and prices: If the money supply grows faster than the production of goods and services, prices will rise.

• Deficit financing: When the government spends more money than it collects in taxes, it can lead to inflation.

• Black money and parallel economy: Black money refers to undeclared income that is not taxed. This can lead to inflation because it increases the amount of money in circulation. *

• Increased Government Spending: When the government spends more money than it collects in taxes, it can lead to inflation.

• Growing Population: As the population grows, the demand for goods and services increases, which can put upward pressure on prices.

• Administered Prices: When businesses raise prices for their products or services, it can contribute to inflation.

• Indirect Taxes: When the government imposes indirect taxes, such as sales tax or value-added tax, businesses may pass on the cost of these taxes to consumers in the form of higher prices.

• Fluctuations in Production: When there are fluctuations in industrial or agricultural production, it can affect the supply of goods and services, which can lead to price increases.

• Fluctuations in Production: When there are fluctuations in industrial or agricultural production, it can affect the supply of goods and services, which can lead to price increases.

• Fluctuations in Savings and Procurement Prices: When there are fluctuations in the rate of savings or procurement prices, it can affect the demand for goods and services, which can lead to price changes.

• Infrastructural and Forex Bottlenecks: When there are infrastructural or foreign exchange bottlenecks, it can affect the supply of goods and services, which can lead to price increases.

Remedial Measures to Control Inflation:

Short-Term Measures:

1. Increase in Supply of Essential Commodities: Increasing the supply of essential commodities can help to reduce their prices.

2. Increase in Money Supply and Control of Deficit Financing by Government: The government can control inflation by increasing the money supply and controlling deficit financing.

3. Improve Public Distribution System: Improving the public distribution system can help to ensure that essential commodities are available to the masses at fair prices.

Long-Term Measures:

1. Build up Buffer Stocks of Essential Commodities: Building up buffer stocks of essential commodities can help to stabilize prices during times of shortages.

2. Bring More Taxpayers within the Tax Bracket: Bringing more taxpayers within the tax bracket can help to widen the taxation base and reduce the government’s budget deficit.

3. Rationalize Public Expenditure: The government can control inflation by rationalizing public expenditure.

Expenditure and Investment Planning

• Increase the production of food grains and other items that people use daily.
• Change the way infrastructure industries are set up.
• Use a conservative monetary policy to keep prices stable and the government’s finances in order.

Effects of Inflation

• During times of inflation, people keep less cash on hand, which reduces the real value of their money.
• People switch from financial assets to physical assets.
• The government and individuals find it harder to plan their finances.
• Uncertainties during inflation discourage investment and saving.
• Income is redistributed because entrepreneurs and salaried workers lose money, while speculators and those who own real estate and gold tend to gain more.
• The economy’s ability to make a profit decreases.

Currency System

Historical Background

• The first gold coins were made during the Gupta dynasty, which ruled from 390 to 550 AD.
• The rupee was first minted in India around 1542 AD during the reign of Sher Shah Suri. It was a silver coin. In 1873, the price of silver dropped in the global market, causing the silver coin to lose its value as a metal. Before 1873, the Indian rupee was worth ₹10 for every pound sterling.

In 1882, the British government introduced paper money in India.

In 1935, the Reserve Bank of India was established, making the Indian rupee an independent currency. However, for exchange purposes, it still depended on the pound sterling.

In 1947, India joined the International Monetary Fund, and the value of the rupee was set according to IMF standards.

In 1957, the Indian Coinage (Amendment) Act changed the Indian currency system to a decimal system. The old system of rupees, annas, and paise (1 rupee = 16 annas and 1 anna = 12 paise) was replaced by the rupee and paise system. The first 1 paise coin was introduced.

Issuance of Indian Currency

• The Indian government issues all coins and ₹1 notes.
• The Reserve Bank of India (RBI) issues currency notes above ₹1 denomination.
• The current series of currency notes, called the Mahatma Gandhi Series, began in 1996.
• Currency notes of denominations ₹1, 2, 5, 10, 20, 50, 100, 500, and 1000 are in circulation.
• The RBI distributes and manages all currency on behalf of the Indian government.

Demonetization of Currency

• Demonetization means taking money out of circulation. It’s done to get rid of black market money and money that people haven’t reported to the government. It’s happened twice in India.
• The first time was in 1946. They got rid of all the ₹100 notes and higher. Then, in 1978, they got rid of the ₹1000, ₹5000, and ₹10,000 notes.

Devaluation of Currency

• Devaluation means making the Indian rupee worth less compared to the US dollar in the world market.
• In 1947, India joined the International Monetary Fund. This meant they had to set the value of the rupee based on IMF rules. Because of this, India had to devalue the rupee.
• Here are the times the rupee was devalued:
• The first time was in June 1949.

Indian Rupee Devaluation:

• The Indian rupee lost value compared to other currencies.
• The first devaluation happened when Dr. John Mathai was the finance minister. The rupee lost 30.5% of its value.
• The second devaluation occurred in June 1966, and the rupee lost 57% of its value. Sachindra Chaudhury was the finance minister at that time.
• The third devaluation took place on 1 July 1991, and the rupee lost 9% of its value. On 3 July 1991, it was devalued again by 11%, making a total devaluation of 20%. Dr. Manmohan Singh was the finance minister during this period.
• Since 20 August 1994, the rupee has been freely convertible for current account transactions.

Development of Banking System in India:

• The first bank managed by Indians was the Oudh Commercial Bank, established in 1881.
• It was a bank with limited liability.
• During the British rule, many institutions engaged in banking activities as agency houses, combining banking with their trading businesses.
• The Punjab National Bank was the second Indian bank to be established in 1884.
• The Swadeshi Movement started in 1906, and many commercial banks were created during this time.
• In 1921, three big banks in India merged to form the Imperial Bank of India because they were having financial problems.
• In the 1940s, people realized that commercial banks needed to be regulated and controlled. So, in January 1946, the first banking law, called the Banking Companies (Inspection Ordinance) Act, was passed. Then, in February 1946, another law called the Banking Companies (Restriction of Branches) Act was passed.
• In 1949, the Banking Companies Act was changed and renamed the Banking Regulation Act.
• In 1993, the government allowed new private banks to be set up in India. They did this because they thought more competition would make the economy more efficient and competitive. But new banks had to follow certain rules:
• They had to be registered as public limited companies.
• The bank should have a minimum paid-up capital of over ₹100 crore.
• Its shares should be listed on the stock exchange.
• The bank’s headquarters should ideally be in a location where no other banks have their main offices.
• The bank must follow the Reserve Bank of India’s (RBI) rules and regulations for banking operations, accounting, and other policies.
• From the start, it must have a minimum capital adequacy of 8%.
• In December 1997, the Indian government formed another high-level committee led by M. Narasimham to assess how well the financial system reforms suggested in 1991 had been carried out.
• The committee was also tasked with examining the current state of affairs and suggesting changes that would strengthen the banking system and better prepare it to compete in the global economy.
• The committee gave its report in April 1998.

The Indian Financial System’s Origins

• During British rule in India (1757-1947), important components of the Indian financial system were established.
• The rupee, India’s national currency, was already widely used domestically and even circulated internationally, particularly in the Persian Gulf region, prior to independence.
• Foreign banks, primarily British and a few from other parts of the British Empire like Hong Kong, offered banking and other financial services.
• However, this colonial banking system was primarily focused on foreign trade and short-term loans, and its operations were concentrated in major port cities.

Establishment of the Reserve Bank of India

• On April 1, 1935, the Reserve Bank of India was established as a privately owned bank with only 5% of its shares held by the Government of India. Its share capital was set at ₹5 crore, which remains unchanged to this day.
• The bank was initially structured as a shareholder institution, modeled after prominent foreign central banks of the time.
• The Reserve Bank of India’s initial share capital of ₹5 crore was - The bank’s total capital was divided into 5,00,000 shares, each worth ₹100.
• In the beginning, all the shares were owned by private individuals, except for 2,200 shares that were given to the Central Government.
• In February 1947, the decision was made to make the bank government-owned.
• According to the Reserve Bank of India (Transfer to Public Ownership) Act 1948, all the shares were considered to have been transferred to the Central Government.
• From January 1, 1949, RBI became a government-owned institution.
• The 1948 Act gave the Central Government the power to give the bank any instructions it thought were necessary for the public good.