Current Status

• It is the largest and fastest growing sector globally contributing to the global output and employing more people than any other sector
• Why has services sector grown?
  • Increase in urbanisation, privatisation and more demand for intermediate and final consumer services
  • Availability of quality services is vital for the well being of the economy
• Service sector in India accounts for more than half of India’s GDP.
• Key service industry in India: health and education
  • A robust healthcare system will help create a strong and diligent human capital who in turn can contribute productively to the nation’s growth
• Marked increase in services sector growth in the post liberalisation period
• Account for 55.2 % share of GDP
• Grows annually by 10%
• Contributing to about a quarter of total employment, high share of FDI inflows, over one third of total exports and recording a very fast growth of 27.4 pc through the first half of 2010-11.
• The ratcheting of the overall growth rate (CAGR) of the Indian economy from 5.7% in the 1990s to 8.6 pc during 2004-05 to 2009-10 was to a large measure due to the acceleration of CAGR in the services sector from 7.5 pc in the 1990s to 10.3 pc in 2004-05 to 2009-10.
• Services sector growth has been around 10 pc since 2005-06

Contribution of Services sector to Indian economy

• Share in GDP
  • 1950-51: 30.5 pc
  • 2009-10: 55.2 pc
  • If construction is included (RBI and WTO method): 63.4 pc
• CSO Classification
  • Trade, hotels and restaurants (16.3 of national GDP)
  • Transport, storage and communication (7.8 of GDP)
  • Financing, insurance, real estate and business services (16.7)
  • Community, social and personal services (14.4)
• Services trade surplus: USD 54 bn (2008-09)
  • USD 35.7 bn (2009-10)
• China (10.5%) followed by India (8.9%) remain the two fastest growing economies in top 12 countries.
• Statewise
  • States such as Delhi, Chandigarh, Kerala, Maharashtra, Bihar, Tamil Nadu and West Bengal have shares equal to or above all-India share of services in the GDP

FDI in Services

• 44 pc of FDI inflows between 2000 and 2009 were in the services sector (construction excluded)
  • Of this financial and non-financial companies have attracted the largest FDI
• Not all sectors are fully open for FDI. Reforms are needed.
• FDI in retail <do detailed>
  • FDI in single brand retail is permitted upto 51%. Now 100 pc.
  • FDI in multi-brand retail is being debated
  • Permitting FDI in retail in a phased manner beginning with the metros and incentivising existing retailer to modernise could help the interests of consumers as well as farmers
  • FDI in retail in bring in latest technology and supply chain management in the country
  • The move for FDI in retail has been opposed on the ground that the move could result in widespread closure of small time shops.
  • The way out could be lay down strict rules of operation for foreign retail chains
    • Include requirement of local procurement
    • This will also lead to stabilising prices by cutting out the middlemen
  • FDI in insurance
    • There is a proposal to raise the FDI cap in the insurance sector from the current 26 pc to 49 pc.
    • A bill for this has been pending before the Parliament
    • Some new sectors in insurance should be opened up – like health insurance
    • This will enable India export super speciality hospital services and medical tourism
    • Withdraw FDI restrictions on foreign re-insurance companies. This will help India access the global re-insurance businesses
  • Banking
    • There is a scope for attracting large investments from abroad
    • Currently 74% investment is allowed.
    • There is 10 pc limit on voting rights in respect of banking companies
    • FDI in banking should be seen in the context of overall financial stability
  • New Areas for FDI
    • Railways
      • Rakesh Mohan Committee on infrastructure had recommended throwing up the entire railway sector open to private investment
      • The finance ministry paper (2010) suggested 26 FDI in railways which can help overcome the current drought in investment in the railways
    • Shipping
      • India’s shipping tonnage is inadequate, accounting for mere 1.17% of global registration
      • The share of India’s vessels in carriage of India’s overseas trade had dropped from 40% in late 1980s to about 9.5% in 2008-09
    • Accountancy, legal services, healthcare and education services

Way Forward

• Retain the country’s competitiveness in those services sectors where it has already distinguished such as IT and ITeS
• The next task is to make foray into some traditional realms such as tourism and shipping where other nations have already established themselves.
• Make serious inroads into globally traded services in still niche areas for India such as financial services, healthcare, education, accountancy, legal and other business services where the country possesses a huge domestic market but has also displayed signs of making a dent in the global market.
• This requires
  • Reciprocal movements on the part of India in opening up its own market, liberalising FDI not only to improve the infrastructure but also to absorb the best practices that are so universally acclaimed.
  • Set up strong institutional bodies in the form of regulatory agencies to take care of both domestic and international interests in case when market-distorting moves are made by either party.
• Non-equity modes of engagement could be used to bypass the political difficulties in reforms

The Government of India has adopted a few initiatives in the recent past. Some of these are as follows:

• The Government of India plans to significantly liberalise its visa regime, including allowing multiple-entry tourist and business visas, which is expected to boost India’s services exports.
•  The Government of India announced plan to increase the number of common service centres or e-Seva centres to 250,000 from 150,000 currently to enable village level entrepreneurs to interact with national experts for guidance, besides serving as a e-services distribution point.
• The Central Government is considering a two-rate structure for the goods and service tax(GST), under which key services will be taxed at a lower rate compared to the standard rate, which will help to minimize the impact on consumers due to increase in service tax.
• The Government of India plans to take mobile network to nearly 10 per cent of Indian villages that are still unconnected.
• The Government of India has proposed provide tax benefits for transactions made electronically through credit/debit cards, mobile wallets, net banking and other means, as part of broader strategy to reduce use of cash and thereby constrain the parallel economy operating outside legitimate financial system.
• The Reserve Bank of India (RBI) has allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and has also allowed white label ATMs to tie up with any commercial bank for cash supply.

 

 

 

 

 

 

 

 

Money supply is the entire stock of currency and other liquid instruments in a country’s economy as of a particular time. The money supply can include cash, coins and balances held in checking and savings accounts.

Money Supply can be estimated as narrow or broad money.

There are four measures of money supply in India which are denoted by M₁, M₂, M₃ and M₄. This classification was introduced by the Reserve Bank of India (RBI) in April 1977. Prior to this till March 1968, the RBI published only one measure of the money supply, M or defined as currency and demand deposits with the public. This was in keeping with the traditional and Keynesian views of the narrow measure of the money supply.

 

 

M1 (Narrow Money) consists of:

(i) Currency with the public which includes notes and coins of all denominations in circulation excluding cash on hand with banks:

(ii) Demand deposits with commercial and cooperative banks, excluding inter-bank deposits; and

(iii) ‘Other deposits’ with RBI which include current deposits of foreign central banks, financial institutions and quasi-financial institutions such as IDBI, IFCI, etc., other than of banks, IMF, IBRD, etc. The RBI characterizes as narrow money.

M₂. which consists of M₁ plus post office savings bank deposits. Since savings bank deposits of commercial and cooperative banks are included in the money supply, it is essential to include post office savings bank deposits. The majority of people in rural and urban India have preference for post office deposits from the safety viewpoint than bank deposits.

M₃. (Broad Money) which consists of M₁, plus time deposits with commercial and cooperative banks, excluding interbank time deposits. The RBI calls M₃ as broad money.

M₄.which consists of M₃ plus total post office deposits comprising time deposits and demand deposits as well. This is the broadest measure of money supply.

High powered money – The total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money. It consists of currency ( notes and coins in circulation with the public and vault cash of commercial banks) and deposits held by the Government of India and commercial banks with RBI. If a memeber of the public produces a currency note to RBI the latter must pay her value equal to the figure printed on the note. Similarly, the deposits are also refundable by RBI on demand from deposit holders. These items are claims which the general public, government or banks have on RBI and are considered to be the liability of RBI.

RBI acquires assets against these liabilities. The process can be understood easily if we consider a simple stylised example. Suppose RBI purchases gold or dollars worth Rs. 5. It pays for thr gold or foreign exchange by issuing currency to the seller. The currency in circulation in the economy thus goes up by Rs. 5, an item that shows up on the liabilityside of RBI’s Balance sheet. The value of the acquired asset, also equal to Rs. 5, is entered under the appropriate head on the Assets side. Similarly, the RBI acquires debt bonds or securities issued by the government and pays the government by issuing currency. It issues loans to commercial banks in a similar fashion.

 

 

 

 

 

Role of RBI
	Pre-reform	Post-reform
Developmental Role: the developmental role has increased in view of the changing structure of the economy with a focus on SMEs and financial inclusion	Priority Sector Lending: Introduced from 1974 with public sector banks. Extended to all commercial banks by 1992	In the revised guidelines for PSL the thrust is on ensuring adequate flow of bank credit to those sectors that impact large segments of the population and weaker sections, and to the sectors which are employment intensive such as agriculture and small enterprises
	Lead Bank Scheme	Special Agricultural Credit Plan introduced.
		Kisan Credit Card scheme (1998-99)
		Focus on credit flow to micro, small and  medium enterprises development
		Financial Inclusion
Monetary Policy: the role of RBI has changed from regulating credit and money flow directly to using market mechanisms for achieving policy targets. MP framework has changed to promote financial deregulations and market development. Role as a facilitator rather than as principal actor.	M3 as an intermediary target	Multiple Indicator Approach
	Regulation of foreign exchange	Management of foreign exchange
	Direct credit control	Open Market Operations, MSS, LAF
	Rupee convertability highly managed	Full current ac convertability and some capital account convertability
Banker to the government	Monetary policy was linked to the fiscal policy due to automatic monetisation of the deficit	Delinking of monetary policy from the fiscal policy. From 2006, under FRBM, RBI ceased to participate in the primary market auctions of the central government’s securities.
As regulator of financial sector: As regulator of the financial sector, RBI has faced the challenge of regulating the increasing financial sector in India. Credit flows have increased. RBI had to make sure that financial institutions are regulated in a way to protect the consumers while not impeding economic growth.	Reduction in SLR
Custodian of FOREX reserves		Forex reserves have increased drastically. Need to manage it adequately and avoid inflationary impact
Inflation	Direct instruments were used	Multiple indicators
Financial Stability	Closed economy	Increased FDI and FII has made financial stability one of the policy objectives.
Money Market		Narsimhan Committee (1998) recommended reforms in the money market

 

 

1. Role of Commercial Banks
2. Issue of NPA
3. Financial Inclusion

A Commercial bank is a type of financial institution that provides services such as accepting deposits, making business loans, and offering basic investment products

There is acute shortage of capital. People lack initiative and enterprise. Means of transport are undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles and promoting economic development. The role of a commercial bank in a developing country is discussed as under.

1. Mobilising Saving for Capital Formation:

The commercial banks help in mobilising savings through network of branch banking. People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of the few rich. By mobilising savings, the banks channelize them into productive investments. Thus they help in the capital formation of a developing country.

1. Financing Industry:

The commercial banks finance the industrial sector in a number of ways. They provide short-term, medium-term and long-term loans to industry.

1. Financing Trade:

The commercial banks help in financing both internal and external trade. The banks provide loans to retailers and wholesalers to stock goods in which they deal. They also help in the movement of goods from one place to another by providing all types of facilities such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. Moreover, they finance both exports and imports of developing countries by providing foreign exchange facilities to importers and exporters of goods.

1. Financing Agriculture:

The commercial banks help the large agricultural sector in developing countries in a number of ways. They provide loans to traders in agricultural commodities. They open a network of branches in rural areas to provide agricultural credit. They provide finance directly to agriculturists for the marketing of their produce, for the modernisation and mechanisation of their farms, for providing irrigation facilities, for developing land, etc.

They also provide financial assistance for animal husbandry, dairy farming, sheep breeding, poultry farming, pisciculture and horticulture. The small and marginal farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas are provided financial assistance through the regional rural banks in India. These regional rural banks operate under a commercial bank. Thus the commercial banks meet the credit requirements of all types of rural people. In India agricultural loans are kept in priority sector landing.

1. Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess sufficient financial resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities and also increase the demand in the economy.

1. Financing Employment Generating Activities:

The commercial banks finance employment generating activities in developing countries. They provide loans for the education of young person’s studying in engineering, medical and other vocational institutes of higher learning. They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business. Such loan facilities are being provided by a number of commercial banks in India. Thus the banks not only help inhuman capital formation but also in increasing entrepreneurial activities in developing countries.

1. Help in Monetary Policy:

The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.

 

A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.According to RBI, terms loans on which interest or installment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.

However, in terms of Agriculture / Farm Loans; the NPA is defined as under:

• For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is not paid for 2 crop seasons , it would be termed as a NPA.
• For Long Duration Crops, the above would be 1 Crop season from the due date.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has provisions for the banks to take legal recourse to recover their dues. When a borrower makes any default in repayment and his account is classified as NPA; the secured creditor has to issue notice to the borrower giving him 60 days to pay his dues. If the dues are not paid, the bank can take possession of the assets and can also give it on lease or sell it; as per provisions of the SAFAESI Act.

Reselling of NPAs :- If a bad loan remains NPA for at least two years, the bank can also resale the same to the Asset Reconstruction Companies such as Asset Reconstruction Company (India) (ARCIL).  These sales are only on Cash Basis and the purchasing bank/ company would have to keep the accounts for at least 15 months before it sells to other bank. They purchase such loans on low amounts and try to recover as much as possible from the defaulters. Their revenue is difference between the purchased amount and recovered amount.

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.

Government of India has launched an innovative scheme of Jan Dhan Yojna for Financial Inclusion to provide the financial services to millions out of the regulated banking sector.

 

Various program’s for financial inclusion are:-

• Swabhimaan Scheme: under the Swabhimaan campaign, the Banks were advised to provide appropriate banking facilities to habitations having a population in excess of 2000 (as per 2001 census) by March 2012.
• Extention of  the banking network in unbanked areas,
• Expansion of Business Correspondent Agent (BCA) Network
• Direct Benefit Transfer (DBT) and Direct Benefit Transfer for LPG (DBTL)
• RuPay, a new card payment scheme has been conceived by NPCI to offer a domestic, open-loop, multilateral card payment system which will allow all Indian banks and financial Institutions in India to participate in electronic payments.
• Pradhan Mantri Jan-Dhan Yojana (PMJDY) was formally launched on 28th August, 2014. The Yojana envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension. The beneficiaries would get a RuPay Debit Card having inbuilt accident insurance cover of Rs.1.00 lakh. In addition there is a life insurance cover of Rs.30000/- to those people who opened their bank accounts for the first time between 15.08.2014 to 26.01.2015 and meet other eligibility conditions of the Yojana.

•  Public Finance

  Public finance is the study of the role of the government in the economy. It is the branch of economics which assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.

  It includes the study of :-

  • Fiscal Policy
  • Deficits and Deficit Financing
  • Fiscal Consolidation
  • Public Debt- Internal and External debt

  Fiscal policy relates to raising and expenditure of money in quantitative and qualitative manner.Fiscal policy is the use of government spending and taxation to influence the economy. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty. The role and objectives of fiscal policy gained prominence during the recent global economic crisis, when governments stepped in to support financial systems, jump-start growth, and mitigate the impact of the crisis on vulnerable groups.

  Historically, the prominence of fiscal policy as a policy tool has waxed and waned. Before 1930, an approach of limited government, or laissez-faire, prevailed. With the stock market crash and the Great Depression, policymakers pushed for governments to play a more proactive role in the economy. More recently, countries had scaled back the size and function of government—with markets taking on an enhanced role in the allocation of goods and services—but when the global financial crisis threatened worldwide recession, many countries returned to a more active fiscal policy.

  How does fiscal policy work?

  When policymakers seek to influence the economy, they have two main tools at their disposal—monetary policy and fiscal policy. Central banks indirectly target activity by influencing the money supply through adjustments to interest rates, bank reserve requirements, and the purchase and sale of government securities and foreign exchange. Governments influence the economy by changing the level and types of taxes, the extent and composition of spending, and the degree and form of borrowing.

  Deficit financing, practice in which a government spends more money than it receives as revenue, the difference being made up by borrowing or minting new funds.

  Fiscal consolidation is a term that is used to describe the creation of strategies that are aimed at minimizing deficits while also curtailing the accumulation of more debt. The term is most commonly employed when referring to efforts of a local or national government to lower the level of debt carried by the jurisdiction, but can also be applied to the efforts of businesses or even households to reduce debt while simultaneously limiting the generation of new debt obligations. From this perspective, the goal of fiscal consolidation in any setting is to improve financial stability by creating a more desirable financial position.

  The public debt is defined as how much a country owes to lenders outside of itself. These can include individuals, businesses and even other governments.public debt is the accumulation of annual budget deficits. It’s the result of years of government leaders spending more than they take in via tax revenues.

WHO Defines Food security to exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life.
Food security has three interlinked contents such as :-

1. Availability of food,
2. Access to food and
3. absorption of food.

Food security is a multidimensional concept covering even the  micro level household food security,energy intakes and indicators of malnutrition.

 

Major components of food security are:-

1. Production and Procurement
2. Storage
3. Distribution

Indian Agriculture is rightly called as a gamble with Monsoon, variability in food production and rising population creates food insecurity in the nation and worst effected are the downtrodden section of the society.

While India has seen impressive economic growth in recent years, the country still struggles with widespread poverty and hunger. India’s poor population amounts to more than 300 million people, with almost 30 percent of India’s rural population living in poverty. The good news is, poverty has been on the decline in recent years. According to official government of India estimates, poverty declined from 37.2% in 2004-05 to 29.8% in 2009-10.

Need for Self-Sufficiency:

India suffered two very severe droughts in 1965 and 1966. Food Aid to India was restricted to a monthly basis by USA under the P.L. 480 programme.  The Green Revolution made a significant change in the scene. India achieved self-sufficiency in food grains by the year 1976 through the implementation of the seed- water-fertilizer policy adopted by the Government of India.

Food grain production increased four-fold during 1950-51 and 2001-2002 from 51 million tons to 212 million tones. The country is no longer exposed to real famines. But the regional variation in the success of Green Revolution which was chiefly limited to northern- Western states has lead to the divide in the nation. Evergreen revoloution and Bringing green revolution to eastern India is the need of the hour.

Green revolution was focused on wheat and rice and thus the production of pulses was stagnant.

National Food Security Mission comprising rice, wheat and pulses to increase the production of rice by 10 million tons, wheat by 8 million tons and pulses by 2 million tons by the end of the Eleventh Plan (2011-12). The Mission is being continued during 12th Five Year Plan with new targets of additional production of food grains of 25 million tons of food grains comprising of 10 million tons rice, 8 million tons of wheat, 4 million tons of pulses and 3 million tons of coarse cereals by the end of 12th Five Year Plan.
The National Food Security Mission (NFSM) during the 12th Five Year Plan will have five components

(i) NFSM- Rice;

(ii) NFSM-Wheat;

(iii) NFSM-Pulses,

(iv) NFSM-Coarse cereals and

(v) NFSM-Commercial Crops.

Government through Public Distribution System has tried to counter the problem of food insecurity by providing the food grains through fair price shops.

The central Government through Food Corporation of India has assumed the responsibilities of  procurement,storage,transfer and bulk allocation of food grains to state governments.

The public distribution system (PDS) has played an important role in attaining higher levels of the household food security and completely eliminating the threats of famines from the face of the country, it will be in the fitness of things that its evolution, working and efficacy are examined in some details.

PDS was initiated as a deliberate social policy of the government with the objectives of:

i) Providing foodgrains and other essential items to vulnerable sections of the society at resonable (subsidised) prices;

ii) to have a moderating influence on the open market prices of cereals, the distribution of which constitutes a fairly big share of the total marketable surplus; and

iii) to attempt socialisation in the matter of distribution of essential commodities.

 

The focus of the Targeted Public Distribution System (TPDS) is on “poor in all areas” and TPDS involves issue of     35 Kg of food grains per family per month for the population Below Poverty Line (BPL) at specially subsidized prices. The TPDS requires the states to Formulate and implement :-

1. foolproof arrangements for identification of poor,
2. Effective delivery of food grains to Fair Price Shops (FPSs)
3. Its distribution in a transparent and accountable manner at the FPS level.

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The Twelfth Finance Commission  was appointed under the chairmanship of C. Rangarajan on November 1, 2002 to make recommendations regarding the distribution between the Union and the States of net proceeds of shareable taxes, the principles which should govern the grants- in-aid of the revenues of States from the Consolidated Fund of India and the measures needed to augment the Consolidated Fund of a State to supplement the resources of local bodies in the State on the basis of the recommendations made by the Finance Commission of the State.

 

Recommendations of the Twelfth Finance Commission

Restructuring public finances

• Centre and States to improve the combined tax-GDP ratio to 17.6 per cent by 2009-10.
• Combined debt-GDP ratio, with external debt measured at historical exchange rates, to be brought down to 75 percent by 2009-10.
• Fiscal deficit to GDP targets for the Centre and States to be fixed at 3 per cent.
• Revenue deficit of the Centre and States to be brought down to zero by 2008-09.
• Interest payments relative to revenue receipts to be brought down to 28 per cent and 15 per cent in the case of the Centre and States, respectively.
• States to follow a recruitment policy in a manner so that the total salary bill, relative to revenue expenditure, net of interest payments, does not exceed 35 per cent.
• Each State to enact a fiscal responsibility legislation providing for elimination of revenue deficit by 2008-09 and reducing fiscal deficit to 3 per cent of State Domestic Product.
• The system of on-lending to be brought to an end over time. The long term goal should be to bring down debt-GDP ratio to 28 per cent each for the Centre and the States.

Sharing of Union tax revenues

•  The share of States in the net proceeds of shareable Central taxes fixed at 30.5 per cent, treating additional excise duties in lieu of sales tax as part of the general pool of Central taxes. Share of States to come down to 29.5 per , when States are allowed to levy sales tax on sugar, textiles and tobacco.
• In case of any legislation enacted in respect of service tax, after the notification of the eighty eighth amendment to the Constitution, revenue accruing to a State should not be less than the share that would accrue to it, had the entire service tax proceeds been part of the shareable pool.
• The indicative amount of overall transfers to States to be fixed at 38 per cent of the Centre’s gross revenue receipts.

Local bodies

• A grant of Rs.20,000 crore for the Panchayati Raj institutions and Rs.5,000 crore for urban local bodies to be given to States for the period 2005-10.
• Priority to be given to expenditure on operation and maintenance (O&M) costs of water supply and sanitation, while utilizing the grants for the Panchayats. At least 50 per cent of the grants recommended for urban local bodies to be earmarked for the scheme of solid waste management through public-private partnership.

Calamity relief

•  The scheme of Calamity Relief Fund (CRF) to continue in its present form with contributions from the Centre and States in the ratio of 75:25. The size of the Fund worked out at Rs.21,333 crore for the period 2005-10.
  The outgo from the Fund to be replenished by way of collection of National Calamity Contingent Duty and levy of special surcharges.
• The definition of natural calamity to include landslides, avalanches, cloud burst and pest attacks.
  Provision for disaster preparedness and mitigation to be part of State Plans and not calamity relief.

Grants-in-aid to States

•  The present system of Central assistance for State Plans, comprising grant and loan components, to be done away with, and the Centre should confine itself to extending plan grants and leaving it to States to decide their borrowings.
• Non-plan revenue deficit grant of Rs.56,856 crore recommended to 15 States for the period 2005-10. Grants amounting to Rs.10,172 crore recommended for the education sector to eight States. Grants amounting to Rs.5,887 crore recommended for the health sector for seven States. Grants to education and health sectors are additionalities over and above the normal expenditure to be incurred by States.
• A grant of Rs.15,000 crore recommended for roads and bridges, which is in addition to the normal expenditure of States.
• Grants recommended for maintenance of public buildings, forests, heritage conservation and specific needs of States are Rs. 500 crore, Rs.1,000 crore, Rs.625 crore, and Rs.7,100 crore, respectively.

Fiscal reform facility

•  With the recommended scheme of debt relief in place, fiscal reform facility not to continue over the period 2005-10.

Debt relief and corrective measures

•  Central loans to States contracted till March,2004 and outstanding on March 31, 2005 amounting to Rs.1,28,795 crore to be consolidated and rescheduled for a fresh term of 20 years, and an interest rate of 7.5 per cent to be charged on them. This is subject to enactment of fiscal responsibility legislation by a State.
• A debt write-off scheme linked to reduction of revenue deficit of States to be introduced. Under this scheme,
  repayments due from 2005-06 to 2009-10 on Central loans contracted up to March 31,2004 will be eligible for write- off.
• Central Government not to act as an intermediary for future lending to States, except in the case of weak States,
  which are unable to raise funds from the market.
• External assistance to be transferred to States on the same terms and conditions as attached to such assistance by external funding agencies.
• All the States to set up sinking funds for amortization of all loans.
• States to set up guarantee redemption funds through earmarked guarantee fees.

Others

•  The Centre should share ‘profit petroleum’ from New Exploration and Licensing Policy (NELP) areas in the ratio of 50:50 with States where mineral oil and natural gas are produced. No sharing of profits in respect of nomination fields and non-NELP blocks.
• Every State to set up a high level committee to monitor the utilization of grants recommended by the TFC.
  Centre to gradually move towards accrual basis of accounting.

Source:Ministry of Finance

 

In 1978, the World Bank, for the first time, constructed an analytical country classification system. The occasion was the launch of the World Development Report. Annexed to the report was a set of World Development Indicators (WDI), which provided the statistical underpinning for the analysis. The first economic classification in the 1978 WDI divided countries into three categories: (1) developing countries, (2) industrialized countries, and (3) capital-surplus oil-exporting countries. Developing countries were categorized as low- income (with GNI/n of US$250 or less) and middle-income (with GNI/n above US$250).

Major Characteristics of Developing Countries are:-

1.  Lower per-capita income
2.  Low levels of human capital
3. High levels of poverty and under-nutrition
4. Higher population growth rates
5. Predominance of agriculture and low levels of industrialization
6. Low level of urbanization but rapid rural-to-urban migration
7. Dominance of informal sector
8. Underdeveloped labor, financial, and other markets.

Major Characteristics of Emerging Countries are:-

1. the small size of the economy,
2. GNP/Capita much lower than in developed countries,
3. a reduced opening for accepting foreign investors,
4. a high volatility of the exchange rate which implies greater risk in trading.

Major Characteristics of Developed Countries are:-

1. Average income per capita of the population is generally high.
2. Education level of high average population.
3. Life expectancy of the population average height.
4.  Population growth rate per year is relatively small.
5. The death rate per year is relatively small population.
6. Life-style market economy.
7. His wide and varied field.
8. Economic activity in most industry sectors, as well as export commodities.
9. The majority of the population lives in cities.
10. Relatively high level of population health.