INSURANCE IN INDIA

Overview

• The first insurance company in India was the Oriental Life Insurance Company, founded in Calcutta 1818. However, it is now defunct
• The first Indian insurance company was the Bombay Mutual Life Assurance Society, founded 1870
• The oldest existing insurance company is the National Insurance Company, founded 1906
  
• Insurance was nationalised in 1956 and then opened up to private sector in 1999.
• Currently the government allows 26% FDI in the insurance sector
• The largest life insurance company in India is the Life Insurance Corporation
• Insurance falls under the purview of the Department of Financial Services, Ministry of Finance
  

Nationalisation of insurance

• Life insurance in India was nationalised by the Life Insurance Corporation Act 1956
• All 245 life-insurance companies in India at the time were merged to form the Life Insurance Corporation (LIC).
• The General Insurance Business Act 1972 nationalised general insurance companies
• The existing 100 general insurance companies were amalgamated into the General Insurance Corporation of India (GIC).

GOVERNMENT BODIES IN INSURANCE

All government bodies in insurance function under the Ministry of Finance unless otherwise noted
Life Insurance Corporation (LIC)

• Established 1956, headquarters Mumbai
• The LIC is the largest life insurance company in India and also the nation’s largest investor
  
• It funds close to 25% of the government’s expenses
• The LIC owns the following subsidiaries
  • Life Insurance Corporation of India International: provides USD denominated policies to NRIs
  • LIC Nepal
  • LIC Lanka
  • LIC Housing Finance

General Insurance Corporation (GIC)

• Established 1972, headquarters Mumbai
• The GIC is a holding company for four subsidiary companies
  
  • Oriental Insurance Company Ltd (New Delhi)
  • New India Assurance Company Ltd (Mumbai)
  • National Insurance Corporation Ltd (Kolkata)
  • United India Insurance Company Ltd (Chennai)
• The GIC is the sole re-insurance company in India
  
• The GIC covers insurance for the entire spectrum of the economy from shoes to aircraft, from agricultural wells to oil wells, from chemical manufactures to satellite launches etc

Insurance Regulatory and Development Authority (IRDA)

• Established 2000, headquarters Hyderabad
• The IRDA was set up to protect the interests of policy holders, and to regulate the growth of the insurance industry
• Some of the functions of the Authority include
  • Regulate investment of funds by insurance companies
  • Regulate maintenance of margin of solvency
  • Adjudicate disputes between insurers and intermediaries

Agriculture Insurance Company (AIC)

• Established 2003, headquarters New Delhi
• The AIC is promoted by the GIC and NABARD
• The AIC is under administrative control of Ministry of Finance, but under operative control of Ministry of Agriculture
• The AIC offers area based and weather crop insurance schemes to farmers
  
• It is one of the largest agriculture insurance companies in the world

POLICIES AND PROGRAMMES

Social Security Scheme

• A Social Security Fund (SSF) was set up in 1988-89 for providing social security through group insurance schemes to the weaker sections of society
• The SSF is administered by the LIC
  
• The SSF provides up to Rs 5000 on death from natural causes and Rs 25,000 upon death/disability due to accident

Janashree Bima Yojana (JBY)

• The Janashree Bima Yojana was launched in 2000
• The JBY is a group insurance scheme. The minimum membership of the group should be 25 persons
• The JBY is administered by the LIC
  
• The JBY provides for insurance protection to rural and urban poor. The scheme covers BPL people and above poverty line people who belong to certain identified occupational groups
• The scheme provides for cover of Rs 20,000 on natural death. The scheme also provides pension of Rs 200

Aam Aadmi Bima Yojana (AABY)

• Launched in 2007
• Provides insurance to the head of the family of rural landless households
  
• Covers natural death and accidental death/disability
• The scheme also provides additional benefit of scholarships for max two children between 9^th and 12^th standards
• Administered by the LIC
  

Universal Health Insurance Scheme (UHIS)

• The UHIS is meant to improve access of health care to poor families
• Scheme provides for reimbursement of medical expenses, death and compensation due to loss of earning capacity
• The UHIS targets only BPL families
  

National Agriculture Insurance Scheme (NAIS)

• Launched in 1999
• Protects farmers against losses due to natural calamities such as flood, drought, pestilence etc
  
• Scheme is implemented by the Agriculture Insurance Company (AIC)
  
• The Scheme is available to all farmers irrespective of the size of their land holdings
  
• The Scheme covers all food crops and oil seeds. It also covers some commercial and horticultural crops
• The scheme has until now covered more than 1.3 million farmers and 211 million hectares of land

Pilot Weather Based Crop Insurance Scheme (WBCIS)

• Launched in 2007, on a pilot basis
• The WBCIS aims to cover farmers against anticipated crop failure due to adverse weather conditions
  
• The scheme is based on the fact that weather parameters can affect crop yield even when the farmer has taken all care to ensure a good harvest
  
• The payouts are based on historical data that determine weather thresholds/triggers beyond which crop losses are expected
  
• The WBCIS is implemented by the AIC
  
• The scheme is currently being implemented on 30 major crops including horticultural crops
  
• Currently the scheme covers more than 110,000 farmers and 1.4 million hectares of land

INDIA'S ECONOMIC REFORMS

The reform process in India was initiated with the aim of accelerating the pace of economic growth and eradication of poverty. The process of economic liberalization in India can be traced back to the late 1970s. However, the reform process began in earnest only in July 1991. It was only in 1991 that the Government signaled a systemic shift to a more open economy with greater reliance upon market forces, a larger role for the private sector including foreign investment, and a restructuring of the role of Government.

The reforms of the last decade and a half have gone a long way in freeing the domestic economy from the control regime. An important feature of India's reform programme is that it has emphasized gradualism and evolutionary transition rather than rapid restructuring or "shock therapy". This approach was adopted since the reforms were introduced in June 1991 in the wake a balance of payments crisis that was certainly severe. However, it was not a prolonged crisis with a long period of non-performance.

The economic reforms initiated in 1991 introduced far-reaching measures, which changed the working and machinery of the economy. These changes were pertinent to the following:

• Dominance of the public sector in the industrial activity
  
• Discretionary controls on industrial investment and capacity expansion
  
• Trade and exchange controls
  
• Limited access to foreign investment
  
• Public ownership and regulation of the financial sector

The reforms have unlocked India's enormous growth potential and unleashed powerful entrepreneurial forces. Since 1991, successive governments, across political parties, have successfully carried forward the country's economic reform agenda.

Reforms in Industrial Policy

Industrial policy was restructured to a great extent and most of the central government industrial controls were dismantled. Massive deregulation of the industrial sector was done in order to bring in the element of competition and increase efficiency. Industrial licensing by the central government was almost abolished except for a few hazardous and environmentally sensitive industries. The list of industries reserved solely for the public sector -- which used to cover 18 industries, including iron and steel, heavy plant and machinery, telecommunications and telecom equipment, minerals, oil, mining, air transport services and electricity generation and distribution was drastically reduced to three: defense aircrafts and warships, atomic energy generation, and railway transport. Further, restrictions that existed on the import of foreign technology were withdrawn.

Reforms in Trade Policy

It was realized that the import substituting inward looking development policy was no longer suitable in the modern globalising world.

Before the reforms, trade policy was characterized by high tariffs and pervasive import restrictions. Imports of manufactured consumer goods were completely banned. For capital goods, raw materials and intermediates, certain lists of goods were freely importable, but for most items where domestic substitutes were being produced, imports were only possible with import licenses. The criteria for issue of licenses were non-transparent, delays were endemic and corruption unavoidable. The economic reforms sought to phase out import licensing and also to reduce import duties.

Import licensing was abolished relatively early for capital goods and intermediates which became freely importable in 1993, simultaneously with the switch to a flexible exchange rate regime. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were finally removed on April 1, 2001, almost exactly ten years after the reforms began, and that in part because of a ruling by a World Trade Organization dispute panel on a complaint brought by the United States.

Financial sector reforms

Financial sector reforms have long been regarded as an integral part of the overall policy reforms in India. India has recognized that these reforms are imperative for increasing the efficiency of resource mobilization and allocation in the real economy and for the overall macroeconomic stability. The reforms have been driven by a thrust towards liberalization and several initiatives such as liberalization in the interest rate and reserve requirements have been taken on this front. At the same time, the government has emphasized on stronger regulation aimed at strengthening prudential norms, transparency and supervision to mitigate the prospects of systemic risks. Today the Indian financial structure is inherently strong, functionally diverse, efficient and globally competitive. During the last fifteen years, the Indian financial system has been incrementally deregulated and exposed to international financial markets along with the introduction of new instruments and products.

India at a Glance

Located in South Asia, India is the seventh largest, and the second most populous country in the world. Home to the Indus Valley civilisation and known for its historic trade routes and vast empires, India is recognised for its commercial and cultural wealth. It is the centre of amalgamation of many religions and ethnicities which have shaped the country's diverse culture. Colonised by the United Kingdom from early eighteenth century, India became a modern nation state in 1947, after a struggle for independence that was remarkable for its largely non-violent resistance and is the most populous democracy in the world today. Location: South Asia, bordering the Arabian Sea and the Bay of Bengal, between Mynamar and Pakistan. Geographic Coordinates: 20 00 N, 77 00 E Border Countries: Afghanistan and Pakistan to the north-west; China, Bhutan and Nepal to the north; Myanmar to the east; and Bangladesh to the east of West Bengal. Sri Lanka is separated from India by a narrow channel of sea, formed by Palk Strait and the Gulf of Mannar. Coastline: 7,516.6 km encompassing the mainland, Lakshadweep Islands, and the Andaman & Nicobar Islands Climate: Mainly tropical in southern India but temperatures in the north range from sub-zero degrees to 50 degrees celsius. There are well-defined seasons in the northern region: winter (Dec - Feb), Spring (Mar - Apr), Summer (May - Jun), Monsoons (Jul - Sep) and Autumn (Oct - Nov). Area: total: 3,287,263 sq km Land: 2,973,193 sq km Water: 314,070 sq km

Natural Resources: coal (fourth largest reserves in the world), iron ore, manganese, mica, bauxite, titanium ore, chromite, natural gas, diamonds, petroleum, limestone, arable land. Land Use: arable land: 48.83 per cent Irrigated Land: 60.2 million hectares (2005-06) Political Profile Political System and Government: The 1950 Constitution provides for a parliamentary system of Government with a bicameral parliament and three independent branches: the executive, the legislature and the judiciary. The country has a federal structure with elected governments in States. Administrative Divisions: 28 States and 7 Union Territories Constitution: The Constitution of India came into force on 26th January 1950

Executive Branch: The President of India is the Head of State, while the Prime Minister is the Head of the government and runs office with the support of the Council of Ministers who form the Cabinet. Legislative Branch: The Federal Legislature comprises of the Lok Sabha (House of the People) and the Rajya Sabha (Council of States) forming both the Houses of the Parliament. Judicial Branch: The Supreme Court of India is the apex body of the Indian legal system, followed by other High Courts and subordinate Courts. Chief of State: President Mrs Pratibha Patil (since 25 July 2007) Head of Government: Prime Minister Dr Manmohan Singh (since 22 May 2009) Demographic profile Population: 1,173,108,018 (July 2010 est.) Population Growth Rate: 1.376 per cent (2010 est.) Ethnic Groups: Indo-Aryan 72 per cent, Dravidian 25 per cent, Mongoloid and other 3 per cent (2000) Religions: Hindu 80.5 per cent, Muslim 13.4 per cent, Christian 2.3 per cent, Sikh 1.9 per cent, other 1.8 per cent, unspecified 0.1 per cent (2001 census) Languages: Apart from Hindi, which is the Official Union Language and mother tongue of 30 per cent of the people, there are 21 other official languages. English is the preferred language for national, political, and commercial communication. Literacy: Total population: 64.8 per cent (2001 census) Male: 75.3 per cent Female: 53.7 per cent Suffrage: 18 years of age; universal Economic Profile Indian Economy Per capita income (average income) of Indians has grown by 10.5 per cent to US$ 947.21 in 2009-10 as against US$ 857.43 in 2008-09, at the current price. In its recent review, the Centre for Monitoring Indian Economy (CMIE) has estimated India’s gross domestic product (GDP) to expand at an impressive 9.2 per cent in 2010-11 and further 8.8 per cent in 2011-12. Per capita income in real terms (at 2004-05 prices) is predicted to have increased by 6.7 per cent to US$ 794.5 in 2010-11 compared to the previous fiscal’s US$ 744.4. At current prices, per capita income is estimated at US$ 1203.3 in 2010-11, registering an increase of 17.3 per cent from US$ 1025.97 in 2009-10. The industrial output registered a robust growth of 8.6 per cent year-on-year (y-o-y) in April-December 2010-11. Among the three major constituents of the IIP, mining and manufacturing recorded higher growth rates of 7.7 per cent and 9.1 per cent during the period. The third constituent electricity index registered 4.7 per cent in April-December 2010-11.

• GDP Composition by Sector in 2009-10 (RBI estimate):
• Services: 56.9 per cent
• Industry: 28.5 per cent
• Agriculture: 14.6 per cent
• Forex Reserves (2009-10): US$ 277 billion
• Labour Force: 467 million (2009 est.)
• Gross Fixed Capital Formation (GFCF) at current prices: 32.4 per cent of GDP at market prices (April 2009-March 2010)
• Industrial output in April-December 2010: 10.8 per cent
• Cumulative Value of Exports: US$ 184.63 billion (April 2010-January 2011)
• Exports Commodities: Petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel
• Export Partners: US 11.12 per cent, UAE 13.55 per cent, China 5.30 per cent, Singapore 4.41 per cent, Hong Kong 4.54 per cent (Apr-Sep 2010 P)
• Currency (code): Indian rupee (INR)
• Exchange Rates: Indian rupees per US dollar - 1 USD = 44.67 INR (March 25, 2011)
• Fiscal Year: 1 April - 31 March
• Cumulative FDI Inflows: US$ 17,081 million (April 2010-January 2011)
• Share of Top Investing Countries FDI Equity Inflows: Mauritius, Singapore, US, UK, Netherlands, Japan and Cyprus (as on January 2011)

Major Sectors Attracting Highest FDI Equity Inflows: Services Sector, Computer Software & Hardware, Telecommunications, Housing and Real Estate, Construction Activities, Automobile (as on January 2011)

• Transportation in India
• Airports: 454
• International Airports: Ahmedabad, Amritsar, Bengaluru, Chennai, Goa, Guwahati, Hyderabad, Kochi, Kolkata, Mumbai, New Delhi, Thiruvananthapuram
• Railways: total: total: 64,000 route km (January 2011)
• Roadways: total: total: 4.2 million km
• Waterways: 14,500 km (2008)
• Major Ports of Entry: Chennai, Ennore, Haldia, Jawaharlal Nehru Port Trust (JNPT), Kolkata, Kandla, Kochi, Mormugao, Mumbai, New Mangalore, Paradip, Tuticorin and Vishakhapatnam.

Microfinance

Microfinance:
Microfinance means providing very poor families with very small loans (microcredit) to help them engage in productive activities or grow their tiny businesses. Over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as we have come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products.
Microcredit came to prominence in the 1980s, although early experiments date back 30 years in Bangladesh, Brazil and a few other countries. The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery, and by focusing on client groups whose alternative source of credit was the informal sector. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending.
Traditionally, microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of microfinance--our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products.

 Micro Credit:

Micro Credit is defined as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro Credit Institutions are those which provide these facilities.
Banks have been given freedom to formulate their own lending norms keeping in view ground realities. They have been asked to devise appropriate loan and savings products and the related terms and conditions including size of the loan, unit cost, unit size, maturity period, grace period, margins, etc. Such credit covers not only consumption and production loans for various farm and non-farm activities of the poor but also include their other credit needs such as housing and shelter improvements .

Difference between microfinance and microcredit:

Microfinance refers to loans, savings, insurance, transfer services and other financial products targeted at low-income clients. Microcredit refers to a small loan to a client made by a bank or other institution. Microcredit can be offered, often without collateral, to an individual or through group lending.

ECONOMY TERMS

Bretton Woods: An international monetary system operating from 1946-1973. The value of the dollar was fixed in terms of gold, and every other country held its currency at a fixed exchange rate against the dollar; when trade deficits occurred, the central bank of the deficit country financed the deficit with its reserves of international currencies. The Bretton Woods system collapsed in 1971 when the US abandoned the gold standard.

Balance of Payment is the summation of imports and exports made between one country and the other countries that it trades with.

Balance of trade: The difference in value over a period of time between a country's imports and exports.

Base year: In the construction of an index, the year from which the weights assigned to the different components of the index is drawn. It is conventional to set the value of an index in its base year equal to 100.

Bill of exchange: A written, dated, and signed three-party instrument containing an unconditional order by a drawer that directs a drawee to pay a definite sum of money to a payee on demand or at a specified future date. Also known as a draft. It is the most commonly used financial instrument in international trade.

Call money: Price paid by an investor for a call option. There is no fixed rate for call money. It depends on the type of stock, its performance prior to the purchase of the call option, and the period of the contract. It is an interest bearing band deposits that can be withdrawn on 24 hours notice.

Capital account; Part of a nation's balance of payments that includes purchases and sales of assets, such as stocks, bonds, and land. A nation has a capital account surplus when receipts from asset sales exceed payments for the country's purchases of foreign assets. The sum of the capital and current accounts is the overall balance of payments.

Current account: Part of a nation's balance of payments which includes the value of all goods and services imported and exported, as well as the payment and receipt of dividends and interest. A nation has a current account surplus if exports exceed imports plus net transfers to foreigners. The sum of the current and capital accounts is the overall balance of payments.

Currency appreciation: An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates; a unit of one currency buys more units of another currency. Opposite is the case with currency depreciation.

Fiscal deficit is the gap between the government's total spending and the sum of its revenue receipts and non-debt capital receipts. The fiscal deficit represents the total amount of borrowed funds required by the government to completely meet its expenditure

Foreign exchange reserves: The stock of liquid assets denominated in foreign currencies held by a government's monetary authorities (typically, the finance ministry or central bank). Reserves enable the monetary authorities to intervene in foreign exchange markets to affect the exchange value of their domestic currency in the market. Reserves are invested in low-risk and liquid assets, often in foreign government securities.

Gross domestic product (GDP): Gross Domestic Product: The total of goods and services produced by a nation over a given period, usually 1 year. Gross Domestic Product measures the total output from all the resources located in a country, wherever the owners of the resources live.

Gross national product (GNP) is the value of all final goods and services produced within a nation in a given year, plus income earned by its citizens abroad, minus income earned by foreigners from domestic production. The Fact book, following current practice, uses GDP rather than GNP to measure national production. However, the user must realize that in certain countries net remittances from citizens working abroad may be important to national well being. GNP equals GDP plus net property income from abroad.

Inflation: In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also erosion in the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy.

International Monetary Fund (IMF) An autonomous international financial institution that originated in the Bretton Woods Conference of 1944. Its main purpose is to regulate the international monetary exchange system, which also stems from that conference but has since been modified. In particular, one of the central tasks of the IMF is to control fluctuations in exchange rates of world currencies in a bid to alleviate severe balance of payments problems.

Monetary policy: The regulation of the money supply and interest rates by a central bank in order to control inflation and stabilize currency. If the economy is heating up, the central bank (such as RBI in India) can withdraw money from the banking system, raise the reserve requirement or raise the discount rate to make it cool down. If growth is slowing, it can reverse the process - increase the money supply, lower the reserve requirement and decrease the discount rate. The monetary policy influences interest rates and money supply.

Subsidy: A payment by the government to producers or distributors in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are export subsidies to encourage the sale of exports; subsidies on some foodstuffs to keep down the cost of living, especially in urban areas; and farm subsidies to encourage expansion of farm production and achieve self-reliance in food production.

Treasury bill: A short-term debt issued by a national government with a maximum maturity of one year. Treasury bills are sold at discount, such that the difference between purchase price and the value at maturity is the amount of interest.

Plans in India: At a Glance

FIRST PLAN 1951-56
The First Plan with a total outlay of Rs.2378 crore was a rather hapzard venture, as the planning commission had no reliable statistics to work upon. Besides, the plan had to be correlated to the prevailing activities of various government departments. The result was a patchwork of isolated projects. All the same, the plan had a national character and was based on a rational hypothesis. it laid emphasis on Agriculture, Irrigation, Power and Transport so as to provide an infrastructure for rapid industrial expansion in future. The plan turned out to be more than a sucess, mainly because it was supported by two good harvests in the last two years.

SECOND PLAN 1956-61
the second plan a big leap forward.it laid special stress on heavy industries.The industrial policy resolution was amended so as to shift the primary responsibility for development on the public sector. Private sector was left to handle consumer industries. But the great quantity of imports that the plan envisaged in both public and private sectors, practically denuded India’s are accumulated sterling balances in two years and compelled the country to seek extensive foreign aid. Agriculture and Small scale industries remained sluggish, without adding any momentum to development.

THIRD PLAN 1961-66
the third plan rode on a wave of high expectations following over all growth of the Indian economy in the first two plan periods. The third plan aimed at establishing a self sustaining economy. Internal resources having been strained to the utmost, the plan had to rely on heavy foreign aid.
Interim Planning
The Third Plan having gone awry, planning itself had become discredited in the eyes of many and demands were made from different quarters to declare a plan holiday. But neither the government nor the planning commission admitted failure. They refused to fail in with the demand for a plan holiday and proceeded to draw up the fourth plan as from 1966-67.

FOURTH PLAN 1969-74
The Fourth Plan officially commenced on April 1, 1969 with the publication of the draft
plan .Growth with stability was the main objective of the plan. Agriculture was expected to lead the growth with a rate of 5 percent per annul. Such a growth in agriculture would setup a chain reaction in the economy. The target for the growth rate of industry was set at about 9 percent per annual. Altogether the national income was expected to increase of 5.5 percent per annul. Allowing for the increase of population at the rate of 3 percent per annum or about 16 percent in the fourth plan period.

FIFTH PLAN 1974-79
The Fifth plan draft as originally drawn up was part of a long term perspective plan covering a period of 10 years from 1974.75 to 1985-86.The perspective plan attempted to co ordinate various sectors of the economy in terms of the new slogan GARIBI HATAO.The long term rate of growth which the economy was expected to achieve on a self sustaining basis was put up at 6.2 percent per annum.
By the time the fifth plan was approved by the National Development Council its promises had become obsolete and the total outlay had to be increased from Rs. 37.463 crore to 39.303 Crore.This belated attempt had an inglorious end in another 6 month.when the janta party came into power. They scrapped it unceremoniously.

SIXTH PLAN 1980-81 & 1984-85
Sixth plan was formulated after taking into account the achievements and shortcomings of the past three decades of planning. For the sixth plan actual expenditure stood at Rs. 10291.7 Crore as against the envisaged total public sector outlay of Rs. 97500 Crore accounting for a 12 percent increase in nominal terms. The average annual growth rate the sixth plan worked out to 5.2 percent, which is equal to the targeted growth for the plan.

SEVENTH PLAN 1985-90
seventh plan which envisaged an aggregate outlay of Rs. 348,148 Crore with a public sector outlay of Rs. 180,000 Crore ended with the average rate of growth of the gross domestic product at 5.3 percent per annum, which was well above the targeted rate of 5 percent.

EIGHTH PLAN 1992-97
the eighth plan recognized the need for a re orientation of planning in keeping with the process of economy. Though tangible change in the ongoing development process can be effected only over a period of time, the review of initial experience enables us to discern the direction of change and emerging criticalities with a view to identifying the measure to be adopted.
The eighth plan emphasis
1.Human development as the main focus of planning
2.a large economic apace for the private sector.
3.physical and social infrastructure development by the public sector
4.a greater role to the market to infuse economic efficiency even in the working of public sector
The plan proposed a growth rate of 5.6% per annum on the average during the plan period. An investment of Rs. 798,000 Crores(45%).adding to this current outlay of Rs. 73,000 Crores. consistent with the resources position, the size of the plans of the states and the union territories was projected at Rs. 1,86,325 Crore and the central plan at Rs.2,47,865 Crore.This outlay was divided between the centre and the states in the ratio 58.5:41.5 .

NINTH PLAN 1997-2002
The objective of the 9th plan evolved from the common minimum programmed of the government and the chiefs minister’s conference on basic minimum services. The suggestions are as a follows:
1.priority to agriculture and rural development with a view to generating productive employment & eradication of poverty
2.Accelerating the growth rate of the economy with stable prices
3.Ensuring food and nutritional security for the vulnerable section of the society
4.Providing the basic minimum services of safe drinking water, primary health care facilities, universal primary education, shelter and connectivity to all in a time bound population
5.containing the growth rate of population
6.Ensuring environmental sustainability of the development process through participation of people.
7. Empowerment of women and socially disadvantaged groups
8.promoting and developing panchayati raj, co-operative etc;
9.Strengthening efforts to build self reliance.
GDP:6.2
Export Growth Rate(% per annum):12
Import Growth Rate(% per annum):11.4
Domestic saving rate(% of GDP at market price):25.2
current Account Deficit(% of GDP at market price):1.7
Investment Rate(%GDP at market price):26.9
ICOR(%):4.34
Gross Investment:Rs.2004 Crore
According to rough calculations, the ninth plan size will be Rs.8,80,00 Crore.

THE OBJECTIVES OF TENTH PLAN 2002-2007
The total size of 10th plan is Rs. 25737.25 Crore at current prices as against the 9th plan approved outlay of Rs. 20075.00 crore. These figures are not comparable as the State of MP was bifurcated on 1st Nov 200.The planning commission indicated that the size of the tenth plan may be 5.5 times that of the budgetary support provided to the annual plan of 2001-2002 in nominal terms. However, the proposed size of the 10th is 7 times that of the approved outlay of the annual plan 2001-2002.
The sectoral outlays for the ninth plan and the tenth plan are presented in the table now.

HIGHLIGHTS OF 10th PLAN :2002-2007
* Annual 8 %GDP growth during 2002-07
* Annual FDI flows of 7.5 billion US dollars
* Divestment target of Rs 78,000 Crore in five years
* 50 million jobs in five years
* Public sector outlay at Rs.15,92,300 Crore
* Central plan outlay at Rs.9,21,291 Crore
* States and outlay at Rs. 6,71,009 Crore
* Central Budgetary support at Rs.7,06,000 Crore
* Incremental capital output ratio at 3.6%
* Reduction in poverty ratio to 21 % from 26 % by 2007
* Literacy rate to increase to 75% by 2007
* IMF to be reduced to 45 in 2007
* Maternal mortality ratio to be halved 2 in 2007
* Increase in forest cover to 25 % in 2007
* Potable drinking water in all villages
* cleaning of major polluted river stretches
* Decadal population growth to reduce from 21.3 % in 1991-2001 to 16.2 % in 2001-2011
* All children in school by 2003 and all children to complete 5 year schooling in 2007
* Investment rate of 28.4 % of GDP
IMPORATANT POINTS
$ The Third Plan was the first plan to target a 5% growth rate was minimum during this plan.
$ The Sixth Plan achieved for first time a growth rate of more than 5%.
$ In the earlier plans, importance was given to development programmers in the agricultural sector.
$ In the later plans, greater emphasis is laid on the industrial and power sectors of the economy.

Rate of Inflation views on India’s Economic growth

Inflation Rate, Rate of Inflation
The inflation rate is the percentage by which prices of goods and services rise beyond their average levels. It is the rate by which the purchasing power of the people in a particular geography has declined in a specified period. The rate of inflation may be calculated weekly, monthly or annually. However, it is always expressed as an annualized figure.
Inflation Rate: Indices
The inflation rate can be calculated for different price indices. For the national inflation rate, the consumer price index (CPI) is considered. This index measures the actual prices of goods and services needed by the common man. The inflation rate can also be measured by the following indices:
Cost-of-living index (COLI):
This is used to adjust income scales so that the real value of earnings remains the same.
Producer price index (earlier Wholesale Price Index): This measures the average change in prices that domestic producers receive for their products. This index measures the growing pressure on producers due to changes in the costs of their raw materials. This pressure might get passed on to consumers, absorbed by profits or offset by a rise in productivity.
Commodity price index:
This measures the prices of a selected group of commodities.
Core price index: This removes the volatile components (primarily food and oil) from broader indices, like the CPI. Short term changes in demand and supply conditions do not significantly affect such indices. Central banks use it to assess the need for adjusting the monetary policy.
Methods of Calculating the Inflation Rate
The two main methods used to calculate the inflation rate are:
Base period: This method is the more common of the two and assigns a relative weight to each element while making calculations.
Chained measurements: In this method, the contents of the ‘commodity bundle’ are adjusted, along with the prices. Besides, individual time periods in which the price levels fluctuate are also taken into account.
Any undesired change in the rate of inflation can affect the economy and national development at large. The appropriate estimation of inflation rates is necessary to get an overview of the national economy.
Inflation Rate: The Formula
The equation to calculate the inflation rate is:
Inflation Rate = (Po- P-1)* 100 / P-1,
where
Po = the present average price
P-1 = the price that existed last year.
The inflation rate is always stated as a percentage. Another way of calculating the inflation rate is to apply the log rule. The inflation rate is important, since it is subtracted from various economic rates in order to eliminate the impact of inflation. The real increase in wages is also counted by taking into account the prevailing inflation rate.

Agriculture Scetor

AGRICULTURE

Agriculture provides significant support for economic growth and social transformation of the country. As one of the world’s largest agrarian economies, the agriculture sector (including allied activities) in India accounted for 14.2 per cent of the gross domestic product (GDP), at constant 2004-05 prices during 2010-11 as per Central Statistics Office (CSO) of India.In 2009-10,the GDP for agriculture and allied sectors accounted for 14.6 per cent of the GDP compared to 15.7 per cent in 2008-09.

The agriculture sector accounts for about 58 per cent of employment in the country (as per 2001 census). This sector is a supplier of food, fodder, and raw materials for a vast segment of industry. Hence the growth of Indian agriculture can be considered a necessary condition for inclusive growth'. More recently, the rural sector (including agriculture) is being seen as a potential source of domestic demand,a recognition that is even shaping the marketing strategies of entrepreneurs wishing to widen the demand for goods and services. In terms of composition, out of a total share of 14.6 per cent of the GDP in 2009-10 for agriculture and allied sectors, agriculture alone accounted for 12.3 per cent followed by forestry and logging at 1.5 per cent and fisheries at 0.8 per cent.

In 2009-10, despite experiencing a poor monsoon, the growth marginally recovered to 0.4 per cent primarily due to a good rabi crop. Several advance measures taken by the government also had the desired effect of checking the impact of the drought situation on the rabi crop. Things are looking bright in the current year with a relatively good monsoon and the agriculture-sector is expected to grow at 5.4 per cent as per the 2010-11 advance estimates. The agriculture sector growth in the first four years of the Five Year Plan (2007-2012) is estimated at 2.87 per cent. In order to achieve the Plan target of average 4 per cent per year, the agriculture sector needs to grow at 8.5 per cent during 2011-12.

The rates of growth and share of agriculture and allied activities in the GDP of the country are given below:

Agriculture sector: Key indicators

Figures in Percentage (%)
	Item	2008-09	2009-10	2010-11 (AE)*
1	GDP—Share and Growth (at 2004-05 prices)
	Growth in GDP in agriculture & allied sectors	-0.1	0.4	5.4
	Share in GDP-Agriculture and allied sectors	15.7	14.6	14.2
Agriculture		13.3	12.3
2	Forestry and logging	1.6	1.5
	Fishing	0.8	0.8
	Share in Total Gross Capital Formation in the Country (at 2004-05 prices) Share of Agriculture & Allied Sectors in total Gross Capital Formation	8.3	7.7
Agriculture		7.7	7.1
3	Forestry and logging	0.07	0.06
	Fisheries	0.56	0.54
	Agricultural Imports & Exports (at current prices) Agricultural imports to national imports	2.71	4.38
Agricultural exports to national exports		10.22	10.59
4	Employment in the agriculture sector as share of total workers	58.2

*AE=Advance Estimates
Source : Central Statistical Organization (CSO) and Department of Agriculture and Cooperation. 

Animal Husbandry, Dairying and Fisheries
In 2009-10, this sector produced 112.5 million tonnes of milk, 59.8 billion eggs, 43.2 million kg wool, and 4.0 million tonnes of meat. The result of the 18th Livestock Census (2007), derived from village-level count, has placed the total livestock population at 529.7 million and poultry birds at 648.8 million.

India ranks first in world milk production, increasing its production from 17 million tonnes in 1950-51 to about 112.5 million tonnes in 2009-10.The per capita availability of milk has also increased from 112 grams per day in 1968-69 to 263 gram per day in 2009-10.

Livestock Insurance
A centrally sponsored scheme for livestock insurance is being implemented in all the States with the twin objectives of providing a protection mechanism to farmers and cattle rearers against loss of their animals due to death and to demonstrate the benefit of livestock insurance to the people. The scheme benefits farmers (large, small and marginal) and cattle rearers having indigenous/crossbred milch cattle and buffaloes.

Poultry

Poultry development is one of the most resilient sectors in the country, fast adapting itself to the changing biosecurity, health, and food safety needs. India produces more than 59.8 billion eggs per year, with per capita availability of 51 eggs per annum. The poultry meat production is estimated to be 1.85 million tonnes in 2008-09. To provide necessary services to the farmers, four regional Central Poultry Development Organizations (CPDOs) have been restructured on the principle of one window service.

Livestock health
Animal wealth in India has increased manifold and animal husbandry practices have also changed to a great extent. With improvement in the quality of livestock through launching of extensive cross-breeding programmes, the susceptibility of this livestock to various diseases, including exotic diseases, has increased. To ensure maintenance of disease-free status and compliance with the standards laid down by the World Animal Health Organization, major animal health schemes and programmes have been initiated.

Further, for control of major livestock and poultry diseases, the Government of India provides financial assistance to States/UTs in their efforts to prevent, control and contain animal diseases and also to strengthen veterinary services including reporting of animal diseases. All avian influenza outbreaks reported were effectively controlled and the country declared free from avian influenza in June 2010.

Fisheries
Fish production increased from 7.14 million tonnes in 2007-08 to 7.85 million tonnes in 2009-10. Fishing, aquaculture, and allied activities are reported to have provided livelihood to over 14 million persons in 2008-09, apart from being a major foreign exchange earner.

Feed and fodder
Adequate availability of feed and fodder for livestock is very vital for increasing milk production and sustaining the ongoing genetic improvement programme. It is estimated that there is green fodder shortage of about 34 per cent in the country. To increase the availability of fodder, the Department of Animal Husbandry & Dairying is implementing a Centrally sponsored Fodder Development Scheme throughout the country to supplement the efforts of the states. A central Minikit Testing Programme is also being implemented under which minikits of latest high-yielding fodder varieties are distributed free of cost to farmers for their popularization.

Agricultural Credit

In the year 2009-10, Government provided an additional 1 per cent interest subvention to those farmers who repaid their short-term crop loans as per schedule. The Government has raised this subvention for timely repayment of crop loans from 1 per cent to 2 per cent from the year 2010-11. Thus the effective rate of interest for such farmers will be 5 per cent per annum.

Agricultural Insurance

Four crop insurance schemes, namely the National Agricultural Insurance Scheme (NAIS), Pilot Modified NAIS (MNAIS), Pilot Weather Based Crop Insurance Scheme (WBCIS), and Pilot Coconut Palm Insurance Scheme (CPIS) are under implementation in the country.

The National Agricultural Insurance Scheme (NAIS)

The NAIS is being implemented in the country from rabi 1999-2000 season. The Agriculture Insurance Company of India Ltd. (AIC) is the implementing agency (IA) for the Scheme. The main objective of the scheme is to protect farmers against crop losses suffered on account of natural calamities.

The Pilot Modified NAIS (MNAIS)

Keeping in view the limitations/shortcomings of the existing scheme, the Government has approved the Modified NAIS for implementation on pilot basis in 50 districts from rabi 2010-11 season. The major improvements made in the MNAIS are: actuarial premium with subsidy in premium at different rates, i.e. 40 per cent to 75 per cent depending upon the slab, provided to farmers, all claims liability on the insurer, unit area of insurance reduced to village panchayat level for major crops, indemnity for prevented/sowing/planting risk and for post harvest losses due to cyclone, payment up to 25 per cent advance of likely claims as immediate relief, more proficient basis for calculation of threshold yield, minimum indemnity level of 70 per cent instead of 60 per cent, and private-sector insurers with adequate infrastructure allowed (at present, ICICILombard,IFFCO-Tokio and Cholamandalam-MS).

Weather Based Crop Insurance Scheme (WBCIS)

Efforts have been made to bring more farmers under the fold of crop insurance by introducing a Weather Based Crop Insurance Scheme (WBCIS).The WBCIS is intended to provide insurance protection to farmers against adverse weather incidences, which are deemed to unfavourably impact crop production. It has the advantage of settling claims within the shortest possible time.

Agricultural Marketing

Organized marketing of agricultural commodities has been promoted in the country through a network of regulated markets. Most of the State and Union Territory Governments have enacted legislations (Agriculture Produce Marketing Committee Act) to provide for regulation of agricultural produce markets.

Most of the states and union territories have enacted legislations (the Agriculture Produce Marketing Committee [APMC] Act) to provide for regulation of agricultural produce markets. Seventeen States/ UTs have amended their APMC Acts and the remaining are in the process of doing so.

There are 7157 regulated markets in the country as on 31st March 2010. The country has 21,221 rural periodical markets, about 15 per cent of which function under the ambit of regulation.

Industrial Performance & Services

INDUSTRIAL PERFORMANCE

Industrial Performance During 2009-10

After a deep global recession, economic growth has turned positive and the global economic outlook has improved over the past few months.Indian economy grew at an average rate of 8.8 per cent in the four-year period from 2005-06 to 2008-09, despite the crisis-affected year of 2008-09. The economy weathered the financial turbulence well and grew at 7.2 per cent in 2009-10. The rapid adjustments in the monetary and fiscal policies were well calibrated and desired results achieved.

Sectoral Performance

All the three sectors namely mining, manufacturing and electricity have shown positive growth during 2009-10 (April 2009-March 2010). The mining and quarrying registered a growth rate of 9.7 per cent during 2009-10 (April 2009-March 2010), as against the growth rate of 8.3 per cent during (April-November 2009). Due to this increase in the IIP-Mining, the growth rate in GDP is now estimated at 10.6 per cent, as against the advance estimate growth rate of 8.7 per cent.

Similarly, the IIP of manufacturing registered a growth rate of 10.9 per cent during 2009-10 (April 2009-March 2010) as against the growth rate of 7.7 per cent during (April-November 2009). Due to this increase in the IIP, the GDP of manufacturing sector is now estimated at 10.8 per cent, as against the Advance estimate growth rate of 8.9 per cent.

The sectors which showed growth rates of 5 per cent or more, are ‘mining and quarrying’ (10.6 per cent), manufacturing (10.8 per cent), electricity, gas and water supply (6.5 per cent) construction (6.5 per cent), trade, hotels, transport and communication (9.3 per cent), financing, insurance, real estate and business services (9.7 per cent),and community,social and personal services (5.6 per cent). The agriculture, forestry and fishing sector, however registered a growth rate of 0.2 per cent.

Comparative growth rates for these three sectors for the year 2007-08 to 2009-10 (April 2009-Mar 2010) are given in table below:

Annual Growth rate of industrial production in major sectors of industry (Based on the Index of Industrial Production) Base: 1993-94=100 (Per cent)
Period	Mining & Quarrying	Manufacturing	Electricity	Overall
Weight	10.47	79.36	10.17	100.00
2007-08	5.1	9.0	6.4	8.5
2008-09	2.6	2.8	2.8	2.8
2009-10 (Apr 2009-Mar 2010)	9.7	10.9	6.0	10.4

Source: Central Statistical Organisation (CSO)

Use-Based Classification

In terms of the use-based classification, the IIP growth in March 2010 was driven by high growth in capital goods and consumer durables, while basic and intermediate goods displayed healthy growth in excess of 10%, suggesting that the demand for finished products remains strong. The pace of growth of consumer durables improved to 32% in March 2010 from 30% in February 2010, suggesting that consumer confidence and demand remains robust.

Capital goods expanded by a robust 27.4% in March 2010. The capital goods sub-index remained the highest contributor to IIP growth amongst the use-based industries for the fourth consecutive month. While the high growth in this category is likely to have been supported by infrastructure spending by the Central and State Governments at the end of the fiscal year, the steep increase in Bank credit off-take and external commercial borrowings in March 2010 suggest a revival of private investment. Investment sentiment and the trends in private investment growth are likely to considerably influence the pace of IIP growth in the coming months.Cumulative growth for capital goods during April 2009-March 2010 was expanded by 19.2 percent as compared 7.3 percent during same period of 2008-09.

The growth of intermediate goods remained healthy at 12.7% in March 2010. Continued double-digit growth suggests that the demand for finished products remains robust.The growth rate of intermediate goods is expected to moderate in the coming months with the waning of the favourable base effect.Cumulative growth for intermediate goods during April 2009-March 2010 was expanded by whopping 13.6 percent as compared to -1.9 percent during same period of 2008-09.

Basic goods expanded by 10.1% in March 2010.The sub-index displayed a growth of 7.1 percent in April 2009-March 2010,considerably higher than 2.6 percent during same period of 2008-09.

The overall growth in consumer goods improved to 10.6 percent as compared to 1.3 percent during same month of 2008-09.The cumulative growth of consumer goods during April 2009-March 2010 expanded by 7.4 percent as compared to 4.7 percent during same period last year.

The pace of growth of consumer durables improved to 32% in March 2010 from 30% in February 2010, suggesting that domestic consumer demand remains robust. The high growth displayed by consumer durables in March 2010 is noteworthy, coming on the back of 8.4% growth in March 2009. This use-based category displayed the highest average growth rate during April 2009-March 2010 at 26.1%, relative to the low growth of 4.5% during same period of 2008-09, reflecting robust domestic consumer confidence and demand, benefiting substantially from the release of Pay Commission related arrears to Government employees as well as the recent revival in exports. Notwithstanding the positive impact of the staggered release of Pay Commission related benefits to State Government employees on demand for consumer durables, the growth of this sector is expected to moderate substantially in the coming months led by an adverse base effect following the double-digit growth displayed by consumer durables throughout 2009-10. Additionally, the transmission of monetary tightening into higher interest rates may depress consumer demand to some extent.

Consumer non-durables expanded by 3.3% in March 2010, resulting in a low 1.5 % average growth for the period April 2009-March 2010 as compared to 4.8 percent during same period of 2008-09.This was the only category displaying lower growth in 2009-10 relative to 2008-09. In the near term, the level of the agricultural output and its impact on inflation would influence the disposable incomes and purchasing power of both rural and urban households, which remains a critical determinant of the demand for consumer non-durables.

Comparative growth rates of industrial production based on use-based classification since 2007-08 to 2009-10 (April-March 2010) are given in table below:

Sectors	Weight	2007-08	2008-09	2009-10 (March 2010)	2009-10 (Apr 2009-Mar 2010)
Basic Goods	35.6	7.0	2.6	10.1	7.1
Capital Goods	9.3	18.0	7.3	27.4	19.2
Intermediate Goods	26.5	9.0	-1.9	12.7	13.6
Consumer Goods	28.7	6.1	4.7	10.6	7.4
(i) Consumer durables	5.4	-1.0	4.5	32	26.1
(ii) Consumer non durables	23.3	8.6	4.8	3.3	1.5

Source: Central Statistical Organisation (CSO)

INDIA'S ECONOMIC REFORMS

The reform process in India was initiated with the aim of accelerating the pace of economic growth and eradication of poverty. The process of economic liberalization in India can be traced back to the late 1970s. However, the reform process began in earnest only in July 1991. It was only in 1991 that the Government signaled a systemic shift to a more open economy with greater reliance upon market forces, a larger role for the private sector including foreign investment, and a restructuring of the role of Government.

The reforms of the last decade and a half have gone a long way in freeing the domestic economy from the control regime. An important feature of India's reform programme is that it has emphasized gradualism and evolutionary transition rather than rapid restructuring or "shock therapy". This approach was adopted since the reforms were introduced in June 1991 in the wake a balance of payments crisis that was certainly severe. However, it was not a prolonged crisis with a long period of non-performance.

The economic reforms initiated in 1991 introduced far-reaching measures, which changed the working and machinery of the economy. These changes were pertinent to the following:

• Dominance of the public sector in the industrial activity
  
• Discretionary controls on industrial investment and capacity expansion
  
• Trade and exchange controls
  
• Limited access to foreign investment
  
• Public ownership and regulation of the financial sector

The reforms have unlocked India's enormous growth potential and unleashed powerful entrepreneurial forces. Since 1991, successive governments, across political parties, have successfully carried forward the country's economic reform agenda.

Reforms in Industrial Policy

Industrial policy was restructured to a great extent and most of the central government industrial controls were dismantled. Massive deregulation of the industrial sector was done in order to bring in the element of competition and increase efficiency. Industrial licensing by the central government was almost abolished except for a few hazardous and environmentally sensitive industries. The list of industries reserved solely for the public sector -- which used to cover 18 industries, including iron and steel, heavy plant and machinery, telecommunications and telecom equipment, minerals, oil, mining, air transport services and electricity generation and distribution was drastically reduced to three: defense aircrafts and warships, atomic energy generation, and railway transport. Further, restrictions that existed on the import of foreign technology were withdrawn.

Reforms in Trade Policy

It was realized that the import substituting inward looking development policy was no longer suitable in the modern globalising world.

Before the reforms, trade policy was characterized by high tariffs and pervasive import restrictions. Imports of manufactured consumer goods were completely banned. For capital goods, raw materials and intermediates, certain lists of goods were freely importable, but for most items where domestic substitutes were being produced, imports were only possible with import licenses. The criteria for issue of licenses were non-transparent, delays were endemic and corruption unavoidable. The economic reforms sought to phase out import licensing and also to reduce import duties.

Import licensing was abolished relatively early for capital goods and intermediates which became freely importable in 1993, simultaneously with the switch to a flexible exchange rate regime. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were finally removed on April 1, 2001, almost exactly ten years after the reforms began, and that in part because of a ruling by a World Trade Organization dispute panel on a complaint brought by the United States.

Financial sector reforms

Financial sector reforms have long been regarded as an integral part of the overall policy reforms in India. India has recognized that these reforms are imperative for increasing the efficiency of resource mobilization and allocation in the real economy and for the overall macroeconomic stability. The reforms have been driven by a thrust towards liberalization and several initiatives such as liberalization in the interest rate and reserve requirements have been taken on this front. At the same time, the government has emphasized on stronger regulation aimed at strengthening prudential norms, transparency and supervision to mitigate the prospects of systemic risks. Today the Indian financial structure is inherently strong, functionally diverse, efficient and globally competitive. During the last fifteen years, the Indian financial system has been incrementally deregulated and exposed to international financial markets along with the introduction of new instruments and products.