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What is Balance of Payments ?

Balance of Payments is an accounting statement , that provides information regarding all the economic transactions , between , the residents of a country, and rest of the world , during a given period. The period is usually one fiscal or financial year.

BOP is a flow concept as it is measured over a period.

BOP is prepared using the ‘DOUBLE ENTRY SYSTEM’. All the inflows are recorded on the credit side whereas all the outflows on the debit side.

Who are included in Resident ?

Resident of a country include : –

• An individual ;
• Firm ; or
• Government agencies.

A resident does not include foreign military personnel, tourists, migratory workers, branches of foreign countries, etc, even though they may work within the domestic territory of a country .

What are the economic transactions?

The transactions   involve transfer of title or ownership of goods, services, assets or money are called Economic Transactions . Economic transactions can be classified as follows:

1. Visible Items: These includes all type of physical goods , which are imported or exported, and which can be seen, touched and measured. For example, mobile phones, agricultural produce, fertilizers etc.….
2. Invisible Items: These includes all type of services which cannot be seen, touched and measured but can only be felt. For example, banking, insurance, etc….
3. Unilateral Transfers: These includes gifts, grants and other one- way transactions which does not involve the repayment in present or future. For example, scholarships, parents sending money to child, etc….
4. Capital Transfers: These includes capital receipts which could be by way of purchase or sale of assets, borrowing or lending etc. For example, purchasing shares of foreign company, loan taken by Indian companies from foreign banks etc….

STRUCTURE OF BALANCE OF PAYMENT (BOP) – BALANCE OF PAYMENTS CLASS 12 NOTES

Balance of payment account follows the “double entry system” of accounts for recording the transactions in the books of accounts with the rest of the world. BOP account has two sides-

1. Credit side: It records all the inflows or sources of foreign exchange.
2. Debit side: It records all the outflows or uses of the foreign exchange.

As per the double entry system of accounts, the balance of payments account needs to be balanced. But this does not stand true in economic terms. In economic sense, the balance of payment account may not always be balanced. It could be  surplus or deficit. This gives rise to three types of BOP:

1. Balance BOP: It is when all the receipts of foreign exchange are equal to the payments of the foreign exchange.
2. Surplus BOP: It is when the receipts of foreign exchange are more than the payments of the foreign exchange.
3. Deficit BOP: It is when the receipts of foreign exchange are less than the payments of foreign exchange.

BALANCE OF TRADE (BOT)

Balance of trade refers to the difference between the amount of exports and imports of the visible items (goods only).

Balance of trade is a part of balance of payments account and it plays an important role in showing the overall situation of the balance of payment account. Balance of trade is also known as ‘Balance of visible Items’ or ‘Trade Balance’.

Balance of trade account can have a negative or positive balance.

1. Surplus BOT: It is when the exports are more than the imports. This reflects a positive balance in BOT account.
2. Deficit BOT: It is when the imports are more than the exports. This reflects a negative balance in BOT account.

DIFFERENCE BETWEEN BOP & BOT – BALANCE OF PAYMENTS CLASS 12 NOTES

COMPONENTS OF BALANCE OF PAYMENT ACCOUNT

Balance of payment account can be broadly classified into two types of account: Current Account and Capital Account.

CURRENT ACCOUNT

It refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period.

It contains the receipt and payments of visible goods, invisible goods and unilateral transfers.

Components of Current Account:

1. Export and import of goods: It include the visible goods that can be seen and touched. Payments are shown on the debit side (negative side) and receipts are shown on the credit side (positive side). The balance of this is also known as trade balance.
2. Export and import of services: It include the invisible goods that cannot be seen or touched but only be felt. Payments of services are recorded on the debit side (negative side) and receipts are recorded on the credit side (positive side).
3. Unilateral transfers: These are the one- way transactions. They include gifts, donations and other remittances. Payments are shown on the debit side (negative side) and receipts are shown on the credit side (positive side).
4. Income receipts and payments to and from abroad: It includes income from investment. For example, income from rent.

Current account records all the receipts and payments of goods and services that affect the income and output of the economy. Thus, it shows the net income of the economy generated from the foreign sector.

BALANCE ON CURRENT ACCOUNT:

The credit and debit side of the current account gives the net value as the debit or credit balance.

If there is a credit balance in current account, it means there are more receipts than payments of foreign exchange. This shows the surplus in current account.

If there is a debit balance in current account, it means there are more payments than receipts of foreign exchange. This shows the deficit in current account.

CAPITAL ACCOUNT

It refers to the account which records all those transactions between the normal resident and the rest of the world which affects the assets and liabilities of the normal resident. However, it does not have any direct impact on the income and output level of the economy.

Components of Capital Account:

1. Borrowings: It includes all transactions related to borrowings and lending to/from abroad. The receipts of loans and repayments of loan by the foreigners is recorded on the credit (positive) side. The lending to abroad and the repayment to abroad by the private sector is recorded on the debit (negative) side.
2. Investments: It includes the investment done by the foreigners or the private sector. Investment by foreigners in India are recorded on the credit (positive) side. Investment by the Indian residents in foreign companies is recorded on the debit (negative) side

• FDI or Foreign Direct Investment: It refers to purchase of asset by giving up the whole control of it. For example, Purchase of land and building.
• FII or Foreign Institutional Investment: It refers to purchase of asset by not giving up the entire control of it to the purchaser. It is also known as Portfolio Investment. For example, Purchase of shares.

3. Change in Foreign Exchange Reserve: The foreign exchange reserves are the financial asset of the government. Withdrawals from reserve are recorded on the credit (positive) side. Additions to the reserves are recorded on the debit (negative) side.

BALANCE ON CAPITAL ACCOUNT:

The transactions which lead to inflow of foreign exchange are recorded on the credit (positive) side. The transactions which lead to outflow of foreign exchange reserve are recorded on the debit (negative) side. If the credit side is more than the debit side, we get surplus in capital account. If the debit side is more than the credit side, we get deficit in capital account.

A deficit in the current account is settled by a surplus on the capital account.

DIFFERENCE BETWEEN CURRENT AND CAPITAL ACCOUNT

AUTONOMOUS AND ACCOMMODATING ITEMS

The transactions in balance of payment can be categorized as autonomous and accommodating.

Autonomous Items: These are “above the line items.” They take place due to some economic motive such as profit maximization. They are independent of the state of BOP account. They take place on both current and capital accounts.

Accommodating Items: These are called “below the line items.” They take place to cover the deficit or surplus in BOP account. They are dependent of the state of BOP account. They take place only on capital account.

DIFFERENCE BETWEEN ACCOMMODATING AND AUTONOMOUS ITEMS

DEFICIT IN BALANCE OF PAYMENT ACCOUNT

It refers to a situation when the outflow on account of autonomous transactions are more than the inflow on account of such transactions.. A deficit creates problem as it is very difficult to cope up with. This causes disequilibrium in balance of payment account.

In such situation, official reserve transaction  are used by the central bank to withstand the situation.

Introduction of Exchange Rate Class 12

In foreign exchange rate class 12, we will study about the foreign exchange rates, depreciation and appreciation of currencies, determination of foreign exchange rate and foreign exchange markets.

Every country has their own currency to exchange goods and services. But the currency of one country is not acceptable in the other country. For this purpose, we need foreign exchange rate to convert the domestic currency into foreign currency.

FOREIGN EXCHANGE RATE

It is the exchange rate at which one currency is exchanged for other currency in the exchange rate market. It represents the price of one currency in terms of other currency.

This exchange rate depends upon the demand and supply of foreign exchange with other countries indulged in exchanging. For example, the value of $1 is equals to Rs. 76.

DEPRECIATION V/S APPRECIATION

Currency Depreciation

• It refers to decrease in the value of domestic currency in relation to the foreign currency.
• It means the value of domestic currency is less than the value of foreign currency and domestic currency is required in more number to buy the foreign currency.
• It is caused because of (1) increase in demand, or (2) decrease in supply.
• Due to depreciation of domestic currency, the exports will rise because the domestic currency becomes relatively cheaper and the foreign country will purchase more from the domestic country.
• The imports will fall because the domestic country need to pay more currency to buy same amount of goods and services.

Currency Appreciation

• It refers to increase in the value of domestic currency in relation to the foreign currency.
• It means the value of domestic currency is more than the value of foreign currency and domestic currency is required in less number to buy foreign currency.
• It is caused because of (1) decrease in demand, or (2) increase in supply.
• Due to appreciation of domestic currency, the exports will fall because domestic currency becomes relatively expensive and foreign country will purchase less from domestic country.
• The imports will rise because the domestic country will be able to buy more with the same amount of currency.

TYPES OF EXCHANGE RATE SYSTEMS

There are 3 types of Foreign Exchange Rate Systems:

1. Fixed exchange rate system
2. Flexible exchange rate system
3. Manages floating exchange rate system

FIXED EXCHANGE RATE SYSYTEM

• It refers to the system in which exchange rate for the currency is fixed by the government. The main aim of this system is to fix the exchange rate and ensure stability in foreign exchange.
• In this system, each country keeps something as a common unit, such as gold or any other precious metal, as some external standard. With the help of this, the exchange rate with the other country is determined by the value of difference between the external unit kept by both the countries.
• When the value of currency is fixed in terms of other currency, it is known as parity value.
• Fixed exchange rate is of two types:

1. Gold Standard System: In this system, the value of all the currencies is measured by keeping something as a common unit. In this system, the common unit is taken as gold. Each country keeps the amount of gold they have and the excess and deficit of gold between the countries decides the foreign exchange rate.
2. Adjustable Peg System: In this system, the value of currencies is pegged or fixed to a major currency. Under this system ,all the currencies were pegged to US dollars at a fixed exchange rate.

• This gives rise to the devaluation and revaluation of domestic currency. Devaluation refers to the decrease in the value of domestic currency intentionally done by the government. Revaluation refers to increase in the value of domestic currency intentionally done by the government.

FLEXIBLE EXCHANGE RATE SYSTEM

• It refers to a system in which exchange rate is determined by the forces of demand and supply of the foreign currencies in the foreign exchange market.
• This system of exchange is also called ‘Floating Exchange Rate’.
• There is no intervention of the government in fixing the exchange rate.
• This gives rise to the depreciation and appreciation of domestic currency in the foreign exchange market.
• In this system of exchange, the foreign exchange rate keeps on changing continuously.

FIXED EXCHNAGE RATE SYSTEM V/S FLEXIBLE EXCHNAGE RATE SYSTEM

Manages floating exchange rate system

• It refers to a system in which exchange rate is determined by the market forces of demand and supply but there is some interference of the Central banking fixing the foreign exchange rate in the foreign exchange market.
• It a hybrid of fixed exchange rate and flexible exchange rate system.
• It is also known as ‘Dirty Floating’ as it is done by the RBI to maintain the forex rate within the desired target value.
• The rate is freely determined by the market forces but the RBI intervenes in between to restrict the fluctuations in the exchange rate when it exceeds the limit.

DEMAND AND SUPPLY OF FOREIGN EXCHANGE

Demand and supply of foreign exchange happens when the countries want to trade their goods and services internationally. This causes deprecation or appreciation of currencies as well.

DEMAND FOR FOREIGN EXCHANGE

The demand of foreign exchange arises when the people need foreign exchange to purchase goods or services from other countries. The demand for foreign exchange arises because of the following reasons:

• Imports of goods and services: Foreign exchange is required to make payment for the goods or services purchased from other country.
• Unilateral transfers to rest of the world: Foreign exchange is required to send gifts or money to the person living abroad.
• Tourism: Foreign exchange is required to meet the expenses made during the foreign tours.
• Speculations: Foreign exchange is required when people want to gain money from the speculative activities or currency appreciation.
• Purchase of Assets in foreign country: Foreign exchange is required to make payments for the purchase of land, building, shares, debentures, bonds, etc…. in foreign countries.

• Imports of goods and services: Foreign exchange is required to make payment for the goods or services purchased from other country.
• Unilateral transfers to rest of the world: Foreign exchange is required to send gifts or money to the person living abroad.
• Tourism: Foreign exchange is required to meet the expenses made during the foreign tours.
• Speculations: Foreign exchange is required when people want to gain money from the speculative activities or currency appreciation.
• Purchase of Assets in foreign country: Foreign exchange is required to make payments for the purchase of land, building, shares, debentures, bonds, etc…. in foreign countries.

There exists a negative relation between foreign exchange rate and demand for foreign exchange. The Demand curve of the foreign exchange is ‘DOWNWARD SLOPING’ because of inverse relation between demand of foreign exchange and foreign exchange rate. When the foreign exchange rate decreases, people demand more of foreign exchange. When the foreign exchange rate rises, its demand decreases.

SUPPLY OF FOREIGN EXCHANGE

The supply of foreign exchange arises when people demand for the foreign exchange to purchase goods or services form their country. The supply for foreign exchange arises because of the following reasons:

• Export of goods and services: Foreign exchange is earned when goods or services are purchased form the domestic country.
• Foreign investment: When the foreign country makes investment in domestic country, the foreign exchange comes to the domestic country.
• Speculations: Supply of foreign exchange comes when the foreign countries speculate on the value of foreign currency.
• Unilateral transfers from abroad: Supply of foreign exchange increases when the foreign country gives remittance to domestic country in form of gifts or transfers.

There exists a positive relationship between foreign exchange rate and supply of foreign exchange. When the foreign exchange rate decreases, its supply also falls. When foreign exchange rate rises, its supply also increases.

DETERMINATION OF FOREIGN EXCHNAGE RATE

• Foreign exchange rate is determined by the flexible exchange rate system. In this, the forces of demand and supply meet together to determine the foreign exchange rate.
• The point of equilibrium where demand curve of foreign exchange meets supply curve of foreign exchange is the point of foreign exchange rate.
• If the exchange rate rises, the demand for forex falls and the supply for forex rises. In this case, there will be excess supply. This situation pushes the exchange rate downwards and foreign exchange rate falls.
• If exchange rate falls, the demand for forex rises and supply for forex falls. This will lead to excess demand. This situation pushes the exchange rate upwards and foreign exchange rate rises.

CHANGES IN EXCHANGE RATE

The equilibrium exchange rate is changed due to changes in the demand and supply of foreign exchange rate.

CHANGE IN DEMAND

Change in demand may be because of either ‘increase in demand’ or ‘decrease in demand’.

1. Increase in supply: Due to increase in supply, the supply curve will shift  leftwards. As a result of this, the exchange rate will fall. Due to the fall in exchange rate, the domestic currency will be appreciated.
2. Decrease in supply: Due to decrease in supply, the supply curve will shift  rightwards. As a result of this, the exchange rate will rise. Due to the increase in exchange rate, the domestic currency will be depreciated.

Change in Supply Curve of Foreign Exchange

Change in supply may be because of either ‘increase in supply’ or ‘decrease in supply’.

1. Increase in supply: Due to increase in supply, the supply curve will shift to leftwards. As a result of this, the exchange rate will fall. Due to the fall in exchange rate, the domestic currency will be appreciated.
2. Decrease in supply: Due to decrease in supply, the supply curve will shift to rightwards. As a result of this, the exchange rate will rise. Due to the increase in exchange rate, the domestic currency will be depreciated.

FOREIGN EXCHNAGE MARKET

Foreign exchange market is the market where the foreign currencies are bought and sold. The foreign exchange market is not a place but a system where the exchange rate is determined and foreign currencies are exchanged.

The buyers and sellers of foreign currency includes individual, firms, commercial banks, central bank and foreign exchange brokers.

FUNCTIONS OF FOREIGN EXCHANGE MARKET

Foreign exchange market performs the following functions:

1. Transfer function: This function transfers the purchasing power between the countries involving in purchasing and selling of foreign exchange.
2. Credit function: It provides credit to the foreign countries in terms of foreign currency for the purpose of international payments.
3. Hedging functions: This functions of foreign exchange market provides security form the risk of fluctuation of prices in the foreign exchange market. When seller and buyer enter into an agreement for a future date at the current year price, it is called hedging. This is done to avoid the losses that might be caused due to exchange rate variation.

TYPES OF FOREIGN EXCHNAGE MARKET:

Foreign exchange markets can be classified into two types: Spot and Forward.

1. Spot market: Spot market is a market in which the exchange of currencies is done immediately. This market is of daily nature and deals only in on the spot transactions. The rate of exchange at which transactions in spot market are dealt is known as spot exchange rate or current exchange rate.
2. Forward market: Forward market refers to the market in which the exchange of currencies is fixed for a future date at the current rate of foreign exchange. Generally, the international transactions are fixed upon an early date and completed on a future date. This is done to minimize the risk of uncertainty and to make profits for speculative purpose. The exchange rate at which the transactions in this market are done is called forward exchange rate.

Class 12 economics revision notes Government Budget and the Economy Revision Notes

Budget is a financial statement showing the expected receipt and expenditure of Govt. for the coming fiscal or financial year.
Main objectives of budget are:
(i) Reallocation of resources.
(ii) Redistribution of income and wealth
(iii) Economic Stability
(iv) Management of public enterprises.
(v) Economic Growth
(vi) Generation of employment
There are two components of budget:
(a) Revenue budget
(b) Capital budget
Revenue Budget consists of revenue receipts of govt. and expenditure met from such revenue.
Capital budget consists of capital receipts and capital expenditure.
BUDGET RECEIPTS:
1. Revenue Receipts
A. Tax
a. Direct Tax
i. Income tax
ii. Corporate Tax
iii. Wealth and Property Tax
b. Indirect Tax
i. Value added Tax
ii. Service Tax
iii. Excise Duty
iv. Custom Duty
v. Entertainment Tax
B. Non-Tax
a. Commercial Revenue
b. Interest
c. Dividend, Profits
d. External Grants
e. Administrative Revenues
f. Fees
g. License Fee
h. Fines, Penalties
i. Cash grants-in-aid from foreign countries and international org.
2. Capital Receipts
A. Borrowing and Other liabilities
B. Recovery of Loans
C. Other receipts(Disinvestments)
Direct Tax: A direct tax is one whose burden cannot be shifted to others I.e. the impact and incidence of the tax is on the same person.ex- income tax, wealth tax, gift tax.
Indirect Tax: An indirect tax is one whose burden can be shifted to others or the impact and incidence of an indirect tax falls on different people. ex- excise duty, VAT, service tax.
Revenue Receipts:
(i) Neither creates liabilities for Govt.
(ii) Nor causes any reduction in assets.
Capital Receipts:
(i) It creates liabilities or
(ii) It reduces financial assets.
BUDGET EXPENDITURE:
1. Revenue Expenditure
(i) Neither creates assets
(ii) Nor reduces liabilities.
e.g., Interest Payment, subsidies etc.
Capital Expenditure:
(i) It creates assets
(ii) It reduces liabilities.
e.g., Construction of school building Repayment of loans etc.
Budget Deficit:- It refers to a situation when budget expenditure of a govt. are greater than the govt. receipts.
Budgetary Deficit: Total Expenditure > Total Receipts.
Revenue deficit: It is the excess of govt. revenue expenditure over revenue receipts.
Revenue Deficit: Total revenue expenditure > Total revenue receipts
Implications of Revenue Deficit are:
(i) A high revenue deficit shows fiscal indiscipline.
(ii) It shows wasteful expenditures of Govt. on administration.
(iii) It implies that government is dissaving, i.e. government is using up savings of other sectors of the economy to finance its consumption expenditure.
(iv) It reduces the assets of the govt. due to disinvestment.
(v)  A high revenue deficit gives a warning signal to the government to either curtail its expenditure or increase its revenue.
Fiscal Deficit: When total expenditure exceeds total receipts excluding borrowing.
Fiscal Deficit: Total expenditures > Total Receipts excluding borrowing.
Implications of Fiscal Deficits are:
(i) It leads to inflationary pressure.
(ii) A country has to face debt trap.
(iii) It reduces future growth and development.
(iv) It increases liability of the government.
(v) It increases foreign dependence.
Primary Deficit: By deducting Interest payment from fiscal deficit we get primary deficit.
Primary Deficit: Fiscal deficit – Interest payments.
Implications of Primary Deficits are:
It indicates, how much of the government borrowings are going to meet expenses other than the interest payments.
Measures to correct different deficits:-
(i) Monetary expansion or deficit financing.
(ii) Borrowing from public.
(iii) Disinvestment
(iv) Borrowing from international monetary institution and other countries.
(v) Lowering govt. expenditure.
(vi) Increasing govt. revenue.

Deficient demand

Deficient Demand is the state in which aggregate demand is less than the aggregate supply at full employment level in the economy.

Important Observations of Deficient demand

• A positively sloped straight line represents the value of demand for goods and services in the economy which is the sum of consumption and investment.
• The 45 degrees positively sloped straight line AS curve represents the value of supply of goods and services in an economy which is the sum of consumption and savings.
• Point E is considered as a full-employment equilibrium point because at this point AD= AS.
• Due to a decrease in investment expenditure AD curve shifts downward from AD to AD¹.
• EG indicates the Deflationary gap.
• F indicates the underemployment equilibrium.

Causes of deficient demand/deflationary gap

1. It occurs due to falling in AD
2. Fall in consumption expenditure of households, due to falling in the propensity to consume.
3. Fall in government expenditure.
4. Fall in investment expenditure, due to increase in the rate of interest or fall in expected return.
5. Fall in export due to increase in export duty.
6. Increase in import due to decrease in import duty.

Excess demand

Excess Demand is the state in which aggregate demand is more than the aggregate supply at full employment level in the economy.

Important Observations of Excess demand

• A positively sloped straight line represents the value of demand for goods and services in the economy which is the sum of consumption and investment.
• The 45 degrees positively sloped straight line AS curve represents the value of supply of goods and services in an economy which is the sum of consumption and savings.
• Point E is considered as a full-employment equilibrium point because at this point AD= AS.
• Due to an increase in investment expenditure AD curve shifts upward from AD to AD¹.
• EF indicates the inflationary gap.

Causes of Excess demand/Inflationary gap

1. It occurs due to a rise in AD
2. Rising consumption expenditure of households, due to rising propensity to consume.
3. The rise in government expenditure.
4. Rise in investment expenditure, due to decrease in the rate of interest or rise in expected return.
5. Rise in export due to decrease in export duty.
6. Fall in import due to increase in import duty.

Policies to control Excess/Deficient demand

Monetary policy

The policy of RBI is to control the money supply and the availability of credit to control excess or deficient demand along with the achievement of predetermined purposes of social and economic development.

• Repo rate- the rate at which RBI lends to commercial banks against securities or discounting a bill of exchange.
  • In case of excess demand, RBI increases repo rates, which makes loans from RBI to commercial banks relatively expensive and forces commercial banks to increase the rate of interest on loans for the public. Loans to the public will become relatively expensive and it will discourage the public from taking loans. As a result consumption and investment expenditure of the public will fall and the problem of excess demand will be solved.
  • In case of deficient demand, RBI decreases repo rate, its loan from RBI to commercial Bank relatively cheaper forces commercial banks to decrease the rate of interest on loans for the public. Loans to the public will become relatively cheaper and it will encourage the public to take loans. As a result consumption and investment expenditure of the public will rise and the problem of deficient demand will be solved.
• Open-market operations- the process of selling and purchasing government securities by RBI in an open market is known as open market operations.
  • In case of excess demand, RBI sells Government securities in the open market. When commercial banks purchase it will lead to a flow of money from commercial banks to RBI and the credit creation capacity of commercial banks will fall. As a result, consumption expenditure and investment expenditure of the public will fall and the problem of excess demand will be solved.
  • In case of deficient demand, RBI purchases Government security in the open market. If commercial banks sell it to RBI it will lead to a flow of money from RBI to a commercial bank and the credit creation capacity of the commercial bank will rise. Result consumption expenditure and investment expenditure of the public will increase and the problem of sufficient demand will be solved.
• Varying LRR-percentage of total deposits of a commercial bank which is required to keep a reserve known as LRR. It is the sum of CRR and SLR.
  • In case of excess demand, RBI increases the rate of LRR. Now commercial banks are forced to keep a larger part of total deposits as a reserve. It will reduce the credit capacity of commercial banks. As a result, consumption expenditure and investment expenditure will fall and the problem of excess demand will be solved.
  • In case of deficient demand, RBI decreases the rate of LRR. Commercial banks are forced to keep fewer total deposits as a reserve. It will increase the credit capacity of commercial banks. As a result, consumption expenditure and investment expenditure will increase and the problem of deficient demand will be solved.
• Margin requirement- the difference between the value of security and the loan granted against security is known as the margin requirement.
  • In case of excess demand, RBI increases the rate of MR. It forces commercial banks to grant a smaller amount of loan against the same security. It will reduce the lending capacity of commercial banks. As a result, consumption and investment expenditure will decrease and the problem of excess demand will be solved.
  • In case of deficient demand, RBI decreases the rate of MR. It forces commercial banks to grant more loans against the same security. It will increase the lending capacity of commercial banks. As a result, consumption and investment expenditure will increase and the problem of deficient demand will be solved.

Fiscal policy

The policy of expenditure and receipts of the government to control excess and deficient demand along with the achievement of predetermined purposes of social and economic development.

It is also known as a budgetary policy.

• Government expenditure- government incurs huge expenditure on different projects like infrastructure development, providing free services to the public, etc.
  • In case of excess demand, the government reduces expenditure especially on non-productive activities which will reduce the disposable income of the public as well as their purchasing power. As a result, consumption and investment expenditure will fall and the problem of excess demand will be solved.
  • In case of deficient demand, increases expenditure which will increase the disposable income of the public as well as their purchasing power. As a result, action and investment expenditure will increase and the problem of deficient demand will be solved.
• Taxation- Tax is a compulsory payment made by the public to the government without the expectation of direct benefit in return.
  • In case of excess demand, the government increases the rate of tax and imposes new laws, especially direct taxes. It will reduce the disposable income of the public as well as their purchase power. As a result, consumption and investment expenditure will fall and the problem of excess demand will be solved.
  • In case of deficient demand, the government decreases the rate of tax. It will increase the disposable income of the public as well as their purchasing power. As a result, consumption and investment expenditure will increase and the problem of deficient demand will be solved.

National Income Determination and Multiplier – Notes for Class 12 Macro Economics

Goods :In economics a goods is defined as any physical object, manmade, that could command a price in the market andthese are the materials that satisfy human wants and provide utility

Consumption Goods : Those final goods which satisfy human wants directly. ex- ice-cream and milk used by the households.
Capital Goods :Those final goods which help in production. These goods are used for generating income. These goods are fixed assets of the producers.ex- plant and machinery.
Final Goods are those goods which are used either for final consumption or for investment.
Intermediate Goods refers to those goods and services which are used as a raw material for further production or for resale in the same year.
These goods do not fulfill needs of mankind directly.
Investment :Addition made to the physical stock of capital during a period of time is called investment. It is also called capital formation.
capital formation:- Change in the stock of capital is also called capital formation.
Depreciation :means fall in value of fixed capital goods due to normal wear and tear and expected obsolescence. It is also called consumption of fixed capital.
Gross Investment :Total addition made to physical stock of capital during a period of time. It includes depreciation. OR Net Investment + Depreciation
Net Investment :Net addition made to the real stock of capital during a period of time. It excludes depreciation.

Net Investment = Gross investment – Depreciation.

Stocks :Variables whose magnitude is measured at a particular point of time are called stock variables. Eg. National Wealth, Inventory etc.
Flows :Variables whose magnitude is measured over a period of time are called flow variable. Eg. National income, change in stock etc.
Circular flow of income :It refers to continuous flow of goods and services and money income among different sectors in the economy. It is circular in nature. It has neither any end and nor any beginning point. It helps to know the functioning of the economy.
Leakage :It is the amount of money which is withdrawn from circular flow of income. For eg. Taxes, Savings and Import. It reduces aggregate demand and the level of income.
Injection :It is the amount of money which is added to the circular flow of income. For e.g. Govt. Exp., investment and exports. It increases the aggregate demand and the level of income.
Economic Territory :Economic (or domestic) Territory is the geographical territory administrated by a Government within which persons, goods, and capital circulate freely.

Scope of Economic Territory :

(a) Political frontiers including territorial waters and airspace.
(b) Embassies, consulates, military bases etc. located abroad.
(c) Ships and aircraft operated by the residents between two or more countries.
(d) Fishing vessels, oil and natural gas rigs operated by residents in the international waters.
Normal Resident of a country: is a person or an institution who normally resides in a country and whose Centre of economic interest lies in that country.
Exceptions:- (a) Diplomats and officials of foreign embassy.
(b) Commercial travellers, tourists students etc.
(c) People working in international organizations like WHO, IMF, UNESCO etc. are treated as normal residents of the country to which they belong.
The related aggregates of national income are:-
(i) Gross Domestic Product at Market price (GDP_MP)
(ii) Gross Domestic Product at Factor Cost (GDP_FC)
(iii) Net Domestic Product at Market Price (NDP_MP)
(iv) Net Domestic Product at FC or (NDP_FC)
(v) Net National Product at FC or National Income (NNP_FC)
(vi) Gross National Product at FC (GNP_FC)
(vii) Net National. Product at MP (NNP_MP)
(viii) Gross National Product at MP (GNP_MP)
(i) Gross Domestic Product at Market Price : It is the money value of all the
final goods and services produced within the domestic territory of a country
during an accounting year.
GDP_MP = Net domestic product at FC (NDP_FC) + Depreciation + Net
Indirect tax.
(ii) Gross Domestic Product at FC : It is the value of all final goods and services
produced within domestic territory of a country which does not include net
indirect tax.
GDP_FC = GDP_MP – Indirect tax + Subsidy
or GDP_FC = GDP_MP – NIT
(iii) Net Domestic Product at Market Price : It is the money value of all final
goods and services produced within domestic territory of a country during an
accounting year and does not include depreciation.
NDP_MP = GDP_MP – Depreciation
(iv) Net Domestic Product at FC : It is the value of all final goods and services
which does not include depreciation charges and net indirect tax. Thus it is
equal to the sum of all factor incomes (compensation of employees, rent,
interest, profit and mixed income of self employed) generated in the domestic
territory of the country.
NDP_FC = GDP_MP – Depreciation – Indirect tax + Subsidy
(v) Net National Product at FC (National Income) : It is the sum total of factor
incomes (compensation of employees + rent + interest + profit) earned by
normal residents of a country in an accounting year
or
NNP_FC = NDP_FC + Factor income earned by normal residents from abroad –
factor payments made to abroad.
(vi) Gross National Product at FC: It is the sum total of factor incomes earned
by normal residents of a country along with depreciation, during an accounting
year.
GNP_FC = NNP_FC + Depreciation OR
GNP_FC = GDP_FC + NFIA
(vii) Net National Product at MP : It is the sum total of factor incomes earned by
the normal residents of a country during an accounting year including net
indirect taxes.
NNP_MP = NNP_FC + Indirect tax – Subsidy
(viii) Gross National Product at MP : It is the sum total of factor incomes earned
by normal residents of a country during an accounting year including
depreciation and net indirect taxes.
GNP_MP = NNP_FC + Dep + NIT

Domestic Aggregates

Gross domestic Product at Market Priceis the market value of all the final goods and services produced by all producing units located in the domestic territory of a country during an accounting year. It includes the value of depreciation or consumption of fixed capital.
Net Domestic Product at Market PriceDepreciation (consumption of Fixed capital). It is the market value of final goods and services produced within the domestic territory of the country during a year exclusive of depreciation.
It is the factor income accruing to owners of factors of production for suppling factor services with in domestic territory during an accounting year.

NATIONAL AGGREGATES

Gross National Product at Market Price ) is the market value of all the final goods and services produced by normal residents (in the domestic territory and abroad) of a country during an accounting year.

National Income  :It is the sum total of all factors incomes which are earned by normal residents of a country in the form of wages. rent, interest and profit during an accounting year.

Methods of Estimation of National Income:

National Income at Current Prices : It is also called nominal National income. When goods and services produced by normal residents within and outside of a country in a year valued at current years prices i.e. current prices is called national income at current prices.
Y = Q x P
Y = National income at current prices
Q = Quantity of goods and services produced during an accounting year
P = Prices of goods and services prevailing during the current accounting year
National Income at Constant Prices :It is also called as real national income. When goods and services produced by normal residents within and outside of a country in a year valued at constant price i.e. base year’s price is called National Income at Constant Prices.
Y’ = Q x P’
Y’ = National income at constant prices
Q = Quantity of goods and services produced during an accounting year
P’ = Prices of goods and services prevailing during the base year
Value of Output :Market value of all goods and services produced by an enterprise during an accounting year.
Value added :It is the difference between value of output of a firm and value of inputs bought from the other firms during a particular period of time.
Problem of Double Counting :Counting the value of a commodity more than once while estimating national income is called double counting. It leads to overestimation of national income. So, it is called problem of double counting.
Ways to solve the problem of double counting.
(a) By taking the value of only final goods.
(b) By value added method.
Components of Added by all 3 sectors
1. Value Added by Primary Sector(=VO-IC)
2. Value Added by Secondary Sector(=VO-IC)
3. Value Added by Tertiary Sectors(=VO-IC)
Hints
VO=Value of output
IC=Intermediate Consumption
VO=Price X quantity OR
Sales + Change in stock
(Change in stock = Closing Stock – Opening Stock)

Components of Final Expenditure:

1. Final Consumption Expenditure
a. Private Final Consumption Expenditure(C)
b. Government Final Consumption Expenditure(G)
2. Gross Domestic Capital Formation
a. Gross Domestic Fixed Capital Formation
i. Gross business Fixed Investment
ii. Gross Residential Construction Investment
iii. Gross public Investment
b. Change in Stock or Inventory Investment
3. Net Export(X-M)
a. Export(X)
b. Import(M)

Components of Domestic Income :

1. Compensation of Employees
a. Wages and salaries(Cash/or kinds)
b. Employers Contribution of Social security Schemes
2. Operating surplus
a. Rent
b. Interest
c. Profit
i. Corporate Tax
ii. Dividend
iii. Undistributed corporate profit
3. Mixed Income for self-Employed person
Net Factor Income from Abroad NFIA = It is difference between factor income received/earned by normal residents of a country and factor income paid to non-residents of the country.
Components of NFIA :
1. Net Compensation of Employees
2. Net Income from Property and entrepreneurship
3. Net Retained earning of resident companies abroad
Hints :NFIA : Net Factor Income Earned from Abroad.
NFIA = Factor Income Received from Abroad.
–Factor Income Paid to Abroad.
OR
NFIA = Net compensation of Employees
Net income from property and entrepreneurship.
+ Net retained earning of resident companies abroad.
Net National Disposable Income (NNDI): It is defined as net national product at Market price  plus net current transfer from rest of the world.
NNDI = NNP_MP
+ Net current transfers from rest of the world.
=National income + net indirect tax + net current transfers from the rest of the world.
Gross National Disposable Income (Gross NDI  + Net current Transfers from rest of the world.
Net National Disposable Income (Net NDI)  + Net current Transfers from rest of the world.
OR
= Gross NDI – Depreciation.

Concept of Value Added of One Sector or One Firm

1. Value output = Sales + Change in Stock. or value of output = price × qty. sold + ΔS.
2. Gross value added at market price  = Value of output – Intermediate consumption.
3. Net value added at market price  = – Depreciation.
4. Net value added at factor cost  = – Net indirect tax.
Note: By adding up of all the sectors, we get or Domestic Income.
Personal Disposable Income from National Income 

Private Income :Private income is estimated income of factor and transfer incomes from all sources to private sector within and outside the country.
Personal Income :It refers to income received by house hold from all sources. It includes factor income and transfer income.
Personal Disposable Income :It is that part of Personal income which is available to the households for disposal as they like.
GDP and Welfare :
In general GDP and Welfare are directly related with each other. A higher GDP implies that more production of goods and services. It means more availability of goods and services. But more goods and services may not necessarily indicate that the people were better off during the year. In other words, a higher GDP may not necessarily mean higher welfare of the people. There are two types of GDP:
Real GDP : When the goods and services are produced by all producing units in the domestic territory of a country during an a/c. year and valued these at base year’s prices or constant price, it is called real GDP or GDP at constant prices. It changes only by change in physical output not by change price level. It is called a true indicator of economic development.
Nominal GDP : When the goods and services are produced by all producing units in the domestic territory of a country during an a/c. year and valued these at current year’s prices or current prices, it is called Nominal GDP or GDP at current prices. It is influenced by change in both physical output and price level. It does not consider a true indicator of economic development.

Price index plays the role of deflator deflating current price estimates into constant price estimates. In this way it may be called GDP deflator.
Welfare mean material well being of the people. It depends on many economic factors like national income, consumption level quality of goods etc and non-economic factor like environmental pollution, law and order etc. the welfare which depends on economic factors is called economic welfare and the welfare which depends on non-economic factor is called non-economic welfare. The sum total of economic and non-economic welfare is called social welfare. Conclusion thus GDP and welfare directly related with each other but this relation is incomplete because of the following reasons.

Limitation of percapita real GDP/GDP as a indicator of Economic welfare :

Non-monetary exchange
Externalities not taken into GDP but it affects welfare.
Distribution of GDP.
All product may not contribute equally to economic welfare.
Contribution of some products may be negative.
Inflation may give falls impression of growth of GDP.        

Political Science Class 12 Notes Chapter 9 Globalisation

Concept of Globalisation

• Globalisation means the flows of ideas, capital, commodities and people across different parts of the world. It is a multidimensional concept. It has political, economic and cultural manifestations and these must be adequately distinguished.
• Globalisation need not always be positive. It can have negative consequences for the people.
• As a concept, globalisation fundamentally deals with flows. These flows can be ideas moving from one part of the world to another, commodities being traded across borders and so on.
• The crucial element is the worldwide inter connectedness which is created and sustained as a consequence of these constant flows.

Causes of Globalisation

• One important aspect of globalisation is that even though it is not caused by any single factor, technology remains a critical element.
• The ability of ideas, capital, commodities and people to move more easily from one part of the world to another has been made possible by technological advances.
• Interconnections is also an important aspect of globalisation. Any event taking place in one part of the world could have an impact on another part of the world.

Consequences of Globalisation
Political Consequences

• Globalisation results in an erosion of state capacity i.e. by reducing the ability of government to do what they want to do.
• It gives way to a more minimalist state that performs certain core functions such as the maintenance of law and order, and the security of its citizens.
• In place of the state the market becomes the prime determinant of economic and social priorities.
• Globalisation does not always reduce state capacity. The primacy of the state continues to be unchallenged basis of political community.
• State capacity has received boost as a consequence of globalisation, with enhanced technologies available at the disnosal of the state to collect information about its citizens.

Economic Consequences

• In order to understand economic consequences of globalisation it is important to know that in economic globalisation involves many actors other than IMF, WTO.
• It involves greater economic flows among different countries of the world. Some of this is voluntary and some forced by international institutions and powerful countries.
• Globalisation has involved greater trade in commodities across the globe as it has reduced the imposing of restrictions on the imports of one country on another.
• Economic globalisation has created an intense division of opinion all over the world.
• According to some, economic globalisation is likely to benefit only a small section of the population.
• On the other hand advocates of economic globlisation argue that it generates greater economic growth and well-being for larger sections of the population.

Cultural Consequences

• The consequences of globalisation can also be seen on our culture too and thus it is not confirmed only to the sphere of politics and economy.
• The process cultural globalisation poses a threat because it leads to the rise of a uniform culture or what is called cultural homogenisation.
• Cultural globalisation has both positive as well as negative effect on the world.
• While cultural homogenisation is an aspect of globalisation, the same process also generates precisely the opposite effect.

India and Globalisation

• Flows pertaining to the movement of capital, commodities, ideas and people go back several centuries in Indian History.
• During the British rule, India became an exporter of primary goods and raw materials and a consumer (importer) of finished goods.
• After independence, India decided to be a self-sufficient country rather than being dependent on others.
• In 1991, India embarked on a programme of economic reforms that has sought increasingly to de-regulate various sectors including trade and foreign investment.

Resistance to Globalisation

• Globlalisation has invited strong criticism all over the globe. For some globalisation represents a particular phase of global capitalism that makes the rich richer and the poor poorer.
• Culturally, they are worried that traditional culture will be harmed and people will lose their age-old values and ways.
• It is important to note here that anti-globalisation movements too participate in global networks, allying with those who feel like them in other countries.
• The World Social Forum (WSF) is a global platform bringing together human rights activists, environmentalists, labour, youth and women activists opposed to neo-liberal globalistion.

India and Resistance to Globalisation

• Resistance to globalisation in India has come from different quarters.
• There have been left wing protests to economic liberalisation voiced through political parties as well as through some forums.
• Resistance to globalisation has also come form the political right. This has taken the forum of objecting particularly to various cultural influences.

FACTS THAT MATTER

1. Globalisation is the integration of economy of a country in the process of free flow of trade and capital. It may also include ‘Brain drain’ across borders.

2. Globalisation increases the volume of trade in goods and services, inflows private foreign capital, increases foreign direct investment, creates new jobs, strengthens domestic economies, improves productive efficiency and healthy competition.

3. Globalisation may have negative impacts also as it failed to generate sufficient employment, modern methods of cultivation are not acquainted to less educated persons, it creates income inequality and exploits natural resources and labour force.

4. The globalisation is the result of historical factors, technological innovations, liberalisation of foreign trade and investment policies, and opening of multinational companies.

5. Globalisation consequences may be political, economical and cultural, politically stunts’ capacity has received a boost with enhanced technologies to collect information about its citizens.

6. Economic flows in various forums, like commodity, capital, people and ideas prompts rich countries to invest their money in countries other than their own. It also draws attention towards the role of JMF and WTO in determining economic policies across the world.

7. Cultural globalisation emerges and enlarges our choices and modify our culture without overwhelming the traditional norms i.e. burger can not be a substitute for masala dosa. Hence, it broadens our cultural outlook and promotes cultural homogenisation.

8. Globalisation has been criticised on political, economic and cultural grounds i.e. politically it weakens the state by reducing its sovereignty. Economically it has made the rich richer and the poor poorer creating disparities. Culturally there has been harmed traditions and lost age old values and ways. The World Social Forum (WSF) has also opposed neo-liberal globalisation.

9. In India, Globalisation has led to setting up of foreign companies as India realised the need for relating the Indian economy with the world by responding to 1991 financial crisis.

10. Globalisation process includes the thrust to liberalisation or privatisation. Liberalisation proclaims freedom of trade and investment, controls allocation of resources in domestic economy, rapid technological progress whereas privatisation allows private sector and other foreign companies to produce goods and services.

11. Resistance to globalisation in India has come from different quarters i.e. left wing protests to economic liberalisation, trade unions of industrial workforce organised protest against multinationals, the patents, resistance from political right i.e. objecting to various cultural influences of foreign T.V. channels, celebration of Valentine’s Day and Westernisation of dress of girls students in schools and colleges.

9. Environmental movements are the movements of groups which are environmentally conscious to challenge environmental degradation at national or international level aiming at raising new ideas and long term vision i.e. in Mexico, Chille, Brazil, Malaysia, Indonesia, India faced enormous pressure.

10. Environmental movements are categorised as forest movements, movements against mining and mineral industry for creating Water Pollution and Anti Dam Movement.

11. ‘Resources Geopolitics’ is all about who gets what, when, where and how. The practices of neo-colonialism spread on a large scale and throughout a cold war, industrialised countries adopted methods to ensure a steady flow of resources by deployment of military forces near exploitation sites and sea-lanes of communications, the stock pilling of strategic resources and efforts to prop up friendly governments.

12. The global economy relied on oil as a portable and essential fuel. The history of petroleum is the history of war and struggle. Water is another important resource relevant to global politics. Regional variations and increasing scaring of freshwater may also lead to conflicts in the world to play politics.

13. Indigenous people bring the issues of environment, resources and politics together. Indigenous people live with their social, economic, cultural customs in particular areas who speak of their struggle, agenda, and rights to have equal status i.e. Island states in Oceanic region, Central and South America, Africa, India and South East Asia.

14. The issues related to rights of indigenous communities have been neglected in domestic and international politics for long. The World Council of Indigenous People was formed in 1975 which became first of 11 indigenous NGOs to receive consultative status in the UN.

WORDS THAT MATTER

1. Globalisation: It signifies integration of an economy with the economies of other countries under the process of free flow of trade and capital.
2. World Social Forum: A global platform to bring together a wide coalition of human rights activists, environmentalists and women activists.
3. Privatisation: It allows private sector companies to produce goods and services in a country.
4. Liberalisation: It signifies relaxation of government rules and regulations relating to activities in sendee and industrial sector.
5. Cultural hetrogenisation: It signifies cultural differences and distinctive nature of cultures to be generated by globalisation.

Class 12 Political Science Quick Revision notes Chapter 8 Environment and Natural Resources

Environmental Concerns in Global Politics

• There have been many environmental issues that are concerns of the global politics.
• There is a decline in the availability of cultivable land and a substantial portion of existing agricultural land is losing fertility.
• Around 1.2 billion people in developing countries have no access to safe water and 2.6 billion have no access to sanitation according to the Human Development Report, 2006.
• The loss of biodiversity continues due to destruction of habitat in areas which are rich in species. The act of deforestation takes place for personal gains, removing the natural inhabitants.
• Another danger to ecosystems and human health is a steady decline in the total amount of ozone in the Earth’s stratosphere. Even the coastal waters are becoming increasingly polluted due to land-based activities.
• The environmental consequences of economic growth acquired an increasingly political character from the 1960s onwards.
• International agencies like the United Nations Environment Programme (UNEP), started holding international conferences to deal with environment issues.
• Earth summit or Rio summit was held in Rio de Janeiro, Brazil in June 1992 which produced conventions dealing with climate change, biodiversity, forestry and recommended a list of development practices called ‘Agenda 21’.

The Protection of Global ‘Commons’

• Commons’ are the resources shared by the community as a whole not individually.
• In the world, there are some areas which are located outside the sovereign jurisdiction of any one state and hence require common governance by the international community. This is known as Global Commons. They include Earth’s atmosphere, Antarctica, the ocean floor, and outer space.
• A number of agreements were signed which includes the Antarctic Treaty (1959), the Montreal Protocol (1987) and the Antarctic Environmental Protocol (1991).
• The history of outer space as a global commons shows that the management of these areas is thoroughly influenced by North-South inequalities.

Common but Differentiated Responsibilities

• There were differences between the countries of the North and the South over environment issues.
• The Northern countries want everyone to be equaliy responsible for ecological conservation.
• The developing countries of the South believes that the ecological degradation is the product of industrial development undertaken by the developed countries.
• In the Rio summit, 1992, it was accepted that special needs of the developing countries must be taken into account in the development and interpretation of rules of international environmental law.
• The 1992 United Nations Framework Convention on Climate Change (UNFCCC) also provides that the parties should act on the basis of equity.
• It was accepted that a large amount of greenhouse gas emission has originated in developed countries and per capita emissions in developing countries are relatively low.
• Developing countries like India and China were exempted from the requirements of the Kyoto Protocol.
• The Kyoto Protocol is an international agreement setting targets for industrialised countries to cut their greenhouse gas emissions.

Commons Property Resources

• It represents common property for the group but with a rule that members of the group have both rights and duties with respect to the nature, levels of use of a given resource.
• But issues like privatisation, agricultural intensification, population growth and ecosystem degradation have caused common property to dwindle in size.

India’s Stand on Environmental Issues

• India has signed and ratified Kyoto Protocol (1997) in August 2002. Developing countries like India and China were exempt from the requirements of the Kyoto Protocol.
• At the G-8 meeting in June 2005, India pointed out that the per capita emission rates of the developing countries are a tiny fraction of those in the developed world.
• The Indian Government is already participating in global efforts through a number of programmes like Energy Conservation Act (2011), Electricity Act of 2003 and so on.
• In 1997, a review of the implementation of the agreements at the Earth summit in Rio was undertaken by India.
• India suggested that the developing countries must get financial resources and clean technologies from the developed countries in order to meet UNFCCC commitments.

Environmental Movements

• Some of the most significant responses to the challenge of environmental degradation has come from groups of environmentally conscious volunteers working in different parts of the world.
• The forest movements of the South, in Mexico, Chile, Brazil, Malaysia, Indonesia, Continental Africa and India are faced with enormous pressures regarding forest clearing.
• Another example is of the group which is working against mineral extraction company as it leads to displacement of communities etc.
• Another groups of movements are those involved in struggles against mega-dams. In India, Narmada Bachao Aandolan is one of the best known of these movements.

Resource Geopolitics

• Resource geopolitics means who gets what, when, where and how.
• Throughout the cold war the industrialised countries of the North adopted a number of methods to ensure a steady flow of resources.
• Oil countries to be the most important resource in global strategy. The immense wealth associated with oil generates political struggles to control it.
• West Asia, specifically the Gulf region, accounts for about 30 per cent of global oil production.
• Another important resource relevant to global politics is water. Regional variations and scarcity of freshwater in some parts of the world is a leading source of conflicts in the 21st century.
• A number of studies show that countries that share rivers and many countries do share rivers are involved in military conflicts with each other.

The Indigenous People and their Rights

• As per the United Nations, indigenous population comprises the descendants of peoples who inhabited the present territory of a country at the time
  when persons of a different culture arrived there from other parts of the world.
• Indigenous people voices in world politics to treat them equally with other communities.
• The areas occupied by indigenous people include Central and South America, Africa, India and South-East Asia.
• The indigenous people appeal to governments to come to terms with the continuing existence of indigenous nations as enduring communities with an identity of their own.
• In India, indigenous people applies to the scheduled tribes who constitute nearly 8 per cent of the population of the country.
• Issues related to the rights of the indigenous communities have been neglected in domestic and international politics for very long.

FACTS THAT MATTER
1. Environmental concerns in Global politics cover losing fertility of agricultural land, and grazing, depletion of water resources as well as loss of bio-diversity, real danger to eco-system and coastal pollution, deteriorating of marine environment,
2. Environmental consequences of economic growth acquired a political shape from 1960s onwards, following a book published in 1972 namely Limits To Growth and Initiatives taken by United Nations Environment Programme (UNEP) to promote co-ordination and effective response on environment at global level.
3. The Earth Summit held in Rio-de-Janerio, Brazil in 1992 revealed different views i.e. global north (the first world countries) and global south (the third world countries). Global North was concerned with the issues of ozone depletion and global warming and global south focused on economic development and environment management by Agenda 21.
4. Global commons refer to the areas or regions which require common governance by international community on major problems of ecological issues i.e. discovery of ozone hole over Antarctic, earth’s atmosphere and ocean floor associated with technology and industrial development.
5. The Rio Declaration at the Earth Summit in 1992 adopted the principle of common but differentiated responsibilities ‘refering special needs of developing countries in the fields as development, application and interpretation of rules of international environmental law to protect environment by both developing nations in a responsible manner.
6. The 1992 United Nations Framework Convention on Climate Change (UNFCCC) also emphasised to protect the climate system on the basis of equity and in accordance with their common but differentiated responsibilities and capabilities.
Example-Largest and current global emissions of greenhouse gases originated in developed nations, hence low emissioned developing countries like India and China have been exempted from Kyoto Protocol held in Japan in 1997.
7. Common property resources refer to a group who have both rights and duties with respect to nature, levels of use and the maintenance of a given resource with mutual understanding and practices i.e. management of sacred groves on state owned forest land.
8. India plays a dominating role on the environmental issues as it signed and ratified 1997 Kyoto Protocol in August 2002 to follow common but differentiated responsibilities and India is a wary of recent discussions with UNFCCC about introducing binding commitments. India participated in global efforts by introducing National Autofuel Policy, Electricity Act, 2003 and National Mission on Biodiesel. Besides, India supports to adopt a common position by SAARC countries on major environmental issue to have a greater say regionwise.
9. Environmental movements are the movements of groups which are environmentally conscious to challenge environmental degradation at national or international level aiming at raising new ideas and long term vision i.e. in Mexico, Chille, Brazil, Malaysia, Indonesia, India faced enormous pressure.
10. Environmental movements are categorised as forest movements, movements against mining and mineral industry for creating Water Pollution and Anti Dam Movement.
11. ‘Resources Geopolitics’ is all about who gets what, when, where and how? The practices of neo-colonialism spread on a large scale and throughout a cold war, industrialised countries adopted methods to ensure a steady flow of resources by deployment of military forces near exploitation sites and sea-lanes of communications, the stock pilling of strategic resources and efforts to prop up friendly governments.
12. The global economy relied on oil as a portable and essential fuel. The history of petroleum is the history of war and struggle. Water is another important resource relevant to global politics. Regional variations and increasing scaring of fresh water may also lead to conflicts in the world to play politics.
13. Indigenous people bring the issues of environment, resources and politics together. Indigenous people live with their social, economic, cultural customs in particular areas who speak of their struggle, agenda, and rights to have equal status i.e. Island states in ocean region, Central and South America, Africa, India and South East Asia.
14. The issues related to rights of indigenous communities have been neglected in domestic and international politics for long. The World Council of Indigenous People was formed in 1975 which became first of 11 indigenous NGOs to receive consultative status in the UN.
WORDS THAT MATTER

1. Earth Summit: A conference held in Rio de Janeiro (Brazil) in June 1992 on Environment and Development to deal with various environmental problems.
2. Agenda 21: The Earth Summit recommended a list of practices in reference of development to attain sustainability, called Agenda 21.
3. Kyoto Protocol: An international agreement setting targets for industrialised countries to cut their greenhouse gas emissions was agreed to in 1997 in Kyoto in Japan, based on principles set out in UNFCCC.
4. UNFCCC: The 1992 United Nations Framework Convention on Climate Change provided that parties should act to protect the climate system with common but differentiated responsibilities.
5. Indigenous People: Indigenous people comprise the descendants of peoples who inhabited the present territory of a country at the time when persons of different culture arrived there from different parts of the world.

Class 12 Political Science Quick Revision notes Chapter 7 Security in the Contemporary World

Traditional Notions of External Security

• The greatest danger to a country is from military threats. The root of this danger is the other country which by threatening military action endangers the core values of sovereignty and independence.
• There are three choices with the government in response to the threat of war. These choices are to surrender, to prevent the other side from attack and to defend itself during the war and four components of traditional security i.e. deterrence, defence, balance of power and alliance building.
• Deterrence means prevention of war; defence means limiting or ending war; balance of power means there should be balance between bigger and smaller countries and alliance building means coalition of states.
• A good part of maintaining a balance of power is to build up one’s military power that coordinate their actions to deter or defend against military attack.
• According to the traditional view of security, most threats to a country’s security come from outside its borders.
• Within a country, the threat of violence is regulated by an acknowledged central authority i.e. the government.
• But in world politics, each country has to be responsible for its own security.

Traditional Notions of Internal Security

• Traditional security must concern itself with internal security which has not been given so much importance due to various reasons.
• After the Second World War, internal security was more or less assured to the powerful countries on the Earth.
• Most of the European countries faced no serious threats from groups or communities living within those borders. Hence these countries gave importance to external security.
• The main concern for the external security was the era of Cold War. Both the superpowers were afraid of attacks from each other.
• The colonies which became independent were under fear of conversion of Cold War into a Hot War.
• The newly independent African and Asian countries were more worried about the prospect of military conflict with neighbouring countries.
• They were worried about internal threats from separatist movements which wanted to form independent countries.

Traditional Security and Cooperation

• It is universally accepted that war can takes place for the right reasons, primarily self-defence or to protect other people from genocide.
• Traditional views of security also gives importance to other forms of cooperation like disarmament, arms control and confidence building.
• Disarmament requires all states to give up certain kinds of weapons.
• Arms control regulates the acquisition or development of weapons, e.g. United States and Soviet Union signed a number of other arms control treaties.
• Confidence building means a process in which countries share ideas and information with their rivals.
• Force is both the principle threat to security and the principle means of achieving security in traditional security.

Non-Traditional Notions

• The non-traditional notions of security go beyond military threats to include a wide range of threats and dangers affecting the condition of human existence.
• Non-traditional views of security have been called ‘human security’ or ‘global security’.
• By human security we mean the protection of people more than the protection of states.
• Proponents (supporters) of the ‘narrow concept’ of human security focus on violent threats to individuals.
• On the other hand, proponents of the ‘broad concept’ of human security argue that the threat agenda should include hunger, disease and natural disaster.
• The idea of global security emerged in the 1990s in response to the global nature of threats such as global warming, AIDS and so on.

New Sources of Threats

• Some new sources of threats have emerged about which the world is concerned to a large extent. These includes terrorism, human rights, global poverty, migration and health epidemics.
• Terrorism refers to political violence that targets civilians deliberately and indiscriminately.
• There are three types of human rights. The first is political rights, second is economic and social rights and the third type is the rights of colonised people.
• Another type of insecurity is global poverty. Rich states are becoming richer whereas poor states are getting poorer.
• Poverty in the South has also led to large scale migration to seek a better life, especially better economic opportunities, in the North.
• Health epidemics such as H1V-AIDS, bird flu and Severe Acute Respiratory Syndrome (SARS) have been increasing across countries through migration.
• It is important to understand that the expansion of the concept of security does not mean to include everything.
• To qualify as a security problem, an issue must share a minimum common criterion.

Cooperative Security

• Dealing with certain issues of security require cooperation rather than military confrontation. Military help can be taken to deal with terrorism but it will be of no use in dealing with issues like poverty, migration and so on.
• It becomes important to devise strategies that involve international cooperation which can be bilateral, regional, continental or global.
• Cooperative security may also involve a variety of other players, both international and national.
• But cooperative security may also involve the use of force as a last resort. The international community may have to sanction the use of force to deal with dictatorship.

India’s Security Strategy

• Indian’s security strategy depends upon four broad components
• Strengthening the military capabilities is the first component of India’s security strategy because India has been involved in conflicts with its neighbours.
• The second component of India’s security strategy has been to strengthen international norms and international institutions to protect its security interests.
• The third important component of India’s security strategy is geared towards meeting security challenges within the country.
• The fourth component is to develop its economy in a way that the vast mass of citizens are lifted out of poverty and misery.

FACTS THAT MATTER
1. ‘Security’ is freedom from ‘threats’, security protects core values from threatening by preventing, limiting and ending the war.
2. The notions of security can be grouped into two i.e. Traditional concept and Non-traditional concept. Traditional notion includes both external and internal threats. External threats experience military war, balance of power and alliance building threats whereas internal includes internal peace and order.
3. The means of traditional security limit the violence upto maximum extent through disarmament, arms-control and confidence building. Disarmament bounds states to give up certain kinds of weapons. Arms control regulates acquisition of weapons and confidence building share ideas and information with rival countries.
4. Non-traditional security focuses on human and global security by covering all of human kinds. Human security in a narrow sense protects individuals from internal violence only whereas broadly it protects from hunger, diseases and natural disasters. Global security responds to threats like global warming, international terrorism, health epidemics like AIDS, bird flue and so on.
5. New sources of threats include terrorism, human rights, global poverty, migration, and health epidemics. Terrorism refers to political violence targeting civilians deliberately and indiscriminately. Human rights threats involve political rights, economic and social rights as well as rights of colonised people and indigenous minorities.
6. Global poverty suffers from low per capita income and economic growth and high population migration creates international political friction as states pursue different rules for migrants and refugees. Health epidemics cover HIV-AIDS, bird flu, and severe acute respiratory syndrome (SARS) through migration business, tourism and military operations.
7. Cooperative security is required to alleviate poverty, manage migration, refugee movements and control epidemics. Cooperation may be bilateral, regional, continental or global depending on the nature of threat and willingness and ability of countries to respond either nationally or internationally.
8. India has faced both traditional and non-traditional threats to its security. India’s security strategy has four broad components i.e. strengthening military capabilities, to strength international norms and institutions, to meet security challenges inside the border and to develop to lift citizens out of poverty, missing and economic inequalities.
WORDS THAT MATTER

1. Security: An essence for existence of human life to protect from threats either external or internal.
2. Arms Control: It regulates acquisition of weapon.
3. Disarmament: It bounds states to give up certain kinds of weapons to avoid mass destruction.
4. Confidence building: A process in which different countries share ideas and information with rival countries by intimating each other about their military plans.
5. Global Poverty: It refers to a country to be suffered from low incomes and less economic growth to be categorised as least developed or developing countries.
6. Migration: It is the movement of human resources from one state to another due to some particular reasons.

IMPORTANT ABBREVIATIONS

1. BWC: Biological Weapons Convention
2. CWC: Chemical Weapons Convention
3. ABM: Anti-Ballistic Missile
4. START: Strategic Arms Reduction Treaty
5. NPT: Nuclear Non-Proliferation Treaty
6. SALT: Strategic Arms Limitation Treaty
7. SARS: Severe Acute Respiratory Syndrome
8. CBMS: Confidence Building Measures
9. NIEO: New International Economic Order
10. IMF: International Monetary Fund

Class 12 Political Science Quick Revision notes Chapter 6 International Organisations

The United Nation UN

• The United Nations was established in 1945 immediately after the Second World War. It was a successor to the league of nations which was formed after the First World War.
• The objective of United Nations is to prevent international conflict and to facilitate cooperation among states.
• In the UN Security Council, there are five permanent members (United Kingdom, United State of America, Russia, France and China) and other non-permanent members who are elected after every two years. The most important public figure of the UN is the Secretary General.
• There are different structures and agencies of UN. These include World Health Organisation (WHO), the United Nations Development Programme (UNDP), the United Nations Human Rights Commission (UNHRC ), the United Nations High Commission for Refugees (UNHCR) etc.

Reform of the United Nations after the Cold War

• Reforms and improvement are necessary for any organisation to perform better. The UN is also not an exception.
• There have been demands to bring reforms in the UN. Two demands have been raised i.e. reform of the organisation’s structures and processes and, a review of the issues that fall within the jurisdiction of the organisation.
• On the reform of structures and processes, there has been the demand to increase the membership of permanent and non-permanent in UN Security Council.
• On the issues within the jurisdiction of the UN, some countries want the organisation to play a greater role in peace and security missions.
• While some other countries want the role of UN to be confined to development and humanitarian work.

Reform of Structures and Processes of the UN

• A resolution was adopted by the UN General Assembly in 1992 over the reforms in the security council. The resolution reflected three main complaints.
• To look into the complaints over the restructuring of the UN, on 1st January, 1997, the UN Secretary General Kofi Arman initiated an inquiry into how the UN should be reformed.
• Criteria for inclusion of a new member was decided. Some of them were that a new member must be a major economic and military power, a substantial contributor to the UN budget etc.
• Different governments saw advantages in some criteria and disadvantages in others depending on their interests and aspirations. A demand to abolish the veto power altogether was also raised. Many perceived the veto to be in conflict with the concept of democracy and sovereign equality in the UN.
• Permanent members have two privileges i.e. veto power and permanency in the security council.
• By veto power means that if a permanent member cast a veto in a negative manner then it may state the decision.
• Without veto power, there is the danger that the great powers would lose interest in the world body and without their support the body would be ineffective.

Jurisdiction of the UN

• A meeting was held in September 2005 to celebrate the 60th anniversary of the United Nation and to review the situation.
• The leaders in this meeting decided some steps that should be taken to make the UN more relevant in the changing content. .
• Steps include establishment of a Human Rights Council, creation of a democracy fund, an agreement to wind up the trusteeship council etc.

India and the UN Reforms

• India has always supported the restructuring of the United Nations. It believes that a strengthened and revitalised UN is desirable in a changing world.
• The most important demand of India is regarding the restructuring of the security council. It supports an increase in the number of both permanent and non-permanent members.
• It also argues that an expanded council, with more representative, will enjoy greater support in the world community.
• India itself wishes to be a permanent member in a restructured UN. India is the world’s largest democracy and the second most populous country in the world.
• The country’s economic emergence on the world stage is another factor that perhaps justifies India’s claim to a permanent seat in the Security Council.
• Despite India’s wish to be a permanent veto holding member of the UN, some countries question its inclusion. They are concerned about Indo-Pak relations, India’s nuclear capabilities etc.

The UN in a Unipolar World

• It is believed by many countries that the reform and restructuring of the UN could help the UN cope better with a unipolar world in which the US was the most powerful country.
• The US stands as the only superpower after the disintegration of USSR hence US power cannot be easily checked.
• Within the UN, the influence of the US is considerable. As the single largest contributor to the UN, the US has unmatched financial power.
• The UN is not therefore a great balance to the US. Nevertheless, in a unipolar world in which the US is dominant, the UN can and has served to bring the US and the rest of the world into discussions over various issues.
• The UN is an imperfect body, but without it the world would be worse off.
• It is important for people to use and support the UN and other international organisations in ways that are consistent with their own interests.

Other International Organisations

• The International Monetary Fund (IMF) is an international organisation that looks upon international financial institutions and regulations. It has 188 member countries. The G-8 members (the US, Japan, Germany, France, UK, Italy, Canada, Russia), China and Saudi Arabia have more than 52 per cent votes in IMF.
• World Bank is an important international organisation created during Second World War in 1944. It provides loans and grants to the member countries; especially developing countries.
• World Trade Organisation (WTO) is an international organisation set up in 1995 as the successor to the General Agreement on Trade and Tariffs (GATT). It sets the rules for global trade. It has 157 member countries.
• International Atomic Energy Agency (IAEA) is an international organisation established in 1957. It seeks to promote the peaceful use of nuclear energy and to prevent its use for military purpose.
• Amnesty International is an international Non-Governmental Organisation (NGO) which campaigns for the protection of human rights all over the world.
• Human Rights Watch is an international NGO which is involved in research and advocacy on human rights.

FACTS THAT MATTER
1. International organisations help countries to cooperate to create better living conditions all over the world and provide common platform to discuss contentious issues and find peaceful solutions, by a mechanism, rules and bureaucracy.
2. The United Nations was founded as a successor to ‘League of Nations’ immediately after the Second World Charter by 51 states on 20th October 1945 with the headquarter at New York.
3. The UN has 192 member states to prevent international conflicts to facilitate co-operation. The UN’s main organs are the General Assembly and Security Council. The UNSC consists of five permanent members i.e. the US, Russia, France, China and the UK, who enjoy Veto Power. The UN’s representative head is Secretary General.
4. The UN consists of many specialised agencies to deal with social and economic issues like WHO, UNDP, UNHRG, UNHCR, UNICEF, and UNESCO to work in an efficient manner and to bring world together.
5. After the Cold War, some of the changes occurred which affected the functioning of the UN
i. e. collapse of Soviet Union, emergence of China and India as rising powers, entry of new members, and confrontations with the challenges like genocide, civil war, ethnic conflict, terrorism, nuclear proliferation etc.
6. They faced two kinds of reforms over the time i.e. organisations structure and processes and a review of the issues that fall within jurisdiction of UN as why veto powers to permanent members only, dominance of powerful countries and to play more effective role in peace and security missions etc.
7. In 1992, the UN General Assembly adopted a resolution over the reform of UN complaining no longer representation by contemporary powers, dominance of few countries based on western values etc. Following these in January 1997, Kofi Annan, UN Secretary General initiated on “How the UN should be reformed?”
8. Since 1997 onwards, a new member to be added to the UN should fulfil the parameters of being a major economic and military power, contributor to UN Budget, a populous one, should respect democracy and human rights and to make council more representative.
9. In September 2005, the heads of all member states of the UN took the steps to make the UN more relevant by creating peace building commissions, human rights council, agreement to achieve Millennium Development Goals, condemnation of terrorism, creation of democracy fund and an agreement to wind up Trusteeship Council.
10. India is a big supporter of restructuring of the UN to promote development and cooperation among states, to composition of Security Council arid to include more representation in council for its political support.
11. Being a citizen of India, we would firmly support India’s candidature for the permanent membership of UN Security Council on the grounds to be second most populous country, largest democracy, initiations in the UN, economic emergence and regular financial contributor to the UN.
12. Some countries question India’s inclusion as permanent members in the Security Council on the basis of its troubled relationship with Pakistan, nuclear weapon capabilities, and if India included, some emerging powers (Brazil, Germany, Japan, South Africa) will also be accommodated. France and the USA advocate that Africa and South America must be represented for they do not have any representation in the present structure.
13. The UN can not serve as a balance against US dominance because the US is the only Superpower after 1991 and may ignore any international organisation economically and’ militarily, its veto power also can stop any move damaging its interests as well as enjoys a considerable say in the choice of Secretary General of the UN.
14. Despite the above mentioned strong activities of the US, the UN serves a purpose in bringing the world together in dealing with conflicts and social and economic issues. The UN provides a space within which arguments against specific US attitude and policies are heard and compromised.
UN’S SIGNIFICANT AGENCIES
1. International Monetary Fund (IMF)
(a) At the international level, overseas financial institutions and regulations.
(b) It consists of 180 members. Out of them, G-8 members enjoy more powers i.e. the US, Japan, Germany, France, the UK, Italy, Canada and Russia except China and Saudi Arabia.
(c) The US alone enjoys 16.75% voting rights.
2. World Bank
(a) It was created in 1944.
(b) It works for human development, agriculture and rural development, environmental protection, infrastructure and governance and provides loans and grants to developing countries.
(c) It is criticised for setting the economic agenda of poorer nations, attaching stringent conditions to its loans and forcing free market reforms.
3. WTO-World Trade Organisation
(a) An international organisation to set the rules for global trade which was set up in 1995 as a successor to General Agreement on Trade and Tariffs (GATT) and has 157 members, (as on 1 September 2012)
(b) Major economic powers such as the US, EU and Japan have managed to use the WTO to frame rules of trade to advance their own interests.
(c) The developing countries often complain of non-transparent procedure and being pushed around by big powers.
4. IAEA-International Atomic Energy Agency
(a) It was established in 1957 to implement US president Dwight Eisenhower’s “Atoms for Peace” proposal.
(b) It seeks to promote the peaceful use of nuclear energy and to prevent its use for military purpose.
(c) IAEA teams regularly inspect nuclear facilities all over the world to ensure that civilian reactors are not being used for military purposes.
5. Amnesty International
(a) An NGO to campaign for the protection of human rights all over the world.
(b) It prepares and publishes reports on human rights to research and advocate human rights.
(c) Governments are not always happy with these reports since a major focus of Amnesty is the misconduct of government authorities.
6. Human Rights Watch
(a) Another international NGO involved in research and advocacy of human rights.
(b) The largest international human rights organisation in the US.
(c) It draws the global media’s attention to human rights abuses.
(d) It helped in building international coalitions like the campaigns to ban landmines, to stop the use of child-soldier and to establish the international criminal court.
WORDS THAT MATTER

1. UN Charter: A constitution of the UN to deal with objectives of the UN.
2. Veto: It is a negative vote to be enjoyed by five permanent members of Security Council to stop a decision.
3. Secretary General: A representative head of the UN to prepare an annual record of the UN activities.
4. WHO: World Health Organisation to deal with matters related to health.
5. UNICEF: United Nation’s Children Fund to deal with child welfare.
6. UNESCO: United Nation’s Educational, Scientific and Cultural Organisation to deal with promotion of education, science and culture.
7. Peace Keeping Operation: A mechanism for restoring peace and security by sending UN controlled troops in the affected area.

TIMELINE

1. August 1941: Signing of the Atlantic Charter by the US President Franklin D. Roosevelt and British PM Winston S. Churchill.
2. January 1942: 26 Allied nations fighting against the Axis Powers meet in Washington D.C., to support the Atlantic Charter and sign the ‘Declaration by United Nations’.
3. December 1943: Tehran Conference Declaration of the three powers (US, Britain and Soviet Union)
4. February 1945: Yalta Conference of the ‘Big Three’ (Roosevelt, Churchill and Stalin) decides to organise a United Nations conference on the proposed world organisation.
5. April-May 1945: The 2-month long United Nations Conference on International Organisation at San Francisco.
6. June 26, 1945: Signing of the UN Charter by 50 nations (Poland signed on October 15; so the UN has 51 original founding members)
7. October 24, 1945: The UN was founded (hence October 24 is celebrated as UN Day).
8. October 30, 1945: India joins the UN.

UN SECRETARIES-GENERAL
1. Trygve Lie (1946-1952) Norway: Lawyer and foreign minister, worked for ceasefire between India and Pakistan on Kashmir; criticised for his failure to quickly end the Korean war, Soviet Union opposed second term for him; resigned from the post.

2. Dag Hammarskjold (1953-1961) Sweden: Economist and lawyer, worked for resolving the Suez Canal dispute and the decolonisation of Africa; awarded Nobel Peace Prize posthumously in 1961 for his efforts to settle the Congo Crisis, Soviet Union and France criticised his role in Africa.

3. U Thant (1961-1971) Burma (Myanmar): Teacher and diplomat worked for resolving the Cuban Missile crisis and ending the Congo Crisis; established the UN Peacekeeping force in Cyprus; criticised the US during the Vietnam war.

4. Kurt Waldheim (1972-1981) Austria: Diplomat and foreign minister; made efforts to
resolve the problems of Namibia and Lebanon; oversaw the relief operation in Bangladesh, China blocked his bid for a third term.

5. Javier Perez de Cuellar (1982-1991) Peru: Lawyer and diplomat, worked for peace in Cyprus, Afghanistan and El Salvador; mediated between Britain and Argentina after the Falklands war; negotiated for the independence of Namibia.

6. Boutros Boutros-Ghali (1992-1996) Egypt: Diplomat, jurist, foreign minister; issued a report, ‘An Agenda for Peace’; conducted a successful UN operation in Mozambique; blamed for the UN failures in Bosnia, Somalia and Rwanda; due to serious disagreements, the US blocked a second term for him.

7. Kofi A. Annan (1997-2006) Ghana: UN official, created the Global Fund to Fight AIDS, Tuberculosis and Malaria; declared the US-led invasion of Iraq as an illegal act; established the Peacebuilding Commission and the Human Rights Council in 2005; awarded the 2001 Nobel Peace Prize.

Political Science Class 12 Notes Chapter 5 Contemporary South Asia

Pakistan

• The first military rule in Pakistan took place under General Yahya Khan. The reason for this was the popular dissatisfaction against the rule of General Ayub Khan.
• After this, a government was formed under the leadership of Zulfikar Ali Bhutto from 1971 to 1977.
• Bhutto Government was removed by General Zia-ul-Haq but had to face pro-democracy movement from 1982 onwards.
• Again in 1988 an elected democratic government was established under Benazir Bhutto but had to face competition from the Pakistan People’s Party and the Muslim League.
• Army stepped in again and General Pervez Musharraf removed Prime Minister Nawaz Sharif. General Musharraf got himself elected as the President in 2001.
• There were several factors which led to the failure of Pakistan in building a stable democracy.
• At present, again a democratic form of government is ruling the country under Prime Minister Nawaz Sharif.

India-Pakistan Conflicts

• After independence, both India and Pakistan got involved in issue related to Kashmir. It led to wars in 1947-48 and 1965 which failed to settle the matter.
• Both the countries face conflict over strategic issues like the control of the Siachen glacier and over acquisition of arms.
• Both the countries continue to be suspicious of each other over security issue.
• Another issue of conflict among the two countries is over the sharing of river waters of Indus river system.
• The two countries are not in agreement over the demarcationjine in Sir Creek in the Rann ofKutch.

Bangladesh

• Bangladesh was a part of Pakistan from 1947 to 1971. But it started protesting against the domination of Western Pakistan and the imposition of Urdu Language.
• A popular struggle against West Pakistani dominance was led by Sheikh Mujibur Rahman.
• In 1970 election, the Awani league under Sheikh Mujibur Rahman won all seats but the government dominated by the West Pakistani leadership refused to convene the assembly.
• The Pakistani army tried to suppress the movement which led to a large number of migration to India.
• The Indian Government supported the demands of people of East Pakistan and helped them. This led to a war with Pakistan in 1971. Bangladesh was formed as an independent country after the end of war.
• A Constitution was adopted by Bangladesh declaring faith in secularism, democracy and socialism. But government under Sheikh Mujibur amended the Constitution and formed Presidential form of government.
• Sheikh Mujibur was assassinated and a military rule was established under Ziaur Rahman. He was also assassinated and the rule of Lt Gen H.M. Ershad started this continuing the military rule.
• A pro-democratic movement was again started which led to election in 1991. Since then representative democracy based on multi-party elections has been working in Bangladesh.

Nepal

• Nepal was a Hindu Kingdom in the past but later changed into a constitutional monarchy for many years.
• In the wake of a strong pro-democracy movement the king accepted the demand for a new democratic Constitution in 1990.
• There was a conflict among the democrats, maoists and monarchist forces which led to the abolition of parliament and dismissal of government in 2002 by the king.
• Again in 2006, after a pro-democratic movement, the king was forced to restore the House of Representatives.

Sri Lanka

• The democratic set up of Sri Lanka was disturbed by the Ethnic conflict among the Sinhalese and Tamil origin people.
• According to the Sinhalese, the region of Ceylon belonged to Sinhala people only and not to the Tamils who migrated from India.
• This led to the formation of Liberation Tiger of Tamil Eelam (LTTE), a militant organisation, who demanded a separate country.
• The Government of India was pressurised by the Tamil people in India for the protection of the Tamils in Sri Lanka.
• India signed an accord with Sri Lanka and sent troops to stabilise relations between the Sri Lankan Government and the Tamils.
• Eventually, the Indian Army got into a fight with the LTTE. Later on the Indian Peace Keeping Force (IPKF) was pulled out of Sri Lanka in 1989 without achieving its aims.
• Presently, the LTTE has been destroyed by the Sri Lankan Government and the area under LTTE has been recovered.
• Inspite of the Ethnic conflict, the economy of Sri Lanka has always been high.

India and its Other Neighbours

• Neighbouring countries of India are Bangladesh, Nepal, Sri Lanka, Bhutan, Maldives and Pakistan.
• There are certain issues of conflicts between India and Bangladesh. These include sharing of Ganga and Brahmaputra river waters, illegal immigration to India etc.
• Still, both India and Bangladesh share a cordial relation with each other. Economic relations between the two have improved considerably.
• Nepal and India shares a friendly relation with each other but certain issues like warm relation of Nepal with China, Maoist movement in Nepal etc have disturbed the relation.
• Despite differences, trade, scientific co-operation, electricity generation and inter locking water management grids hold the two countries together.
• India enjoys a very special relationship with Bhutan too and does not have any major conflict with the Bhutanese government.

Peace and Cooperation

• Even though there are certain issues of conflicts among the South Asian countries, they recognise the importance of cooperation and friendly relationship among themselves.
• The South Asian countries initiated the establishment of the South Asian Association for Regional Cooperation (SAARC) in 1985 to evolve cooperation among each other.
• The SAFTA was signed in 2004 by the South Asian countries to allow free trade across the borders.
• SAFTA aims at lowering trade tariffs by 20 percent by 2007.
• Although there has been issues between India and Pakistan, measures were being taken to bring cordial changes between the countries.
• There is also an outside power which influence the region. China and the United States remain key players in South Asian politics.

FACTS THAT MATTER

1. South Asia is referred to as a group of seven countries namely Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka which stand for diversity in every sense and constitutes geopolitical space.

2. Despite the mixed record of democratic experience, the people in these countries share an aspiration for democracy which can be drawn from the examples of Bangladesh, Nepal, Pakistan, Sri Lanka and Maldives.

3. Pakistan began Post Cold War period with successive democratic governments but suffered a military coup in 1999. In Nepal successful uprising led to restoration of democracy in 2006. India and Sri Lanka have also operated a democratic system, despite many limitations and even Maldives have strengthened democracy.

4. In Pakistan, military rule and democracy are two sides of the coin because, during implementation of first constitution, General Ayub Khan took the command by-elections, but thrown away by military due to dissatisfaction of his rule. After 1971, an elected government was formed under the leadership of Zulfikar Ali Bhutto, removed by General Zia-Ul-Haq in 1977.

5. Again in 1982, in Pakistan, by a pro-democracy protest, democratic government was established in 1988 under the leadership of Benazir Bhutto and Nawaz Sharif. Later on, the history repeated and General Pervez Musharraf took the command in 1999 and got elected in 2005 to be continued till date.

6. Bangladesh was formed by migrants from West Pakistan and refused to form government by East Pakistan despite winning all the seats. India intervened and supported the demand of creation of East Pakistan financially and militarily. Consequently, in December 1971, Pakistan surrendered with the formation of an independent country named Bangladesh.

7. Bangladesh drafted its own constitution declaring faith in secularism, democracy and socialism. In 1975, Sheikh Mujibur Rehman formed presidential setup, but was assassinated in a military uprising. The new military ruler Ziaur Rahman formed his own Bangladesh National Party and won elections in 1979. He was assassinated and another military take over followed under the leadership of Gen. H.M. Ershad. Since 1991, representative democracy has been working in Bangladesh.

8. Nepal was a Hindu Kingdom and became constitutional monarchy in modern period. The struggle for restoration of democracy began in 1990 and 2007 when king restored house of representatives. Even today Nepal is demanding the formation of constituent assembly.

9. Ceylon, presently known as Sri Lanka experienced an ethnic conflict between Sinhalese and Tamils for power sharing. LTTE demanded a separate state for Tamil 1983 onwards with the support of Indian government who sent Indian Peace Keeping Forces there which was not liked by Sri Lankans.

10. Sri Lanka has maintained a democratic political system with a considerable economic growth i.e. one of the first developing countries to control population growth rate, liberalized economy, and bears highest per capita gross Domestic Product despite the ongoing conflicts.

11. India-Pakistan conflicts in South Asian region is most important to be sorted out. The wars between these countries took place in 1947-48,1965 and 1971 on the issues of Pak Occupied Kashmir (POK) and Line of Control (LOC). Except, other issues of conflicts are control of Siachin glacier, acquisition of arms and sharing of river water.

12. Both the governments are suspicious to each other on the ground of Pakistani strategy to help Kashmiri militants and ISI to be involved in Anti-India campaign. Pakistan blames India for making trouble in Sindh and Baluchistan.

13. India and Bangladesh experienced differences over the issues of sharing of Ganga and Brahmaputra river water, illegal immigration to India, support for anti Indian-Islamic fundamentalists, refusal to allow Indian troops and not to export natural gas to India. It is the main link of India’s ‘Look East’ Policy.

14. India and Nepal also bear differences on the issues of Nepal’s relations with China and inaction against anti-Indian elements i.e. Maoists. But still both the countries signed the treaty of trade and commerce in 2005 and friendship in 2006 to provide financial and technical assistance and to allow citizens to move without visas and passport.

15. India and Bhutan do not share any major conflict, but attached on the issues to need out the guerrillas and militants from North-eastern India and involvement of India also in big hydroelectric projects in Bhutan is the biggest source of development aid.

16. India is supportive to Maldives in their economy, tourism and fisheries. In November 1988, India reacted quickly against an attack from Tamil Mercenaries on Maldives.

17. In spite of the above-mentioned conflicts and differences, states of South Asia recognise cooperation and friendly relations among themselves. Hence, a major regional initiative has been taken in the form of South Asian Association for Regional Cooperation (SAARC) in 1982. SAARC members signed South Asian Free Trade Agreements (SAFTA) to form free trade zone for the whole South Asia.

WORDS THAT MATTER

1. Geo-Politics: Geo-politics refers to the Association of countries who are bound with each
   other geographically and their interests are also interlinked with each other politically and economically.
2. Bilateral Talks: Talks involving the two countries without any other mediation.
3. Indian Peace Keeping Force (IPKF): It was sent by India in Sri Lanka to support the demand of Tamils to be recognised.
4. Seven Party Alliance (SPA): An alliance of seven parties in Nepal which also demanded an end to monarch.
5. SAARC: It stands for South Asian Association for Regional Cooperation having seven members and aims at mutual trust and understanding.
6. SAFTA: It is South Asia Free Trade Area Agreement to trade free from custom restrictions and duties by its member states.
7. LTTE: The Liberation Tigers of Tamil Elam in Sri Lanka which demanded a separate state for Tamils.

TIMELINE

1. 1947: India and Pakistan emerge as an independent nation after the end of British rule.
2. 1948: Sri Lanka gains independence. Indo-Pak conflict over Kashmir.
3. 1954-55: Pakistan joins the Cold War military blocs, SEATO and CENTO.
4. September 1960: India and Pakistan sign Indus Waters Treaty.
5. 1962: Border conflicts between India and China.
6. 1965: Indo-Pak War, UN India-Pakistan Observation Mission.
7. 1966: India and Pakistan sign the Tashkent Agreement: Six-Point proposal of Sheikh Mujib- ur-Rahman for greater autonomy to East Pakistan.
8. March 1971: Proclamation of independence by leaders of Bangladesh.
9. August 1971: Indo-Soviet Treaty of friendship signed for 20 years.
10. December 1971: Indo-Pak war, Liberation of Bangladesh.
11. July 1972: India and Pakistan sign the Shimla Agreement.
12. May 1974: India conducts nuclear test.
13. 1976: Pakistan and Bangladesh establish diplomatic relations.
14. December 1985: South Asian leaders sign the SAARC Charter at the first summit in Dhaka.
15. 1987: Indo-Sri Lanka Accord: Indian Peace Keeping Force (IPKF) operation in Sri Lanka (1987-90).
16. 1988: India sends troops to the Maldives to foil a coup attempt by mercenaries.
    India and Pakistan sign the agreement not to attack nuclear installations and facilities of each other.
17. 1988-91: Democracy restoration in Pakistan, Bangladesh and Nepal.
18. December 1996: India and Bangladesh sign the Farakka Treaty for sharing of the Ganga waters.
19. May 1998: India and Pakistan conduct nuclear tests.
20. December: India and Sri Lanka sign the Free Trade Agreement (FTA)
21. February 1999: Indian PM Vajpayee undertakes bus journey to Lahore to sign a Peace Declaration.
22. June-July 1999: Kargil conflict between India and Pakistan.
23. July 2001: Vajpayee-Musharraf Agra Summit unsuccessful.
24. January 2004: SAFTA signed at the 12th SAARC Summit in Islamabad.