Directions (1- 5): Read the following passage carefully and answer the questions given below it. Certain words in the passage have been printed in bold to help you locate them while answering some of the questions.
Dairy industry dominates change in India through its causal links with factor and product markets. It employs around 20 per cent of the labour force and contributes around 10 per cent of the gross domestic product. In the poorer states, its contribution to the domestic product is close to 40 per cent. Low productivity in dairy sector has led to the concentration of the poor in this sector. Due to the sheer size of the service sector economy and the importance of its products in the diets of the poor, gains in dairy productivity have significant potential impact on poverty. Theoretically, it is possible to reduce poverty as well as expand the domestic market for industry by raising labour productivity in dairy sector and spreading its gains among the low income groups. Modelling of the linkages between dairy sector and industrial growth has shown that a 10 per cent increase in dairy output would increase industrial output by 5 per cent and urban workers would benefit by both increased industrial employment and price deflation. However, there is an asymmetry of adjustments in the demand and supply of dairy products. An increase in nondaily production would lead to an immediate increase in demand for intermediate and final dairy products, whereas supplyside adjustments involving reallocation of resources and net additional investment for capacity expansion take a much longer period. There is a widely held view that in a large country like India, the demand stimulus for industrialisation would come
mainly from dairy industry with less social and economic costs. Interdependencies in dairy and labour market are important for the development process. An upward shift in the dairy products supply curve would simultaneously result in an upward shift in the labour demand curve. The magnitude of the interdependence depends on the technique of production causing the shifts in the dairy products supply curve. Similarly, an upward shift in the labour supply curve shifts up the dairy products demand curve. The extent of interdependence between the forces of labour supply and dairy products demand depends on the employmentoutput elasticity and the income elasticity of demand for dairy product. The recent estimate of the employmentoutput elasticity in dairy sector is around 0.3 income ; elasticity of dairy product is in the range of 0.350.40; and that for cereals is 0.250.30. The other important interdependency, which plays a crucial role in inducing indirect employment, is that between dairy product and other sectors through demand linkages. Since milk accounts for a sizeable share in the budget of the poor and any reduction in the milk price leaves a significant proportion of income for other items, a lower milk price stimulates employment in industrial and dairy sectors. On the other hand, an increase in the milk price would increase the wage costs of industrial products and hence the prices of industrial products. In the absence of adjustments through exports, it would result in demand deficiency. Clearly, the most favourable situation in India is one in which labour demand outpaces its supply and milk supply outpaces its demand. Wage rates cannot fall below a certain minimum determined by the costs of subsistence living and the labour supply curve turns elastic at the subsistence wage rate. Demographic pressure cannot push the wage rate below the subsistence level. People would be willing to starve rather than work unless the energy expended in physical work is compensated by the energy provided by food. Milk and its product price usually determines the subsistence wage rate in dairy as well as in the urban informal sector since dairy products account for about twofifths of the calorie intake of the poor.