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Indian economy First Phase.pptx

Indian economy First Phase.pptx

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Published by: Dinu Chacko on Feb 19, 2013
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. annual growth rate of 4%. growth Rate-6.growth rate of 5%. from 1950s to the present I Phase From 1951-52 to 1964-65. IV Phase-1991. II Phase-1965-81 . continued late. nearly 9% from 2003 onwards except for 2008-09. . growth rate 3.5%.avg.Economic Policies followed by the Indian Govt.2% III Phase-1981-90.

Thailand by 9%. • It stagnated at around 3. .3% a year. while per capita income growth averaged extremely low 1.Korea by 10% and in Taiwan by 12%. • At the same time.Phase I-(1951-1965) • Nehruvian Socialist rate of growth" is used to refer to the low annual growth rate of the economy of India before 1991.5% from 1950s to 1980s. S. Indonesia by 9%. Pakistan grew by 8%.

it’s essential for maintaining political independence.– The first charge on the country’s produce should be to meet the domestic needs of food. The Discovery of India “The Objective of the country as a whole was the attainment as far as possible of national self sufficiency . • Instead of import barriers Nehru’s philosophy was – interventions in production via public sector participation & licensing of private sector investment to progressively align the domestic production basket with the consumption basket.Phase I(1951-1965): Takeoff under a Liberal Regime • The key element in Nehru’s thinking on trade policy.” .India needed to be independent of the world markets. but we were anxious to avoid being drawn into the whirlpool of Economic Imperialism. raw material & manufactured goods and the surplus production would not be dumped in the foreign markets rather for exchange of such commodities as we might require. International trade was certainly not excluded.

allowed them to control the market. • Indian businessmen supported Nehru’s idea on Central Planning. • They had benefited from the British Raj’s intervention in the interwar years.root of country’s economic problems. . • High tariffs on imported goods. • They too believed that free trade and laissez-faire policies of British Raj.Bombay Plan contd..

Fin.L.N appointed new cabinet-technocrat C.K)Commerce minister First Election-1952 . Minister.D Deshmukh. T. krishnamachari (T.T.• J.T.

III. In charge of International Finance in the ministry of Finance).During 1950s “ established importers” who were licensed to import goods for sale to other buyers were allowed to operate relatively free. II – Consumer Goods import – including items – cutlery. . Sec. electric goods.TTK was keen to expand investment and the economy. hardware.Progressive liberalization Evidences • B. an integral part of the import basket. I. and would not led fears of the depletion of foreign exchange reserves get in the way of imports.First Five Year plan. Presence of imports of household consumer goods is indicative of a relatively relaxed trade regime.K Nehru quoted (Jt.

2 3.1 T.8 Merchandise Imports and Exports as Proportions of the GDP (1950-67) 1953-54 1954-55 1955-56 1956-57 4.5 3.6 4.1 2.1 6.6 3.7 5.1 3.8 6.6 Imports/GDP 6.1 6.6 5.1 6.7 3.1 5.8 5.9 7.T krishnamachari Morarji Desai as Finance Minister .1 6.Year 1950-51 1951-52 1952-53 Exports/GDP 6.5 3.0 5.5 6.4 6.4 5.6 7.7 5.9 4.4 6.5 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 4.1 8.8 5.

Restrictions on Imports: Morarji Desai as FM • The policy of benign neglect on the trade policy front continued till the end of 1957. • B. • The First Foreign exchange budget was presented in the middle of 1958.Morarji Desai had become the Finance minister. . • This was the beginning of India’s turn to a much more restrictive trade and investing license regime.K Nehru quoted –The reserves were by now beginning to get so low that that threw as a danger of not meeting obligations.

industrial technique & knowledge required for the rapid industrialization but it is necessary the conditions under which they participate should be carefully regulated in the national interest. He seized the initiative from the opponent and incorporated none of the restrictive provisions mentioned in IPR in the Foreign Policy Statement he delivered to the parliament in April 1949. It should recognize that participation of foreign capital.L. would not nationalize any business holdings & takeover of any foreign firm for 10 years. • Only Concession IPR1948 indirectly made. • Despite of hostility PM J. Industrial Policy Regulation (IPR)1948 shared these sentiments. . INC advocated the elimination of existing foreign capital from the key industries.An open Foreign Investment Regime • Both Congress and left Wing party hostile to Future Foreign Investment in the country.N saw a clear need for foreign investment in India.Govt.

• Although majority ownership by Indians –preferred.Govt. would encourage new foreign capital by framing policies to enable foreign capital investment on terms and Conditions that are mutually advantageous. if it is found to be of national interest. • The findings of a census survey by RBI. remaining 236-had technical collaboration agreements. reported :Total firms827 private firms with foreign partnership of some kind.. will not object to foreign capital having control of a concern for limited period. • Foreign Policy statement 1949 says: Govt. 1969.An open Foreign Investment Regime contd. • Of these 591 had equity participation(262 having majority foreign holdings). .

Question: Who should build the heavy industry? National independence objective: Country could not rely on foreign firms even if they are willing to invest in this sector. could manage with limited capacity. e.few projects. • Mahalanobis Model-on which rested the 2nd Five Year Plan suggested growth of heavy Industries. to efficiently perform a wide variety of functions. Flaws with the policy: 1) It underestimated the benefits of foreign trade via. Specialization in products of comparative advantage.only viable option. Leadership greatly overestimated the role of govt. .govt.which they were not in any case.g.A Restrictive Industrial Policy Regime • Policy toward industry were considerably more restrictive than those toward trade . Resources of Indian private firms were too meager to allow them to fulfill the task. Public Sector. but as economy grew larger & complex diseconomies of management grew. 2) Expansion of its role. First Five year plan.

S didn’t help then Soviet Union. shoes.toys. clothes radios.P) Soviet Union 4)Bokaro ( Jharkhand). low risk.R Brahmanand (neither glamorous nor technically rigorous) •Huge disguised unemployment in countryside •Surplus labor should be engage in making consumer goods. Alternative vision of Bombay Economists-C. •Low capital.rapid returns on investment.Mahalanobis Major Emphasis of II Five Year Plan. It was ignored.U. bicycles.Steel. Bengal) British Loan 3)Bhilai (M.Central to Revolution. . attract many entrepreneurs.Steel 1) Rourkela(Orissa) West German Loan 2)Durgapur(W. India tilted towards Soviet Union.N Vakil and P.

9 industries from (1+2 of IPR 1948)+9 other heavy industries. 4. arms & ammunitions. Sector cooperation if in national interest. Limited to atomic energy. Industries. 18 industries. All other industries that would be open to the privates sector without constraints. The state reserved the right to enter in them as well.12. 3. 3) Schedule C . and railways. shipbuilding.State Monopolies.Role of the Public Sector-1948 Industrial Policy Regulation 1. Coal . 6 industriesIron & Steel. though it could invite pvt. etc.Open to private sector but state would increasing establish new undertakings in them. Industries of National Importance that the state might regulate & license in consultation with the state governments. Basic Industries in which state would have the exclusive right to new investments. 2. 1) Schedule A-State Monopolies+ state reserved the right to seek cooperation from private sector. .Industries to be developed principally through initiative & enterprise of the public sector.Minerals& Aluminum and other not included in Schedule 1.Industrial Policy Regulation • 3 categories of Industry. Mineral oils. 1956. Aircraft Production& Telecommunication equipment. 2) Schedule B.

QUESTION Why India was able to shift its growth rate from less than 1 % in the first half of the twentieth century to 4.1% in the first 14 years of the post independence era? .

Probable Answers 1) At independence. 5) Finally growth was sustained by borrowing abroad. Two consecutive droughts-1965-66 and 1966-67 was thrown India into an explicit crisis. 4) Since the foreign investment regime was still relatively open & the domestic machinery sector still in its infancy. machinery imports were less likely to be denied. But this was an unsustainable strategy & carried the seeds of crisis. of projects were small 3) While the general direction of the policy was towards increased controls. especially after mid 1958 but implementation of controls was not as vigorous in the early years as in the later years. Thus entrepreneurs were able to access the benefits of the innovations embodied in foreign machinery & management with relative ease. . India inherited a largely honest & efficient bureaucracy & judiciary. strong Political Leadership under Nehru & a vibrant entrepreneurial class. 2) Since Economy was not very complex& no.

went to prison for accepting bribes and the conviction was upheld by the Supreme Court.” reported in 1951. Venkataraman. 80 lakh deal with a foreign firm. S. which related to the purchase of army jeeps for the country. joined the Jawaharlal Nehru Cabinet. . The charge was that the then Indian High Commissioner to Britain.K. against whose personal integrity there was not a shred of evidence.A. saw the first conviction in a major corruption case. bypassed protocol to sign a Rs. when an ICS Secretary to the Government of India. V. Krishna Menon. The “Cycle Imports Scandal.First Scam of Independent India Independent India's first dramatised financial irregularity was “the Jeep Scandal” (1948). The case was closed in 1955 and soon Menon.

to the Life Insurance Corporation of India. •Issue raised by Feroze Gandhi (INC). A point to be noted is that in these early cases.Mundhra scandal-1958 •Sale of fraudulent shares by a Calcutta-based businessman. Justice Chagla concluded that Mundhra had sold fictitious shares to the LIC and defrauded it to the tune of Rs. the judgments came in an unbelievably short time. . represented the Rae Bareli seat in the Parliament of India. The businessman was convicted and sentenced to a long imprisonment and Krishnamachari was obliged to quit the Cabinet.C. Chagla to investigate the deal.25 crore. After finding that a prima facie case had been made out against the businessman. • Prime Minister Nehru constituted a one-member commission headed by Justice M. Haridas Mundhra. 1.

India pushed import substitution deeper and deeper.India’s single most important mistake India ignored the critical importance of International trade.intensive products. Rather than turn to outward oriented policies that exploited the export potential in labor. as Korea did in early 1960s. . Moreover ever tightening licensing policy even hampers domestic competition as well.

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