Indian Economic Development: APC Books

INDIAN ECONOMIC
DEVELOPMENT
CLASS XII
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INCLUDING
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Objective Type Questions and Project Work
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[Strictly according to the latest syllabus prescribed by
the Central Board of Secondary Education, New Delhi]
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Dr. B.L. GUPTA

Former Reader
Department of Economics
Swami Shraddhanand College
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University of Delhi, Delhi
and
SHALINI KAPOOR
ARYA PUBLICATIONS
AVICHAL PUBLISHING COMPANY
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ISBN–978–81–7855–837-0
First Edition : 2006

Reprint : 2007, 08, 09
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Second Edition : 2010

Revised Edition : 2011
Reprint : 2012
Modified Edition : 2013
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Third Edition : 2014

Reprint : 2015, 16, 17
Fourth Edition : 2019
Fifth Edition: 2020
(Thoroughly Revised)
Price : ` 300.00
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PREFACE TO THE FIFTH EDITION
It is a great pleasure to present the thoroughly revised edition of the book INDIAN
ECONOMIC DEVELOPMENT. The book conforms to the latest syllabus prescribed by
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the CBSE.
The subject matter is prepared in such a way that it incorporates the recent changes
and developments in different economic sectors. The language of the book has further
been simplified. The economic terms have been explained in clear and precise form so
that the readers can understand the concepts easily.
The other key highlights of this book are:


In
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A brief outline of the key concepts is given in the beginning of each chapter.
order to enrich the knowledge of the learners about recent developments in
the Indian Economy, relevant and current data acquired from various sources like
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the Economic Survey – Government of India, World Bank Data reports, etc. has
been illustrated through diagrams and tables.

Adequate number of practice questions based on the core-concepts have been
provided at the end of each chapter. It will certainly prove to be a reliable tool
for revision and self-assessment.
We sincerely believe that the book provides outstanding material to excel in your
board examinations.
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We take this opportunity to thank M/s Arya Publications for their encouragement
and never ending support in bringing out this book well on time.
Any suggestions for further improvement of the book will be gladly acknowledged
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and appreciated.
Authors
PREFACE TO THE FIRST EDITION
It is preliminary textbook in economics especially prepared on the latest syllabus of

the CBSE examination.
Though the book is primarily written for the students, I am confident that it will
prove equally useful for the general readers also.
The entire subject matter has been divided into four units.
Unit VI Development Experience (1947-90) and Economic Reforms since 1991 deals
with the development policies and experiences during 1947-90. The issue has been
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discussed in three chapters: Indian Economy on the Eve of Independence; Goals of
India’s Development plans; and Agriculture Industry and Foreign Trade.
It also discusses the policy of economic reforms since 1991 in the form of liberalisation,
privatisation and globalisation.
Unit VII Current challenges facing Indian Economy analyses the current challenges
such as poverty, rural development, human capital formation, employment, infrastructure,
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and environmental and sustainable development facing the Indian Economy.
Unit VIII Development Experience of India: A comparison with neighbours
explains comparative development experiences of India, Pakistan and China.
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The stress throughout the book has been given on the clear exposition of the subject
and lucid linguistic presentation. Special attention has been given to make the meaning
of economic terms and concepts understandable to the beginners with the help of
various examples. Care has been taken to use the relevant data from most authentic
and reliable sources.
Hints for revision are given towards the end of each chapter which will help
the students to review and recollect their concepts. Appended to each chapter is a
representative selection of questions on its subject matter. These will serve both as tests
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of the student’s understanding of the subject matter and as indication of the types of
questions they are likely to face in the examination.
I owe my gratitude to all textbook writers and eminent economists whose works
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have been extensively used in preparing the present book. I am also thankful to some
of my colleagues and teachers whose useful comments I received during the writing
of this book.
My special thanks to my publishers M/s. Arya Publications for presenting the book
with good printing and attractive get-up. I shall be extremely grateful to the students
and teachers for writing to me their comments and suggestions. Improvements in the
book in the light of comments received are assured. With this I solicit your cooperation
and support in adopting the book as a textbook.
Dr. B.L. Gupta
SYLLABUS
Theory: 80 Marks Project: 20 Marks 3 Hours

UNITS MARKS PERIODS
Part B : Indian Economic Development
VI– Development Experience (1947-90) and Economic
12 28
Reforms since 1991
VII– Current challenges facing Indian Economy 22 60
VIII– Development Experience of India-A
06 12
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comparison with neighbours
Theory Paper (40 + 40 = 80 Marks) 40 100
Part C : Project Work 20 20
PART B: INDIAN ECONOMIC DEVELOPMENT
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Unit 6: Development Experience (1947-90) and Economic
Reforms Since 1991 28 Periods
A brief introduction of the state of Indian economy on the eve of independence.
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Common goals of Five Year Plans.
Main features, problems and policies of agriculture (institutional aspects and
new agricultural strategy, etc.), industry (industrial licensing, etc.) and foreign
trade.
Economic Reforms Since 1991
Features and appraisals of liberalisation, globalisation and privatisation (LPG

policies); Concept of demonetization and GST.
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Unit 7: Current Challenges Facing Indian Economy 60 Periods

Poverty — absolute and relative; Main programmes for poverty alleviation: A
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critical assessment.
Rural development: Key issues — credit and marketing — role of cooperatives;
agricultural diversification; alternative farming — organic farming.
Human Capital Formation: How people become resource; Role of human capital
in economic development; Growth of Education Sector in India.
Employment: Formal and informal growth, problems and policies.
Infrastructure: Meaning and Types; Case Studies; Energy and Health; Problems
and Policies — A critical assessment.
Sustainable Economic Development: Meaning, Effects of Economic Development
on Resources and Environment, Including Global Warming.
Unit 8: Development Experience of India:
A Comparison with Neighbours 12 Periods
India and Pakistan
India and China
Issues: growth, population, sectoral development and other developmental
indicators.
PART C: PROJECTS IN ECONOMICS 20 Periods
SUGGESTIVE LIST
Class XII
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• Micro and Small Scale Industries • Food Supply Channel in India
• C
ontemporary Employment situation • D
isinvestment policy of the
in India government
• G
oods and Services Tax Act and its • Health Expenditure (of any state)
Impact on GDP
• Self-help group
• M O
• Human Development Index
onetary policy committee and its

• Inclusive Growth Strategy
• Trends in Credit availability in India
• Role of RBI in Control of Credit
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functions
• G
overnment Budget and its • T
rends in budgetary condition of
Components India
• E
xchange Rate determination – • C
urrency War – Reasons and
Methods and Techniques repercussions
• Livestock – Backbone of Rural India • A
lternate fuel – Types and
importance
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• S
arwa Siksha Abhiyan – Cost Ratio • G
olden Quadrilateral – Cost ratio
Benefits benefit
• Minimum Support Prices • R
elation between Stock Price Index
and Economic Health of Nation
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• W
aste Management in India – Need • M
inimum Wage Rate – Approach
of the hour and Application
• D
igital India – Step towards the • R
ain Water Harvesting – A solution
future to water crises
• Vertical Farming – An alternate way • Silk Route – Revival of the past
• Make in India – They way ahead • B
umper Production – Boon or Bane
for the farmer
• R
ise of Concrete Jungle – Trend • Organic Farming – Back to the Nature
Analysis
• A
ny other newspaper article and • Any other topic
its evaluation on basis of economic
principles
SUGGESTED QUESTION PAPER DESIGN
Theory: 80 Marks + Project: 20 Marks Duration: 3 Hrs
Short
Objective Short Long
S. Answer
Typology of Questions Type/ MCQ
I
Answer II Answer Marks
No.
1 Mark 4 Marks 6 Marks
3 Marks
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Remembering: Exhibit memory
of previously learned material by
1. recalling facts, terms, basic concepts, 5 1 2 1 22
and answers.
Understanding: Demonstrate
understanding of facts and ideas by
2. organizing, comparing, translating, 5 1 2 1 22
interpreting, giving descriptions, and
3.
stating main ideas.
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Applying: Solve problems to new
situations by applying acquired
knowledge, facts, techniques and rules 5 1 1 1 18
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in a different way.
Analysing and Evaluating: Examine

and break information into parts
by identifying motives or causes.
Make inferences and find evidence to
support generalizations.
Present and defend opinions by
4. making judgments about information, 5 1 1 1 18
validity of ideas, or quality of work
based on a set of criteria.
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Creating: Compile information

together in a different way by
combining elements in a new pattern
or proposing alternative solutions.
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Total 20×1=20 4×3=12 6×4=24 4×6=24 80(34)
There will be Internal choice in questions of 1 mark, 3 marks, 4 marks and 6 marks in both sections (A and B). In
all, total 8 internal choices.
CONTENTS
UNIT VI: DEVELOPMENT POLICIES AND EXPERIENCE (1947-1990) AND

ECONOMIC REFORMS SINCE 1991
1. Indian Economy on the Eve of Independence 1
2. Goals of India’s Development Plans 21
3. Agriculture, Industry and Foreign Trade 43
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4. Liberalisation, Privatisation and Globalisation — An Appraisal 69
UNIT VII: CURRENT CHALLENGES FACING INDIAN ECONOMY
5. Poverty 100
6.
7.
Human Capital Formation
Rural Development
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151
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8. Employment 176
9. Infrastructure 197
10. Environment and Sustainable Development 223
UNIT VIII: DEVELOPMENT EXPERIENCE OF INDIA:

A COMPARISON WITH NEIGHBOURS
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11. Comparative Development Experiences of India

and its Neighbours 243
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APPENDIX
Very Short Answer Questions, Short Answer Questions and

HOTS Questions 262
PROJECT WORK
Project-1 273
Project-2 280
CBSE SAMPLE QUESTION PAPER
CBSE Sample Question Paper 2019-20 (With Solution) 285

DEVELOPMENT POLICIES AND EXPERIENCE (1947-1990)
UNIT VI AND ECONOMIC REFORMS SINCE 1991
Chapter
1
INDIAN ECONOMY ON
THE EVE OF INDEPENDENCE
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CHAPTER OUTLINE
1.1 Introduction 1.6 Demographic Profile

1.2
Low Level of Income and Economic 1.7 Occupational Structure
Development under British Rule 1.8 Infrastructure
1.3 Agricultural Sector 1.9 P
olicies of British Rulers that Exploited
1.4 Industrial Sector
1.5 Foreign Trade
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1.10 Positive Contributions of British Rule
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1.1 INTRODUCTION
The main aim of this book, Indian Economic
HISTORICAL EVENTS THAT CHANGED THE
Development, is to familiarise students with DESTINY OF OUR NATION
the basic features of the Indian economy
• The battle of Plassey (1757) laid
and the post-independent development
the foundation of British Empire
strategies adopted by India that have
in India. The control of the Indian
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shaped its present structure. In order to

economy came in the hands of the
gain a better understanding of the present
East India Company.
economic conditions and various factors that
• After the revolution of 1857 the rule
contributed to India’s post-independence
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was transferred from the East India

development strategy, it is important to
Company to the British Crown
know the state of Indian economy prior to
who continued the colonial rule for
independence.
nearly 200 years till India gained
India had an independent, self-reliant and independence on August 15, 1947.
prosperous economy before the advent of the
British rule. After the Revolution of 1857 the COLONIALISM refers to a system
control over India was transferred from the of relations between two countries, of
East India Company to the British Crown which one is the ruler and the other is
who continued the colonial rule for nearly its colony. The ruling country has the
200 years till India gained independence on control over the political and economic
August 15, 1947. The Indian economy of life of the subjugated country.
the 18th century was primarily an agrarian
Indian Economy on the Eve of Independence 1

economy as agriculture was the main occupation of people at that time. Apart from it,
India was also known for its developed handicraft industries. The prominent handicraft
industries which gave prime place to India in the world market were cotton and silk
textiles, metal industries, precious stone works, gold and silver jewellery, masonry,
tannery, perfumery etc. The Indian handicrafts enjoyed the worldwide reputation of
fine quality and high standards of craftsmanship.
However, Indian economy which was flourishing till the mid-18th century started
to decline with the advent of the British rule. British government pursued economic
policies for the protection and promotion of economic interests of Britain rather than
the development of the Indian economy. It changed the whole structure of Indian
economy and transformed it into a supplier of raw materials and consumer of finished
products of British industries. During the entire period of British rule, no meaningful
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economic progress took place. As such, at the time of independence, India had a poor
and stagnant economy.
1.2 L
OW LEVEL OF INCOME AND ECONOMIC
DEVELOPMENT UNDER BRITISH RULE
The best indicator of the economic condition of a nation is its national income and per
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capita income. No systematic and sincere attempts were made by the British government
to estimate India’s national income.
Some individual attempts were made by experts in this regard. Notable among the
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estimators were: William Digby, Findlay Shirras, Dadabhai Naoroji, Wadia & Joshi, K.T.
Shah, Dr. V.K.R.V. Rao and R.C. Desai. All these estimates produced conflicting and
inconsistent results. However, the estimates given by Dr. Rao were considered very
significant.
Different estimates show that the level of national income and per capita income was
very low during colonial period. The growth of the aggregate real output (or GDP)
was less than 2 per cent during the first half of the 20th century.
The growth of the aggregate real output (or GDP) was less than 2 per cent during the
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first half of the 20th century and the growth of per capita output was just half per cent.
Not only the per capita income was low, but
Per Capita Income = National
its distribution was also inequitable. It means
Income/Total Population
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barring a few, most of the people were living in

abject poverty.
1.3 AGRICULTURAL SECTOR

The Indian economy during British colonial
rule was primarily an agricultural economy.
Nearly 85 per cent of the country’s population
lived in villages during that period and
derived its livelihood directly or indirectly from
agriculture. Despite being the major source of
livelihood, the agriculture sector continued to
experience stagnation and deterioration during Poor agricultural crops, lack of irrigation facilities and
British rule. backward agricultural implements during British rule
2 Indian Economic Development

AGRICULTURE DURING PRE-BRITISH PERIOD
During Pre-British period, rural India was self-sufficient. The French traveller, Bernier,
described Bengal in the 17th century as “richer than Egypt” as it produced amply not
only for its own consumption but also for the purpose of exports.
Main Causes of the Stagnation of Agricultural Sector

The main reasons for the stagnation in the agricultural sector were as follows:
1. Land Revenue System: The most prominent cause was the new system of land
tenure that was introduced by the British rulers in India. This land tenure system
had three forms: Zamindari system, Mahalwari system and Ryotwari system.
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This system gave birth to two classes — landlords (or Zamindars) and landless
cultivators.
Especially under Zamindari system, Zamindars used to exploit cultivators. They
used to charge a very high rate of land revenue from the cultivators because of
which the small farmers neither had sufficient resources nor the incentive to invest
in agriculture. They could not leave agriculture despite their exploitation because
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of lack of vocational avenues outside agriculture.
Besides this, the zamindars forced the cultivators to work (or to give Begar) on
their farms. They themselves led a lavish life and hardly spent their income on
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investment in agriculture. Thus, agriculture remain backward.
2. High Degree of Vulnerability: British rulers did not give much emphasis on
improvement of irrigation facilities, drainage facilities, soil productivity and
technological upgradation in India. Agricultural production was dependent on
monsoon. Hence, production and productivity in the country’s agricultural sector
were reduced to the lowest level and farmers were forced to live in misery.
3. Commercialisation of Agriculture: British rulers initiated commercialisation of
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agriculture in which they encouraged the production of cash crops in place of

food crops. As a result, there was somewhat higher yield of cash crops in certain
areas of the country.
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But this did not improve the economic condition of farmers because cash crops
were used mainly by the British industries. Thus, Britishers transformed Indian
agriculture into a raw material exporting activity.
As a result of reduction in the production of food crops and lack of proper policies,
the country had to suffer from frequent occurrence of famines.
SUBSISTENCE FARMING refers to farming in which the crops are produced to

meet the basic needs of the family, with little surplus for marketing.
COMMERCIALISATION of agriculture implies production of agricultural crops for
the market rather than for self-consumption.

4.
Partition of the Country: Partition of
the country had also adversely affected
India’s agricultural production. It not
only created the problem of shortage
of raw materials and food crisis in the
country but also resulted in a loss of
market for finished products.
Partition of India
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IMPACT OF PARTITION ON THE INDIAN ECONOMY
•S hortage of raw material - Partition created the serious problem of shortage of
raw material for jute mills of Kolkata and textile mills of Mumbai and Ahmedabad.
As a result of partition, the whole fertile land under jute production went to East
Pakistan (now Bangladesh). Besides this, the problem of raw materials was faced
by paper mills, leather industries and some chemical industries.
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• Food problem - West Punjab and Sindh were known as food granaries of India.
As a result of partition these areas went to Pakistan. Consequently, India had to
face the problem of food crisis.
• Loss of market - Partition had reduced the size of market which was a severe
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blow to Indian industries
1.4 INDUSTRIAL SECTOR

As a result of British policies India lagged behind in the growth of industrial sector.
Britishers systematically destroyed Indian handicraft industries and no modern
industrial base was allowed to come up. Thus, British rulers deindustrialised the Indian
economy. The two-fold motive behind the systematic de-industrialisation effected by
the British in India.
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• To get raw materials from India at cheap rate and thus reduce India to a mere
exporter of raw materials to the British industries.
• To sell British manufactured goods in Indian market at higher prices.
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I. Decline of Handicrafts Industry

Indian handicrafts industry in the 18th
century was well developed. Particularly,
the Indian textile industry was well-known
throughout the world. The muslin of Dacca
and printed or dyed calico, because of
their quality, were in great demand in all
countries of the world. Besides this, the iron
industry, gold and silver jewellery, ivory
and marble carving, masonry, tannery,
perfumery, stone-cutting, precious stones,
Decline of Handicraft Industry

bricks and lime industry, utensils, copper, tin and other metal industries were also in
good form.
The biggest loss to India during British rule was the decline of its world famous
traditional handicraft industries. Britishers took the following measures to destroy these
industries.
1. Tariff-free export of raw material from India to Britain and tariff-free import of
British industrial products into India along with heavy duty on export of Indian
handicrafts implied a loss of domestic as well as foreign markets for the Indian
handicraft products.
2.
Low cost and good quality machine made products from Britain gave stiff
competition to Indian handicraft products.
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3. Prior to the British rule the Nawabs and Rajas used to patronise handicrafts. The
advent of British rule meant the disappearance of Princely courts and consequently,
an end to the state patronage enjoyed by the handicraft industry. As a result, there
was a decline in the demand of the Indian handicrafts.
4. As a result of British influence, a new class emerged in India which was keen to
imitate western lifestyle. Consequently, indegenous goods lost their market to the
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growing demand for British products.
5. Development of means of transport accelerated the process of decline of handicrafts.
Railways were introduced in India which facilitated transportation of British
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products across different parts of the country. As a result, Indian handicrafts lost
their share of domestic market.
Decline of handicraft industries made the following adverse impacts:
1. It created large scale unemployment. The most adverse impact was on cotton textile
industry. A large number of weavers became unemployed.
2. These unemployed craftsmen migrated from urban areas to villages. This increased
the burden of population on agriculture in villages.
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3. Consumer demand in the Indian market could not be met by the supply of locally
made goods which encouraged the import of manufactured goods from Britain.
II. Slow Growth of Modern Industries

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During the second half of the 19th century, modern

industries started developing, though very slowly.
It was mainly the private sector initiative.
The establishment of industries in this period
was mainly confined to cotton textile and jute mills.
The cotton textile mills were mainly dominated by
the Indians and they were located in the western
parts of India namely Maharashtra and Gujarat. On
the other hand, jute mills in Bengal were established
mainly by British capitalists. The credit for the
beginning of iron and steel industry during British
rule goes to Jamshetji Tata. The Tata Iron and Steel Jamshetji Tata: The Founder of TISCO

Company (TISCO) was incorporated in August 1907 and it established its first plant
in Jamshedpur, now in Jharkhand. The plant began production of steel in 1912.
Besides this, some other industries also had their modest beginning in the later part
of the British rule in India. Prominent ones among them were sugar, cement, chemical
and paper industries.
III. Lack of capital goods industry

No attention was paid by the British rulers to the promotion of capital goods industries
in India. Capital goods industry or heavy industry mainly comprises of machine tools
which are used for further production. These industries require huge investment which
was beyond the means of Indian investors.
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IV. Limited State Participation
The state participation in the process of industrialisation was very limited and confined
to the areas which enhanced the size of market for the British products in India. It
focussed mainly on the construction of infrastructure like railways, development of
ports, means of communication etc.
Thus, industrial sector during British rule exhibited backwardness and lopsided
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growth. The two main drawbacks of the industrial sector during colonial rule were:
(a) The growth rate of industrial sector and its contribution to GDP was very small.
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(b) There was very limited area of operation of the public sector in the country.
Public sector in those days was confined only to the railways, power generation,
communication, ports and a few departmental undertakings.
1.5 FOREIGN TRADE

India occupied a prime place in foreign trade before the advent of British rule in the
country. India used to export its goods to far-flung countries in the world and in return
used to get gold, silver and precious stones. But later on, production, trade and tariff
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policies of the colonial government adversely affected the composition, direction and
volume of foreign trade in India.
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Composition of Foreign Trade

During the British rule, British traders were given government protection and help
while Indian traders had to bear various types of restrictions. Britain imposed heavy
import duties on Indian goods particularly its cotton textiles.
In the game plan of colonial trade policy, India was reduced to an exporter of primary
products and importer of British manufactured goods.
India’s main export items were primary products like raw silk, cotton, wood, sugar,
indigo, jute etc. On the other hand, its major imports were finished consumer goods
like cotton, silk and woollen clothes and capital goods like machinery and railway
sleepers etc. from British industries.

Direction of Foreign Trade
During its rule, Britain maintained almost a monopoly control over India’s foreign
trade. More than fifty per cent of India’s foreign trade was restricted to Britain and rest
was shared by few other countries like China, Ceylon (Sri Lanka) and Persia (Iran) etc.
The opening of the Suez Canal further intensified the effect of British discriminatory
trade policy. India was exploited, both in the areas of imports and exports.
TRADE THROUGH THE SUEZ CANAL
Suez canal is an artificial

waterway which provided
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a direct trade route for
ships operating between
Britain and India by doing
away with the need to sail
around Africa. Opening of
this canal in 1869 reduced
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MAP NOT TO SCALE
the cost of transportation
significantly.
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Large Export Surplus
A very significant feature of India’s foreign trade during colonial rule was the generation
of a large export surplus. Export surplus implies that the country’s total exports were
greater than its imports. But this export surplus was disadvantageous to the country’s
economy on the following grounds:
(i) More exports, implied non-availability of several commodities in the domestic
market to the common consumers. It created the problem of scarcity of certain
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essential commodities (like foodgrains, clothes, etc.) in the country.

(ii) The export surplus did not bring gold and silver in the country. Rather, this
surplus was used to make payments for the expenses of Indian office set up in
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Britain, expenses on wars fought by Britain and to finance the deficit in invisible
items (like tourism, transport, insurance and banking services).
Thus, in a way this export surplus led to the economic drain of India’s wealth.
ECONOMIC DRAIN OR DRAIN OF INDIA’S WEALTH
The one way transfer of resources from India to England during British rule was
termed as ‘economic drain’ (or drain of wealth). In other words, economic drain
implied all those payments which were made to England and India recieved nothing
in return of them as a result of economic policies of the colonial rule. The forms of
economic drain were mainly as follows:

(a) The excess of merchandise exports over imports in order to finance the deficit
in invisibles of balance of payment account.
(b) Interest, dividends and profit remittances on private foreign investment and
salary and pension payments to European officers.
(c) Payments made by India for military expenditure for the wars fought by Britain.
1.6 DEMOGRAPHIC PROFILE

The first official Census in India was conducted in the year 1881. Census figures
collected since 1881 informed that there was unevenness in India’s population growth.
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India was in the first stage of demographic transition till 1921. The first stage of
demographic transition implied that there was high birth rate and high death rate in
India before the year 1921. Since in this stage, both birth rate and death rate were
high, the rate of growth of population remained very slow. Because of very slow
growth in population, this period was termed as the period of stagnant population.
The main reasons for the slow growth of population during British rule were poverty,
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malnutrition, famines, epidemics and poor health facilities.
After 1921, India entered the second stage of demographic transition and there was
a consistent rise in the population of the country.
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Thus, 1921 is regarded as the ‘Year of Great Divide’ in the history of demographic
transition in India.
POPULATION CENSUS
Population Census provides information on size, distribution, socio-economic,
demographic and other characteristics of the country’s population. It is conducted
every ten years, beginning in 1872, the first complete census was taken in the year
1881 and the fifteenth Census was conducted in India in the year 2011.
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The social development indicators were also not quite encouraging during the
British rule in India. The following observations reveal that India was a stagnant and
backward economy.
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1. High Birth Rate and Death Rate: Both birth rate and death rate were high.
Birth rate which was nearly 48 per 1000 before 1921 fell to 40 per 1000 during
1941-50. Death rate which was as high as 42 per 1000 till 1921 declined to 27
per 1000 during 1941-50. The figures are still high as compared to nearly 20 per
thousand (Birth Rate) and 6.4 per thousand (Death Rate) in the year 2016.
Low Literacy Rate: Education was not given much attention during British
2.
rule. Only a small fraction of people could get education. Hence, most of the
population remained illiterate. The average literacy rate was less than 16 per
cent of which, the female literacy rate was only 7 per cent.
Poor Health Facilities: The level of public health facilities was very poor during
3.
the British rule. There was lack of proper housing, sanitation and health care

facilities. Consequently, people suffered from malnutrition, water and air borne
diseases.
4.
High Infant Mortality Rate: The infant mortality rate is the number of deaths
per 1,000 live births of children under one year of age during a given year.
Mortality rate was very high and particularly infant mortality rate was as high
as about 218 per thousand as compared to 37 per thousand in the year 2015.
Low Life Expectancy: It is the average number of years that a person may expect
5.
to live. Life expectancy was also very low, 32 years as compared to 68 years at
present. This reflects lack of health care facilities and lack of awareness among
people.
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The overall standard of living of common people in India was very low and
there was widespread poverty in the country. Thus, as a result of British rule,
India was transformed from a vibrant economy to a stagnant and backward one.
1.7 OCCUPATIONAL STRUCTURE

The occupational structure means the distribution of workforce across different
and the tertiary sector.
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industries or sectors in the economy, namely, the primary sector, the secondary sector
The following table shows distribution of population in different sectors of

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economy.
OCCUPATIONAL STRUCTURE OF INDIA ON THE EVE OF INDEPENDENCE
OCCUPATION 1951 (IN%)
Primary Sector 70–75
Secondary Sector 10
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Tertiary Sector 15–20
1. Pre dominance of Agricultural Sector: Economists are of the view that 70 to 75

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per cent of India’s working population were engaged in agriculture while 10 per
cent in manufacturing sector and 15-20 per cent were engaged in service sector. It
clearly shows that agriculture and allied activities remained the major source of
employment during the British rule.
2. Unbalanced Growth: As a result of decline of handicraft industries during the
British rule, the burden of population on agriculture increased. On the other hand,
the role of non-agricultural sector was small and limited. A country which has
dominant place of agriculture in its occupational structure is considered as a poor
and backward country. The backward character of the economy during the British
rule is very much evident from the unbalanced occupational structure. Unlike a
growing economy, where the percentage of workers in agriculture is low and that
in industry and services is high, the reverse happened in case of India.

3. Growing Regional Variation: In the case of some parts of the then Madras
Presidency (comprising areas of present day states of Tamil Nadu, Andhra
Pradesh, Kerala and Karnataka), Maharashtra and West Bengal, there was decline
in the percentage share of workforce in the agricultural sector and increase in
the manufacturing and service sectors. On the other hand, in the case of Odisha,
Rajasthan and Punjab there was an increase in the share of work force in the
agricultural sector.
1.8 INFRASTRUCTURE
The state of infrastructure facilities especially in the field of transport, communication
and energy was very poor in India during the British rule. However, some efforts
were made to develop basic infrastructure like roads, railways, ports, water transport,
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post and telegraphs by the British rulers. Here also, the main motive of British rulers
behind the development of transport and communication facilities was not to provide
basic amenities to the Indian people but to subserve their colonial interest.
Roads: The condition of roads was far from satisfactory before the advent of British
rule in India. Whatever roads were built, they were built primarily with a view to
mobilising the army within India and to transport raw materials from the countryside
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to the railway station or the port to send it to England. There was acute shortage of
all-weather metal roads in the village side. Hence, it was very difficult to reach out to
the rural areas. The rural people had to suffer during natural calamities, famines and
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other emergent situations.
Railways: The British rulers introduced
railways in India in 1850 and Indian Railways
began their operation in 1853.
It was considered as one of the most
important contributions of British rulers to
India. The development and construction
of railways by the British rulers had the
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following positive effects on the Indian

economy. First Indian railway was built between Mumbai and Thane
(i) It provided cheap and rapid transport system especially for distant travel.
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(ii) It broke geographical and cultural barriers and thus promoted national unity and
understanding.
(iii) It created new employment opportunities.
(iv) It promoted foreign trade. The volume of India’s exports increased significantly
but it benefited the Britishers more than the Indians.
(v) Railways facilitated faster movement of food grains across the nation. Supplying
food from surplus regions to famine hit areas helped in controlling famines.
(vi) It encouraged the process of industrialisation by ensuring smooth flow of raw
material and finished goods.

(vii) It encouraged commercialisation of agriculture which had destroyed the self-
sufficiency of the Indian village economy. The farmers started looking at farming
as a business opportunity rather than merely a source of subsistence.
However, the benefits of railway construction outweighed huge economic losses
that accrued to the nation.
• Railways were developed by the Britishers in order to have control over the vast
Indian territory. In view of this, the Britishers tried to link important administrative
and military centres through railway lines.
• Secondly, they wanted to earn profits through foreign trade. That is why they
linked railways with major ports on one hand and the marketing centres on the
other. Railways widened the size of domestic market for the finished products
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imported from Britain and facilitated export of primary goods to Britain, thereby,
contributing to the colonial exploitation of the Indian economy.
Air and Water Transport: As far as water and air transport are concerned, they
had their modest beginning during the British rule. However, their development was
far from satisfactory. The inland waterways proved uneconomical. Indian shipping
companies did not succeed because of two main reasons.
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(i) Severe competition from foreign shipping companies, and
(ii) lack of support from the British rulers in India. In India, a beginning in air
transport was made in 1920. The progress, however, was very slow. It was during
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the Second World War and later that
some progress was achieved.
Communication: In the field of
communication, modern postal system in
India started in 1837. The telecommunication
services were also introduced in India
to enhance the administrative efficiency.
However, the development of communication
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services before independence was rather Indian Postal System

slow.
1.9 P
OLICIES OF BRITISH RULERS THAT LED TO EXPLOITATION OF
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INDIAN ECONOMY
British rulers deliberately pursued the policies with a view to exploit the Indian
economy to serve their interest. In this regard a brief outline of British policies is
given below:
(i) British rulers grossly neglected irrigation facilities and technological upgradation
in India’s agriculture.
(ii) British rulers forced the Indian farmers to pay more attention to the production
of cash crops than the food crops so that raw materials could be supplied to the
British industries at cheap rates.
(iii) Deliberate policy measures were adopted to destroy the handicraft industries of
India.

(iv) No protection was provided to India’s infant industries for a quite long time.
(v) Heavy import duties were imposed on Indian cotton textiles.
(vi) Restriction was imposed on the use of Indian ships for trading between England
and India.
(vii) Financial and banking institutions were not promoted in the country.
(viii) Discriminatory trade policy was adopted under which British traders were given
government protection and help while Indian traders had to bear various types of
restrictions. Because of this, India was reduced to an exporter of primary products
and importer of British manufactured goods.
(ix) British capital was invested mainly in those industries which could serve British
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interest rather than India’s interest. Hence foreign capital investment in India
during colonial period gave birth to the distorted economic growth pattern.
1.10 POSITIVE CONTRIBUTIONS OF BRITISH RULE

The sole purpose of British government was colonial exploitation of India. However,
it also had some positive effects as discussed below:
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1. Effective Administration: The British government had an efficient system of
administration which served as a ready reckoner for Indian politicians.
2. Infrastructure Development: Development of railways helped in economic and
social growth of the economy. It helped in transportation of food to drought hit
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areas and promoted cultural affinity among people.
3. Commercialisation of Agriculture: It helped in changing the outlook of Indian
farmers who started producing for sale in the market than merely for subsistence.
4. Monetary System of Exchange: There was a transition from barter system of
exchange to monetary system of exchange under the British rule. This facilitated
division of labour and expansion of production.
CONCLUSION
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On the whole, it can be said that because of exploitative policy implemented by the
Britishers, the entire state of the Indian economy had undergone a sea change on the eve
of independence. In the middle of 18th century, India which was a prosperous and self-
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reliant economy, turned into a poor, stagnant and backward economy in 1947. Hence, to
understand India’s development experience and achievements, an understanding of the
dismal state of economy inherited from the British rulers at the time of independence
is important.
• Agricultural sector exhibited features of feudal and semi-feudal institutions, surplus
labour and low productivity.
• Owing to poor technological and scientific capabilities, industrialisation was limited
and lopsided. Industrial sector also needed modernisation, diversification and
capacity building.
• Foreign trade was serving the colonial interest and had an adverse impact on the
imports and exports of the country leading to drain of India’s wealth.

• Means of transport and communication were inadequate and needed upgradation,
expansion and public orientation. Educational and health facilities were inadequate,
and social security measures virtually non-existent.
In brief, poverty was rampant and unemployment widespread, both making for
low general standard of living. This is what we inherited from British rulers and from
where we had to begin our developmental journey. Thus there were huge social and
economic challenges before the country on the eve of independence.
HINTS FOR REVISION

Low Growth of National and Per Capita Income: The growth of the aggregate real output
(or GDP) was less than 2 per cent, the growth of per capita output was just 0.5 per cent.
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STATE OF INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
Agricultural Sector Foreign Trade

• Low production and Occupational Structure
• India became an exporter
productivity • High percentage of
of primary products and
• Zamindari system workers in agricultural
importer of manufactured
and dependence on
monsoon
• Commercialisation of O
• Lack of irrigation facilities goods
• Majority of trade was now
with Britain
• Generation of large export
sector as compared to
industry and service
sectors
• Growing regional
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agriculture variation
surplus to benefit Britishers
• Partition created shortage • Opening of suez Canal
of raw material and food reduced cost of transportation
crisis
Infrastructure
Industrial Sector Demographic Condition • Inadequate transport and
• Decline of handicraft industries • High Birth rate and Death rate communication facilities
• Slow growth of modern • Lack of education and health • Development of railways,
industries facilities post and telegraph
• Lack of capital good industries • High infant mortality rate to benefit British
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• Limited State Participation • Low life expectancy administration
Positive Contributions of British Rule: Effective Administration, Infrastructure Development,

Commercialisation of Agriculture, Monetary System of Exchange
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EXERCISES
I. OBJECTIVE TYPE QUESTIONS

A. Multiple Choice Questions
1. On the eve of Independence, Indian economy was:
(a) Stagnant and backward (b) Developed
(c) Self-reliant (d) Capitalist
2. In 1947, the growth rate of per capita income in India was approximately:
(a) 2% (b) 1.5% (c) 0.5% (d) 2.5%

3. Name the economist whose estimates on GDP and per capita income during the British
rule were considered very significant.
(a) William Digby (b) Dr. V.K.R.V. Rao
(c) Dadabhai Naroji (d) Findlay Shirras
4. Which industry suffered a major setback due to partition of India?
(a) Jute (b) Silk (c) Iron and steel (d) Cotton
5. Which industry suffered a major setback during the British rule?
(a) Cement (b) Iron and steel (c) Handicraft (d) Paper
6. The most important infrastructure developed during the British rule was:
(a) Airways (b) Waterways (c) Railways (d) None of these
7. Which year is described as the “Year of Great Divide”?
(a) 1881 (b) 1921 (c) 1907 (d) 1931
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8. The opening of Suez Canal served as a direct route for ships operating between:
(a) India and America (b) India and Sri Lanka
(c) India and Pakistan (d) India and Britain
9. The opening of the Suez Canal in 1869:
(a) Adversely affected the monopoly control of India’s foreign trade
(b) Reduced the cost of transportation of goods between India and Britain
(c) Enhanced inter-state trade in India
(a) 1849
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(d) Reduced the export of goods from India to Britain
10. The British introduced railways in India in the year_________ .
(b) 1850 (c) 1851 (d) 1859
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11. The main reason for stagnation in agriculture during the British rule was:
(a) Lack of technology (b) Commercialisation of agriculture
(c) Land tenure system (d) De–industrialisation
12. The literacy rate and the female literacy rate of India at the time of independence were:
(a) 16 per cent, 7 per cent (b) 12 per cent, 7 per cent
(c) 32 per cent, 16 per cent (d) 16 per cent, 12 per cent
13. What was the principal source of occupation during the British rule?
(a) Agriculture (b) Mining
(c) Manufacturing (d) Trade and Commerce
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14. When was first official Census conducted in India?

(a) 1882 (b) 1881 (c) 1885 (d) 1886
15. The motive of British government behind de-industrialisation was:
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(i) To get raw material from India at cheap rate

(ii) To sell British manufactured goods in Indian market at high prices
(iii) To focus on development of agriculture
(iv) To get finished products from India at cheap rate
(a) Both (i) and (ii) above (b) Both (ii) and (iv) above
(c) Only (iii) above (d) Only (iv) above
16. The decline of handicraft industries led to:
(i) Large scale unemployment
(ii) Encouraged the import of manufactured goods from Britain
(iii) Development of capital goods industries in India
(iv) Encouraged the export of manufactured goods to Britain
(a) (i), (ii) and (iii) above (b) (i), (iii) and (iv) above
(c) Both (i) and (ii) above (d) Both (i) and (iv) above

17. Mortality rate is one of the indicators of __________of an economy.
(a) Occupational structure (b) Unemployment
(c) Demographic profile (d) Foreign trade

18. High value of which of the following indicators reflected social backwardness during
the British rule in India?
(a) Literacy Rate (b) Female literacy
(c) Infant Mortality Rate (d) Life Expectancy

19. On the basis of the workforce engaged in various sectors in pre-independent India, the
following are ranked from the highest to the lowest? (Choose correct alternative)
(a) Primary sector, Secondary sector, Tertiary sector
(b) Tertiary sector, Primary sector, Secondary sector
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(c) Secondary sector, Tertiary sector, Primary sector
(d) Primary sector, Tertiary sector, Secondary sector

20. Which of the following statements is not true about the Indian economy during the
British rule?
(a) Slow growth of agricultural and industrial sector
(b) The area of operation of public sector was very limited

workforce.
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(c) Drain of India’s wealth despite export surplus.
(d) During the colonial period, the service sector accounted for the largest share of
21. Which of the following social indicators contributed to the worsening of India’s
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demographic profile during the colonial period?
(a) Low Infant Mortality rate (b) High Life expectancy
(c) Low Literacy rate (d) Low Birth rate and Death rate

22. Which of the following statements is not true about the foreign trade in context of
Indian economy during the British rule?
(a) India became exporter of primary products and an importer of finished consumer
goods and capital goods from Britain.
(b) India traded with many countries of the world despite discriminatory tariff policy
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pursued by the British government.

(c) India generated huge export surplus.
(d) Britain had a monopoly control over India’s foreign trade.
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23. Which of the following statements is not true with regard to the development of railways
by the British?
(a) It helped in breaking geographical and cultural barriers among people.
(b) It promoted commercialisation of Indian agriculture.
(c) The social benefits accruing due to development of railways outweighed the
country’s huge economic loss.
(d) It increased the volume of India’s exports.
24. The export surplus generated during the British rule was used:
(a) To meet administrative expenses of the British government
(b) To meet expenses on war fought by the British government
(c) To import invisible items
(d) All of the above

B. Match the following
1. (i) TISCO (a) 1869
(ii) Year of demographic divide (b) 1881
(iii) Opening of Suez Canal (c) 1907
(iv) First official census (d) 1921
2. (i) Agricultural sector (a) Drain of India’s wealth
(ii) Industrial sector (b) Lack of social infrastructure
(iii) Foreign trade (c) Low public investment
(iv) Low literacy rate and life (d) Surplus labour
expectancy
3. (i) Literacy rate (a) Less than 2 per cent
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(ii) Female literacy rate (b) Nearly 7 per cent
(iii) GDP growth rate (c) Approximately 0.5 per cent
(iv) Per capita GDP growth rate (d) Less than 16 per cent
4. (i) Subsistence farming (a) Zamindari system
(ii) Commercial farming (b) Workforce engaged in different economic
activities
(iv) Land tenure system

C. Fill in the blanks O
(iii) Occupational structure (c) For self–consumption
(d) Cash crops
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1. __________ was the main source of livelihood for most people in pre-independent India.
2. The economic policies pursued by the colonial government in India transformed
the country into supplier of __________ and consumer of __________ products from
industries in Britain.
3. One of the notable economist who made significant contribution to the estimation of
India’s national and per capita income during British rule was __________ .
4. __________ is defined as the total national income of a country divided by its population
during a given period.
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5. The growth of aggregate real output was less than __________ per cent and the growth
of per capita output was just __________ per cent during the first half of the 20th century
in India.
6. The most prominent cause of the stagnation of agricultural sector was the __________
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system which was introduced by the British rulers in India.

7. The triangular relationship among the government, the owner and tiller of the soil is
known as __________ system.
8. __________ of agriculture implies production of agricultural crops for sale in the market
rather than for self-consumption.
9. Partition of the country created serious problem of shortage of raw materials for
__________ mills of Bengal.
10. Commercialisation of agriculture resulted in shifting the agricultural production from
__________ crops to __________ crops.
11. __________ industry produces machine tools which are further used for producing
consumer goods.
12. Opening of __________ Canal fostered India’s trade with Britain by reducing the cost
of transportation.

13. __________ year is regarded as the year of great divide in the India’s demographic
history.
14. After the year 1921, India entered the __________ stage of demographic transition.
15. The average literacy rate in India during the British rule was nearly __________ per
cent.
16. __________ sector accounted for the largest share of workforce in India during the
British rule.
II. VERY SHORT ANSWER QUESTIONS

1. Give the names of some notable economists who estimated India’s per capita income
during the British period. (NCERT)
2. State the growth of aggregate real output (or GDP) and per capita output during the
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first half of the 20th century in India.
3. What was the most prominent cause of stagnation of the agricultural sector under the
British rule?
4. What is meant by commercialisation of agriculture?
5. How did the partition of the country adversely effect India’s agriculture?
6. What was the motive behind the systematic de-industrialisation by the colonial
government in India? (NCERT)
7.
8.
9.
10. O
What was the adverse impact of the decline of handicraft industries in India?
Which industries were adversely affected due to partition and why?
When was the Tata Iron and Steel Company (TISCO) incorporated?
Give the names of some of the main modern industries which were in operation at the
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time of independence. (NCERT)
11. What was the impact of discriminatory tariff policy on the Indian economy?
12. What does the term ‘export surplus’ imply?
13. What do you understand by the drain of India’s wealth (or economic drain) during the
colonial period?
14. When was India’s first official census conducted?
15. In context of Indian economy, which year is regarded as the defining year for the
demographic transition from its first to the second stage? (NCERT)
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Or
Why is 1921 considered as the year of great divide?
16. What were the main reasons for the slow growth of population during the British rule?
17. What was the average literacy rate in India during the British rule?
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18. How was the infant mortality rate of India during the British rule quite alarming?
19. What was the life expectancy in India during the British rule?
20. Which sector of the Indian economy accounted for the largest share of workforce during
the colonial period?
21. What was the main purpose behind construction of roads by the British?
22. When did the British introduce Railways in India?
III. SHORT ANSWER QUESTIONS

Briefly describe the level of growth of aggregate and per capita output during the
1.
British period.
Or
How can you say that during the British period in India, barring a few, most of the
people were living in abject poverty?

2. How did Zamindars exploit cultivators in India during the British rule?
Or
How was Zamindari system an important cause of agricultural stagnation during
colonial period?
What is meant by commercialisation of agriculture? How did commercialisation of
3.
agriculture affect Indian economy during the British rule?
4. Mention the features of Indian agriculture on the eve of independence.
5. Mention briefly the adverse effects of the decline of handicraft industries during colonial
period.
6. The traditional handicraft industries were ruined under the British rule. Do you agree
with this view? Give reasons for your answer. (NCERT)
7. Critically analyse some of the shortfalls of the industrial policies pursued by the British
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administration. (NCERT)
8. What was the condition of Indian industries on the eve of independence?
9. How did the British ruler’s policy adversely affect the foreign trade of India?
10. How had the export surplus proved disadvantageous to India during the colonial
period?
11. Give a quantitative appraisal of demographic profile of India during the British rule.

12.
O Or
Highlight the salient features of India’s pre-independence occupational structure.
(NCERT)
Mention two important features of India’s occupational structure during British period.
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(NCERT)
What were the main objectives of British rulers behind the development of infrastructural
13.
(especially transport and communication) facilities in India?
14. Indicate the volume and direction of foreign trade at the time of independence.
Briefly mention the effects of the development of railways by the British rulers on the
15.
Indian economy.
Which parts of British India became parts of Pakistan after partition? Why were these
16.
parts so important to India from economic point of view? (NCERT)
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17. Mention the salient features of Indian economy at the time of independence.
18. How did discriminatory tariff policy contribute to the success of Industrial revolution
in Great Britain?
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19. Discuss the positive contributions made by the British in India.

Or
‘The policy of colonial exploitation by the British Government had some positive side-
effects’. Elucidate.
IV. LONG ANSWER QUESTIONS

What was the main focus of the colonial economic policies in India? Briefly mention
1.
the impact of these policies. (NCERT)
What were the main causes of India’s agricultural stagnation during the colonial period?
2.
Explain. (NCERT)
Briefly describe the state of Indian agriculture on the eve of independence (or under
3.
British rule).

4. What were the adverse impacts of the destruction of Indian handicraft industries by
the British rulers during colonial period?
5. What is meant by export surplus? How did export surplus during British rule lead to
the economic drain of Indian wealth?
Or
How did the drain of Indian wealth take place during the colonial period?
6. Briefly describe the state of India’s foreign trade during colonial rule.
7. Briefly describe the state of infrastructural facilities developed during the British period.
8. What were the main motives of British rulers behind the beginning of railways in India?
How had the development and construction of railways in colonial period affected the
Indian economy?
9. Give a brief outline of the policies of British rulers that led to exploitation of Indian
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economy.
10. State some of the major economic challenges faced by India at the time of independence.
ANSWERS

1. (a)
9. (b)
17. (c)
2. (c)
10. (b)
18. (c) O
3. (b)
11. (c)
19. (d)
4. (a)
12. (a)
20. (d)
5. (c)
13. (a)
21. (c)
6. (c)
14. (b)
22. (b)
7. (b)
15. (a)
23. (c)
8. (d)
16. (c)
24. (d)
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1. (i) (c) (ii) (d) (ii) (a) (iv) (b)
2. (i) (d) (ii) (c) (ii) (a) (iv) (b)
3. (i) (d) (ii) (b) (ii) (a) (iv) (c)
4. (i) (c) (ii) (d) (ii) (b) (iv) (a)
C Fill in the blanks

C
1. Agriculture 2. raw materials, finished

3. Dr. V.K.R.V. Rao 4. Per capita income
5. 2 per cent, half per cent 6. land settlement system or Zamindari system
7. zamindari system 8. Commercialisation
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9. jute mills 10. food, cash

11. Capital goods 12. Suez
13. 1921 14. Second
15. 16 16. Agricultural

Notable estimators of India’s national and per capita income during British rule were:
1.
W. Digby; Findlay Shirras; Dadabhai Naoroji; K.T. Shah; Dr. V.K.R.V. Rao; R.C. Desai.
2. The growth of aggregate real output was less than 2 per cent and the growth of per
capita output was just half per cent during the first half of the 20th century in India.
3. The most prominent cause of the stagnation of agricultural sector was the new land
revenue system that was introduced by the British rulers in India.

4. Commercialisation of agriculture implies production of agricultural crops for the market
rather than for self-consumption or production of cash crops in place of food crops.
5. The partition of the country created serious problems of shortage of raw material for
jute mills and textile mills and resulted in food crisis in the country.
6. The motive behind de-industrialisation was two-fold: (a) to get raw materials from India
at cheap rate; (b) to sell British manufactured goods in Indian market at higher prices.
7. The decline of handicraft industries created large scale unemployment and encouraged
the import of manufactured goods from Britain.
8. The partition of the country created the serious problem of shortage of raw materials
for jute mills of Kolkata and textile mills of Mumbai and Ahmedabad.
9. TISCO was incorporated in August 1907.
10. The main modern industries which were in operation at the eve of independence were:
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cotton textile, jute mills, iron and steel industry.
11. As a result of discriminatory tariff policy, India was reduced to an exporter of primary
products and importer of British manufactured goods.
12. Export surplus implies that the country’s total exports were greater than its imports.
13. Economic drain implied all those payments which were made to England for which
India received nothing in return.
14.
15.
16. O
India’s first official census operation was undertaken in 1881.
1921 is regarded as the great divide year in India’s demographic history because after
1921 India entered the second stage of demographic transition.
The main reasons for the slow growth of population during the British rule were
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poverty, malnutrition, famines, epidemics and poor health facilities.
17. The average literacy rate in India during British rule was less than 16 per cent.
18. Infant mortality rate was 218 per thousand.
19. Life expectancy during the British rule was nearly 32 years.
20. Agricultural sector of the Indian economy accounted for the largest share of workforce
during the colonial period.
21. (i) Mobilising the army within India
(ii) To transport raw materials from the countryside to the railway station or the port
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to send it to England
22. The British introduce Railways in the year 1850.
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DEVELOPMENT POLICIES AND EXPERIENCE (1947-1990)
UNIT VI AND ECONOMIC REFORMS SINCE 1991
Chapter
GOALS OF INDIA’S
2 DEVELOPMENT PLANS
CHAPTER OUTLINE
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2.1 E conomic System Adopted By Independent 2.2.2 Planning Commission
India 2.2.3 NITI Aayog
2.1.1 Capitalist Economy 2.3 The Goals of Planning in India
2.1.2 Socialist Economy 2.4 The Goals of Five Year Plans
2.1.3 Mixed Economy
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2.2 Economic Planning in India
2.2.1 Need for Economic Planning in India
2.5 Evaluation of Economic Planning Till 1991
2.5.1 Achievements of Planning
2.5.2 Failures of Planning
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When India became free on August 15, 1947, it got a backward and stagnant economy
in legacy. The partition of the country made the situation worse. Hence, the utmost
task before the country was its economic development. Then came the question how
can this goal be achieved? What type of economic system would be more suitable for
India which could promote the welfare of all.
2.1 ECONOMIC SYSTEM ADOPTED BY INDEPENDENT INDIA

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Economic system refers to an arrangement by which the central problems of an economy

are solved. There are three main types of economic systems: Capitalist Economy,
Socialist Economy and Mixed Economy. India had to choose one among these three
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types of economic systems.

Every economic system has to answer the following three questions or Central problems:
(i) What goods and services should be produced and in what quantity?
(ii) How should goods and services be produced? Whether they should be produced
by using labour - intensive technique (using more labour) or capital-intensive
(using more machines) technique?
(iii) How should the goods and services be distributed among people? Or for whom
the goods and services should be produced?
Thus, what, how and for whom are the three main questions (or problems) that
every economic system has to answer. Different economic systems try to answer these
questions differently.
Goals of India’s Development Plans 21

TYPES OF ECONOMIC SYSTEMS
CAPITALIST ECONOMY SOCIALIST ECONOMY MIXED ECONOMY

(Means of production are (Means of production are (Both private and public
privately owned) owned by the government) sector co-exist)
2.1.1 A Capitalist Economy

A capitalist economy may be defined as an economic system in which the means of
production are privately owned and economic activities are guided by self-interest and
profit motive. This type of system is also called laissez–faire or a free market economy.
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The main features of a capitalist economy are:
(i) Private ownership of property: In capitalism, all factors of production are owned
and managed by the private sector.
(ii) Price mechanism guides production decisions: The answers to the questions
what, how and for whom to produce depend on the market forces of demand
and supply or price mechanism. That is why capitalist economy is also termed
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as market economy. In this economic system, only those goods will be produced
which have their demand in the domestic or foreign market. There is no
intervention by the government.
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(iii) Production for profit: The producers are guided by the motive of profit
maximisation thus it accelerates the pace of economic growth. They will produce
goods which can be sold profitably either in the domestic market or in the foreign
market. The answer to the question, ‘how to produce’ depends on the relative
factor prices. For example, if in a country labour is cheap and capital is costly,
labour-intensive technique will be adopted. On the other hand, if capital is cheap,
capital-intensive technique will be adopted.
(iv) Consumer Sovereignty: In a capitalist economy, consumer’s preference guides
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the production of goods.

(v) Existence of competition: Competition prevails in capitalist economies and
coordinates all activities of producers and consumers in an efficient manner.
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(vi) Unequal distribution of income and wealth: The goods are distributed among
people on the basis of their income or purchasing power and not on the basis of
their need. The gap between ‘haves’ and ‘have nots’ widens. Such an economic
system would not have been suitable for our country because it does not provide
a chance to the majority of people to improve their quality of life. Therefore, our
first Prime Minister Pt. Jawaharlal Nehru did not accept the capitalist system for
our country.
2.1.2 A Socialist Economy

The second type of economic system is a socialist economy. Socialist economy is a
system in which means of production are owned and controlled by the government
and all economic decisions are taken by a central authority. It is also called a planned
or command economy.
(i) Public ownership of property or factors of production: There is collective
ownership of means of production in a socialist economy. Profit earned goes to
the state and is utilised for social welfare.
(ii) Role of Government: The government or a central planning authority decides
what goods are to be produced in accordance with the priorities of the economy.
Here it is assumed that government knows what is in the interest of the people
of the country. Therefore, consumer’s preferences for goods is not given much
importance. Technique of production is also chosen by the government keeping
in view the plan priorities and social benefit.
(iii) Social welfare motive: This system is guided by the objective of welfare of the
society and not by profit maximisation thus, promoting growth with social justice.
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(iv) Absence of Consumer’s Sovereignty: In a socialist economy, consumer’s
preference does not guide the production of goods. They can consume only those
goods which are produced by the state.
(v) Non-existence of competition: There is no competition as incentive to earn profit
is not there.
(vi) Unequal distribution of income and wealth is greatly reduced: In this system,
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the earnings of people differ according to the nature of work and ability of the
worker. Economic inequalities are greatly reduced due to absence of ownership
of private property. Distribution of goods in a socialist economy is based not
on purchasing power but on the needs of the people. It makes arrangement to
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provide goods to each according to his need.
2.1.3 A Mixed Economy

The third type of economic system is a mixed economy. A mixed economy is a
combination of capitalism and socialism wherein both private and public sector co-exist
and both work under the general guidance of economic planning. Indian economy is
an example of mixed economy.
In this economic system the market and the government together answer the three
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questions of what to produce, how to produce, and for whom to produce.

The private sector produces goods and services, it can produce well, and the
government provides those essential and strategic goods and services which the market
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fails to provide. Thus, economic decisions in a mixed economy are left neither wholly on
the mercy of market forces nor thrust upon by the government. Rather these decisions
are taken and executed with the combined efforts of both the apparatuses.
India adopted the Mixed Economy

The question before the country after Independence was — out of these three economic
systems which system should be adopted for its operation.
Although Pt. Jawaharlal Nehru was an admirer of socialism, he was not in favour
of adopting former Soviet Union type of socialism in India, because in the socialist
economy of Soviet Union all the means of production (i.e. all the factories, farms, mines
etc.) were owned by the government. There was no scope of private property in the
country. This type of the socialist system did not fit in a democratic country like India.

The capitalist economic system did not appeal to our first Prime Minister,
Pt. Jawaharlal Nehru, as under this system, there were little chances of improvement
in the quality of life of majority of pelople
An effort was, therefore, made to develop a new system by combining these two
systems, called mixed economy. This system aspires to have the merits of both capitalism
and socialism where:
• Market forces would ensure maximisation of individual profits and the government
ensures maximisation of social welfare i.e. social welfare and self-interest co-exist.
• The competition exists but is limited to the private sector.
• It respects Consumer’s sovereignty although there is considerable inequality of
income.
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Thus, India developed a system in which we find a socialist society with a strong
public sector co-existing with the private sector.
2.2 ECONOMIC PLANNING IN INDIA

2.2.1 Need for Economic Planning in India
India opted for comprehensive planning involving direct participation of the
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government in the process of growth and development which covered both economic
(agriculture, industry, infrastructure and trade) and social (which include education,
health and housing) spheres of growth. For the first time, India declared herself as the
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mixed economy through the industrial policy statement of 1948 and Directive principles
of Indian Constitution. It was further confirmed by the 1956, 1977 and other Industrial
Policy Resolutions.
Our First Five Year Plan states that “Economic Planning is essentially a way of
organising and utilising resources to the maximum advantage in terms of defined
social ends”.
Experiences the world over suggested that market forces were inadequate, insufficient
and incapable of meeting the challenges and problems of the Indian economy. It was,
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thus, realised that the solution to the problem would require an active role of state in
the economic development. It was from this view point that independent India chose
the path of economic planning to achieve the following objectives.
(i) To break the vicious circle of poverty
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(ii) To promote social interest over individual interest

(iii) For optimum utilisation of all the available resources
(iv) To build social and economic infrastructure where private sector initiative is not
forthcoming.
(v) To increase the rate of capital formation
(vi) The initial success of economic planning in the USSR also played an important
part in adopting and popularising the concept of planning in India.
(vii) Removing economic inequalities, controlling economic fluctuations and other
such reasons prompted our leaders to adopt the path of economic planning in
India.

PROF. P.C. MAHALANOBIS: THE ARCHITECT OF INDIAN PLANNING
Many distinguished thinkers and economists contributed to the formulation of our
Five Year Plans. A very prominent name among them is that of Prof. P.C. Mahalanobis.
Prof. Mahalanobis was born in 1893 in Calcutta. He was educated at the Presidency
College in Calcutta and at Cambridge University in England.
Prof. Mahalanobis established the Indian Statistical
Institute (ISI) in Calcutta and started a journal,
Sankhya, which still serves as a respected forum
for statisticians to discuss their ideas.
The Second Five Year Plan was based on ideas
of Prof. Mahalanobis and he made landmark
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contribution to development planning in India.
He laid down the basic ideas regarding the goals
of Indian planning. That is why Prof. Mahalanobis
is regarded as the Architect of Indian Planning.
He has played a vital role in putting India on the
road to economic progress.
2.2.2 Planning Commission
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Immediately after the adoption of new Constitution on 26 January, 1950, the Planning
Commission came into existence. The Government of India constituted Planning
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Commission in March, 1950. The then Prime Minister, Pandit Jawaharlal Nehru was
its first Chairman.
According to Planning Commission, “Economic Planning means utilisation of
country’s resources into different development activities in accordance with national
priorities.”
The broad functions of the Planning Commission among others were assessment,
allocation and effective utilisation of material, capital and human resources according
to priorities of the nation.
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This Commission had suggested development of Five Year Plans. Till now we have
completed Twelve Five Year Plans (1951 – 2017) developed, executed, and monitored
by the Planning Commission.
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2.2.3 NITI Aayog

On January 1, 2015, the Government of India constituted the NITI Aayog (an acronym
for the National Institution for Transforming India) with the Prime Minister as its
ex–officio chairperson to replace the Planning Commission instituted in 1950. NITI
Aayog is a policy think-tank of the Government of India that aims to involve the states
in economic policy-making in India.
The main difference between NITI Aayog and Planning Commission is that NITI
Aayog will be providing strategic and technical advice to the central and the state
governments by adopting bottom-up approach (through active involvement of States
in the light of national objectives) rather than traditional top-down approach as in
Planning Commission.

Objectives of NITI Aayog
NITI Aayog aims to accomplish the following objectives:
• An administration paradigm in which the Government is an “enabler” rather than
a “provider of first and last resort”.
• Progress from ‘food security’ to ‘focus on a mix of agricultural production’, as well
as actual returns that farmers get from their produce.
• Ensure that India is an active player in the debates and deliberations on the global
commons.
• Ensure that the economically vibrant middle-class remains engaged, and its potential
is fully realised.
• Leverage India’s pool of entrepreneurial, scientific and intellectual human capital.
• Incorporate the significant geo-economic and geo-political strength of the Non-
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Resident India Community.
• Use urbanisation as an opportunity to create a wholesome and secure habitat through
the use of modern technology.
• Use technology to reduce opacity and potential for misadventures in governance.
• The NITI Aayog aims to enable India to face complex challenges, through the
following:
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(i) Leveraging of India’s demographic dividend, and realisation of the potential of
youth, men and women, through education, skill development, elimination of
gender bias and employment.
(ii) Elimination of poverty, and the chance for every Indian to live a life of dignity
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and self-respect.
(iii) Reddressal of inequalities based on gender bias, caste and economic disparities.
(iv) Integrate villages institutionally into the development process.
(v) Policy support to more than 50 million small businesses, which are a major source
of employment creation.
(vi) Safeguarding our environmental and ecological assets.
FUNCTIONS OF NITI AAYOG

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National Institution for Transforming India
• To evolve a shared vision of national development priorities sectors and strategies

with the active involvement of States in the light of national objectives.
•
To foster cooperative federalism through structured support initiatives and
mechanisms with the States on a continuous basis, recognising that strong States
make a strong nation.
•
To develop mechanisms to formulate credible plans at the village level and
aggregate these progressively at higher levels of government.

• To ensure, on areas that are specifically referred to it, that the interests of national
security are incorporated in economic strategy and policy.
• To pay special attention to the sections of our society that may be at risk of not
benefiting adequately from economic progress.
• T
o design strategic and long term policy and programme frameworks and
initiatives, and monitor their progress and their efficacy. The lessons learnt through
monitoring and feedback will be used for making innovative improvements,
including necessary mid-course corrections.
• T
o provide advice and encourage partnerships between key stakeholders and
national and international like-minded Think tanks, as well as educational and
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policy research institutions.
• T
o create a knowledge, innovation and entrepreneurial support system through a
collaborative community of national and international experts, practitioners and
other partners.
• T
o offer a platform for resolution of inter-sectoral and inter-departmental issues
in order to accelerate the implementation of the development agenda.
• T
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o maintain a state-of-the-art Resource Centre, be a repository of research on good
governance and best practices in sustainable and equitable development as well
as help their dissemination to stake-holders.
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• T
o actively monitor and evaluate the implementation of programmes and
initiatives, including the identification of the needed resources so as to strengthen
the probability of success and scope of delivery.
• T
o focus on technology upgradation and capacity building for implementation of
programmes and initiatives.
• T
o undertake other activities as may be necessary in order to further the execution
of the national development agenda, and the objectives mentioned above.
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Source: www.niti.gov.in
Planning Objectives and Plan Objectives

‘A Plan is a document showing detailed scheme and strategy worked out in advance
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for fulfilling an objective’.

It tells how the resources of a nation should be put to use. It should have some
general goals as well as specific objectives which are to be achieved within a specified
period of time. Situations and circumstances have been different during different
plans. Hence, development goals have varied from plan to plan, depending upon the
immediate problems and situations faced during each plan.
Our plan documents specify both, the objectives to be achieved in the five years and
also, the objectives to be achieved over a period of twenty years. The long-term plan is
called perspective plan and the Five Year Plans provide the basis for these perspective
plans. Hence, common goals remain, by and large, the same in various plans with
varying degrees of emphasis on them.

PLANNING OBJECTIVES PLAN OBJECTIVES
They are long term objectives to be achieved They are short term goals to be achieved in
over a long period of time (maybe twenty five years.
years) covering many five year plans.
They are also called ‘Perspective Plans’. They are also called ‘Five Year Plans’.
They are general goals. They are specific goals varying from plan to
plan.
They aim at structural changes in the They aim at quantitative changes.
economy.
2.3 THE GOALS OF PLANNING IN INDIA
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The common goals of economic planning of India are the following:
1. Economic Growth: Growth refers to an increase in the nation’s capacity to produce
goods and services and is indicated by a sustained rise in the value of GDP.
GDP (Gross Domestic Product) refers to the value of all the goods and services
produced in an economy during a year. The high rate of growth characterised by a
consistent rise in the GDP and per capita GDP has been the first and foremost goal of
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all the plans in the country.
Raising the per capita GDP implies that the growth rate of GDP should be higher
than the population growth. This would ensure an improvement in the standard of
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living of people.
Various plans have attended to the development of crucial sectors of the economy
such as agriculture, industry, energy, trade, transport and communication. In short,
economic growth is measured by an increase in real per capita GDP which can be
achieved through:
• An increase in the productive capacity implying an increase in the stock of available
resources
• Use of innovative technology and supporting services like banking, transport etc.
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• An increase in the efficiency of productive capital
PER CAPITA GDP

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Per capita GDP is a measure of the total output of a country that is calculated by
dividing Gross Domestic Product (GDP) by the number of people in the country.
Increase in GDP becomes meaningless if it is offset by an increase in the population.
Thus, in order to improve quality of life of people, per capita availability of goods
and services must increase.
Different sectors of the economy, namely the agricultural sector, the industrial sector
and the service sector contribute to the GDP of a country. The contribution of various
sectors to the GDP is termed as sectoral / structural composition of the economy.
With the process of development, the share of agriculture in GDP declines whereas
the share of industry and service sectors increase. It does not mean that primary sector
is neglected. It only means that the epicenter of growth shifts from the primary to the
secondary or tertiary sectors.
In India, the contribution of agricultural sector to GDP was 59 per cent in
1950-51 and it declined to nearly 35 per cent in 1990. The share of industrial sector
rose from 13 per cent in 1950-51 to 24.6 per cent in 1990-91. On the other hand, the
share of service sector rose from 28 per cent in 1950-51 to 40.5 per cent in 1990-91
which was higher than that of agriculture or industry. Thus, the sectoral composition
of Indian economy has undergone a change in the independent India. This trend has
further continued in the post 1991 period. The change in the sectoral composition has
been shown through a table and pie chart.
SECTORAL CONTRIBUTION TO GDP
(All Values in %)
SECTOR 1950-51 1990-91 2011-12 2014-15
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Agriculture 59.0 34.9 20.0 15.5
Industry 13.0 24.6 24.3 29.8
Service 28.0 40.5 55.7 54.7
28%
Service
13%
59%
Agriculture O40.5%
Service
34.9%
Agriculture
20%
Agriculture
24.3%
Industry
55.7%
Service
15.5%
Agriculture
29.8%
Industry
54.7%
Service
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Industry 24.6%
Industry
1950-51 1990-91 2011-12 2014-15
Source: World fact book, CIA

2. Equity: The Directive Principles of our Constitution have proclaimed justice as a
basic national commitment. Hence, one of the objectives of economic planning in India
is to ensure economic and social justice. This objective has three main dimensions.
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They are:
(i) Reduction in Economic Inequalities: Generally economic inequalities among
different people take two forms — inequalities of income and inequalities in the
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distribution of wealth and property. Both are complementary to each other. Here,
in India, we find both types of inequalities. To remove these inequalities our
Five Year Plans have emphasised redistribution of land in villages, progressive
taxation, licensing policy, check on monopolistic tendencies and on the wealth of
large industrial houses and the like.
(ii) Curbing Concentration of Economic Power: Our plans have also emphasised the
need to see that there should not be concentration of economic power only in a
few hands. The fruits of development should trickle down to all the sections of
the society.
(iii) Uplifting the Weaker Sections of the Society: The objective of social justice
demands that we should pay special attention to the upliftment of poor and
backward sections of our society. In this regard, our plans have emphasised the

development of landless labourers, small and marginal farmers, rural craftsmen,
economically poor and backward people. Similarly, plans have also shown concern
for the welfare of women, children and the differently abled persons.
High rate of growth and social justice have been regarded as the two primary
objectives of India’s economic planning. Some argue that there is a certain amount of
conflict between these two objectives. For example, high rate of growth requires high
rates of saving and capital formation. And this can be provided by the rich sections
of the society.
Similarly, a too vigorous pursuit of equality can injure economic incentives and bring
down the level of national production. But if we look deeply, we find that these two
objectives are not contradictory to each other, rather these are complementary.
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One task of economic planning in India is, therefore, to strike a judicious balance
between these two primary objectives. To stress this line of thinking, they are now
not considered as two separate objectives but one-single objective ‘Development with
Social Justice’.
3. Self-reliance: In the early stages of development, a country might depend upon
foreign aid. But excessive dependence on external assistance has its own difficulties
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and problems. In view of this, in the first seven Five Year Plans, self-reliance came to
be accepted as a desirable objective of our planning process.
Self-reliance implies avoiding dependence on imports of those goods which could
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be produced in the country itself. The goal of self-reliance was emphasised in order
to reduce our dependence on foreign countries, especially for food. This objective has
many aspects such as expansion of exports, substitution of imports, self-reliance in food
grains, defence equipment, capital goods and other essential goods.
The importance of self-reliance could be understood in the backdrop of our freedom
from foreign domination. It is necessary to reduce our dependence on imported food
grains, foreign capital and foreign technology as it may pose a threat to our sovereignty
which may further invite interference in our policies.
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4. Modernisation: Modernisation refers to updation and adoption of new technology

in the field of production and a change in social outlook. Thus modernisation has two
main aspects:
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(a) Adoption of New Technology: It increases the efficiency and productivity. For
instance, Green Revolution in India helped in increasing agricultural production
by using high yielding variety seeds and new agricultural technology. Similarly,
a revolutionary growth in IT sector has helped domestic industries to increase
production. Adoption of new technology increases productivity, level of production
and consequently the level of income thereby increasing demand for goods and
services in the economy. To meet the high level of demand producers plan to
increase output level by increasing demand for inputs including labour. Hence,
modernisation and employment go hand in hand. However, one sector may release
labour force for the other sectors. For instance, labour froce from agricultural sector
may shift to industrial or service sectors.

(b) Change in Social Outlook: Thinking based on reasoning and logic also plays an
important role in development. For instance, granting equal rights and equal wages
to women encourages their participation in the production process.
5. Full Employment: Besides these four major goals, the increase in employment
opportunities, removal of poverty and removal of regional disparities have also
remained important goals in India’s plans right from the beginning.
Full employment refers to a situation where all the people who are willing and able
to work at a given wage rate are getting work.
Thus, a country should aim at inclusive growth wherein both the rich and the poor
sections of society participate in the process of the growth, than a jobless growth which
leads to social unrest in the economy.
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FULL EMPLOYMENT DOES NOT IMPLY ZERO UNEMPLOYMENT
Full employment does not refer to a situation of zero unemployment in an economy.

There is always some natural rate of unemployment caused by structural changes in
the economy. These structural changes include the introduction of new technology in
production process because of which people tend to remain unemployed for some
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time till they adapt themselves to these changes. Thus, structural unemployment is
consistent with full employment in the economy.
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2.4 THE GOALS OF FIVE YEAR PLANS
The Planning Commission was charged with the responsibility of making assessment
of all resources of the country, augmenting deficient resources, formulating plans for
the most effective and balanced utilisation of resources and determining priorities.
India launched its First Five Year Plan in 1951, under the influence of the first Prime
Minister, Pt. Jawaharlal Nehru.
Severe food shortage & mounting inflation confronted the country at the onset of the
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First Five Year Plan therefore, the focus was primarily on development of agricultural
sector. It was a successful plan primarily because of good harvests in the last two years
of the plan.
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Thereafter, two subsequent Five-Year Plans were formulated till 1965, when there
was a break because of the Indo-Pakistan Conflict and two successive years of drought
which disrupted the planning process and after three Annual Plans between 1966 and
1969, the fourth Five-year plan was started in 1969.
The Eighth Plan could not take off in 1990 due to the fast changing political situation
at the Centre and severe economic crisis in the country. In the years 1990-91 and 1991-92
Annual Plans were formulated. The Eighth Plan was finally launched in 1992 after the
initiation of structural changes with a view to provide a new dynamism to the economy.
Given below is a table showing the objectives of twelve five year plans in India
which were in sync with the long term goals of planning.

SUMMARY: FIVE YEAR PLANS
PLAN FOCUS / OBJECTIVE

First Plan (1951 - 56) Development of primary sector with focus on increase in agricultural
Target Growth: 2.1% production.
Actual Growth: 3.6%
Actual Growth: 3.6%
Second Plan (1956 - 61) Development of the public sector and rapid industrialisation with
Target Growth: 4.5% main focus on heavy industries.
Actual Growth: 4.27%
Third Plan (1961 - 66) To make India a ‘self-reliant’ economy. Equal priority was given to
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Target Growth: 5.6% agriculture, its allied activities, and industrial sector. Reduction in
Actual Growth: 2.8% inequalities of distribution of Income and wealth.
Three Annual Plans During these plans a whole new agricultural strategy was
(1966 - 69) implemented. It involved use of high-yielding varieties of seeds,
extensive use of fertilizers, use of irrigation facilities and soil
conservation.
Fourth Plan (1969 - 74)
Target Growth: 5.7%
Actual Growth: 3.3%
O Growth of agriculture to enable the growth of other sectors, Price
stability.
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Fifth Plan (1974 - 79) Removal of poverty, attainment of self-reliance, improve the living
Target Growth: 4.4% standards of the people.
Actual Growth: 4.8 %
Rolling Plan (1978 - 80) Increase in national income, development of infrastructure,
Sixth Plan (1980 - 85) ensuring continuous reduction in poverty and unemployment.
Target Growth: 5.2%
Actual Growth: 5.4%
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Seventh Plan (1985 - 90) Rapid growth in food-grains production, increased employment
Target Growth: 5.0% opportunities.
Actual Growth: 6.0%
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Eighth Plan (1992 - 97) Rapid economic growth, high growth of agriculture, poverty
Target Growth: 5.6% reduction, employment generation, strengthening the infrastructure
Actual Growth: 6.8% and human resource development.
Ninth Plan (1997 - 2002) Improve quality of life, generation of productive employment,
Target Growth: 6.5% regional balance and self-reliance, population control, growth with
Actual Growth: 5.5% social justice, price stability.
Tenth Plan (2002 - 2007) To reduce regional inequalities and provide better health and
Target Growth: 8.1% educational facilities, reduction of poverty.
Actual Growth: 7.7%

PLAN FOCUS / OBJECTIVE
Eleventh Plan (2007 - Movement towards faster and more inclusive growth, Access
2012) to essential services in health and education especially for the
Target Growth: 9% poor, Environmental sustainability, improvement in governance,
Actual Growth: 8% Empowerment through education and skill development, Reduction
of gender inequality.
Twelfth Plan (2012 – Faster, sustainable and more inclusive growth.

2017)
Target Growth: 8.2%
After 2017, the decades-old Five-Year Plans will now make way for a three-year action
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plan, which will be part of a seven-year strategy paper and a 15-year vision document
prepared by the NITI Aayog.
2.5 EVALUATION OF ECONOMIC PLANNING TILL 1991

Now the question is that to what extent we have been able to achieve our objectives
of planning through pre-1991 development strategy? For this, we have to examine
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and evaluate the achievements of our plans in the context of development objectives.
Four decades (1950-51 to 1990-91) of planning experience witnessed achievements and
failures in different sectors of the economy. At best, the planning experience proved
to be a mixed blessing.
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2.5.1 Achievements of Planning
A detailed description of achievements of five year plans in India is given below:
1. Economic Growth: Economic growth is indicated by an increase in the National
Income. During the British rule, national income increased at the rate of 0.5 per cent
per annum resulting in a stagnant economy. Due to various programmes and policies,
some progress had indeed been made in this direction during the period of planning.
Although, the rate of growth was not satisfactory it has managed to break the cycle
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of economic stagnation.
During the First Five Year Plan, national income increased by 3.6 per cent per annum
as against the targeted growth rate of 2.1 per cent per annum. Thus, as compared to
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the target, performance of the economy during the First Plan Period was good.
Encouraged by the performance of the First Plan, bolder targets were fixed in the
Second Plan in respect of national income. In the Second Plan, however, the growth
rate actually achieved was 4.2 per cent per annum against the target of 4.5 per cent
per annum.
The analysis of the performance of different plans indicates that up to Fourth Plan
period, the performance of the economy remained poor, but Fifth Plan onwards the
growth rates surpassed the targeted level of 5 per cent.
The growth rate of Eleventh Plan has been 8 per cent as against the target of 9 per
cent.
The Twelfth Plan targeted the growth rate of 8 per cent. GDP growth averaged 7.3
per cent for the period 2014-15 to 2017-18.
The aforesaid analysis clearly shows that the long-run growth rate during Pre-1991
period had been lower than the targeted growth rates. Planning in India has succeeded
in breaking the deadlock of economic stagnation and bringing down the number of
people living below the poverty line.
CHANGE IN THE BASE YEAR FOR ESTIMATION OF GDP
The base year for estimation of GDP has been changed from 2004–05 to 2011–12. This
change pushed up the economic growth rate for 2013–14 to 6.9 per cent as compared
to the earlier estimate of 4.7 per cent (on the basis of 2004–05 series).
2. Rise in the rate of Capital Formation: The rate of capital formation depends on
the rate of savings in the economy. There has been a considerable increase in the rate
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of gross savings from 9.5 per cent of GDP in 1950-51 to 33.0 per cent in 2014–15 (Based
on new series with base year 2011-12). The rate of gross capital formation has trebled
between 1950-51 and 2014-15. It increased from 10 per cent to 34.2 per cent in 2014–15.
3. Development of Agriculture: The partition of country in 1947 had created food
crisis in India. In order to meet this crisis our government was forced to import food
grains from the rest of the world.
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In 1950-51 the total production of foodgrains was only 51 million tonnes. We were
unable to meet our domestic requirement and we had to import food grains from other
nations like USA. Therefore, India decided to increase its foodgrains production.
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In this regard, new agricultural technology was initiated in 1966. It involved a
simultaneous and co-ordinated introduction of institutional and technical reforms like
use of HYV seeds, chemical fertilisers, irrigation facilities and crop protection. After the
adoption of this new technology we noticed a sudden boost in foodgrains production.
This boost was just like a revolution in the history of Indian agriculture. That is why
this significant growth in agricultural output as a result of new technology was termed
as Green Revolution. Because of this green revolution the production of foodgrains
increased to 176 million tonnes in 1990-91. The production of foodgrains became almost
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3.5 times during 1950-51 to 1990-91. As a result, we almost achieved self-sufficiency

in foodgrains, especially for the crops like wheat and rice. But we were still lagging
behind in the production of pulses and oilseeds.
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4. Employment Generation: In India, majority of the working population is self-

employed. They work as farmers and rural artisans in the rural sector and in the
informal sector in urban areas. Besides self-employed people, there are wage earners
who either get regular salary or are casual workers. During the period 1950-51 to
1990-91, the proportion of self-employed people in the working population declined
and an increase was recorded in the proportion of casual workers which was a matter
of concern for the country. The economy faced the problem of providing full time
employment at reasonable wages to the rising labour force.
Efforts were made to create employment opportunities in different plans. In this regard,
emphasis was given on development of cottage and small scale industries, employment
generation programmes, etc. As a result of all this, employment undoubtedly increased

to a certain extent. The unemployment rate came down from 8.3 per cent in 2004-05
to 4.9 per cent in 2013-14.
In the twelfth five year plan, government had fixed the target of generating 50 million
employment opportunities in the non-farm sector.
5. Self-reliance: We made some headway in the direction of self-reliance. Import
substitution was done, to some extent, for iron and steel, machinery, chemical fertilisers
and some other goods. Both, the composition and direction of our exports has undergone
a change. We are exporting a variety of finished products including engineering goods.
We achieved almost self-sufficiency in the field of foodgrains production.
6. Growth and Diversification of Economic Activities: At the time of independence,
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India was an industrially backward country. Hence development of industries attracted
special attention in India’s development plans.
Though the rate of growth in industrial sector remained slow, the industrial
production increased in the pre-1991 period.
Production was started in many new consumer, intermediary and capital goods
sectors. As a result of this, the industrial structure of the country became diversified.
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There had been a marked development of basic industries such as iron and steel,
machinery, fertilisers, chemicals, electricity, cement etc. in this period.
A major achievement had been the diversification and expansion of India’s industrial
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capacity. India is ranked among top ten industrial economies in the world. The twelfth
five year Plan targeted the growth rate of industrial production of 7.6 per cent per
annum.
7. Development of Economic and Social Infrastructure: Means of transport,
communication, power generation, banking and insurance facilities are the key
components of economic infrastructure. A considerable growth has been seen in the
means of transport, power generation capacity in India and IT sector. During the
planning period, a significant growth in the health and Education facilities, the key
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elements of social infrastructure can also be seen. This has led to improvement in
various dimensions of general well-being during this period.
For instance, in 1941-51 the birth rate was about 40 per thousand and death rate
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was 27.4 per thousand. These came down to 32.5 per thousand and 11.4 per thousand
respectively in 1981-91 and to 21 and 6.7 per thousand respectively, in 2014 due to
availability of better healthcare facilities. Similarly, the life expectancy at birth increased
from 32 years in 1951 to about 60 years in 1991 and further to 68 years at present.
Infant mortality rate declined from 140 per thousand in 1951 to 80 per thousand in
1991 and 37 per thousand in 2015.
2.5.2 Failures of Planning

Economic planning in India during the period 1951-91 had been a mixed blessing. India
experienced success in some areas while in other areas it faced failures as highlighted
below.

1. Unemployment Crisis: While efforts were made to increase employment by
creating employment opportunities in different plans, it has still remained a challenge.
The growth of population and labour force aggravated the unemployment problem
year after year. The number of unemployed people increased from 3.3 million in 1951
to 23 million at the eve of Eighth Plan (April 1992). According to world Employment
and social outlook report by United Nations ILO, the number of unemployed in India
was 17.7 million in 2016. Over the years, the growth of population in the working age
group (15 to 59) has been around 2.4 per cent as compared to a rise in employment
opportunities by 2.3 per cent which has been a major cause of concern.
2. Poverty: A number of poverty alleviation programmes were launched by the

government in order to raise the standard of living of the poor sections of the society.
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Public distribution system was initiated in order to make available the essential mass
consumption goods at affordable prices to the people living below the poverty line.
As a result of all these measures, the incidence of poverty declined from nearly 55
per cent in 1973-74 to 36 per cent in 1993-94 and 21.9 per cent in 2012. Though the
poverty ratio has declined, still, nearly 50 per cent of those who are absolutely poor
in the world live in India.
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3. Economic and Social inequalities: The benefits of development under the plans
did not trickle down to the poorest sections of the society. In the rural sector, the policy
of land reforms virtually failed. The growth of black money led to wasteful expenditure
by urban elite.
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The distribution of assets in the rural sector of India remained more or less the same.
Nearly 60 per cent of the total land holders were marginal farmers owning less than
one hectare of land.
The distribution of assets in urban areas was also very much uneven. A small group
of top industrial houses was controlling a large part of big companies in the country.
There was economic and social inequality and these widening economic disparities
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among various classes and regions caused social unrest in the country.
4. High rate of Inflation: The economic divide between haves and have nots has
widened due to a fall in the real income of the people. There has been a rise in general
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price level during the planning period.
The average rate of inflation increased from 6.2 per cent in Second Plan to 7.4 per
cent in Eleventh Plan. However, the average inflation based on Wholesale Price Index
(WPI) was 1.7 per cent in 2016-17 as compared to (–) 3.7 per cent in 2015-16 and 1.2
per cent in 2014-15.
Thus, planning during the period 1951–91 had put India on a road to progress but
we failed to sustain this growth and achieve desired results due to inefficiency of public
sector enterprises, corruption and red-tapism. It was owing to the failure of planning
that India took a U–turn in its policies of License, Quota and Permits to a policy of
Liberalisation, Privatisation and Globalisation as discussed in subsequent chapters.

HINTS FOR REVISION
Central Problems of an Economy

• What to produce
• How to produce
• For whom to produce
Types of Economic System
• Capitalist Economy - Means of production are privately owned
• Socialist Economy - Means of production are owned and controlled by the government
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• Mixed Economy - Both private and public sector co-exist
India Adopted Mixed Economy
ECONOMIC PLANNING IN INDIA
Meaning
• A way of organising and
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utilising resources to the
maximum advantage in
•
Goals of Planning
Economic Growth - A sustained
rise in real output
Failures of Planning
• Unemployment crisis
• Poverty
• Economic and Social
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• Modernisation - Update and
terms of defined social adopt new technology and inequalities
ends change in social outlook • High rate of inflation
INSTITUTIONS FORMULATING • Self- Reliance - To reduce
PLANS dependence on imports
Planning commission • Equity - Benefits of growth are
(1950-2015) shared by all (Development with
NITI Aayog Social Justice)
(Since 2015) • Full employment - All those who
are willing to work and able to
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work are employed

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Achievements of Planning
Need for Economic Planning
• Increase in National Income
• To break the vicious circle of
• Rise in the rate of savings and
poverty
capital formation
• Prioritise social interest
• Development of agriculture
• Optimum utilisation of
• Self-reliance
resources
• Growth and diversification of
• Building social and economic
economic activities
infrastructure
• Employment generation
• Increase the rate of capital
• Development of economic and
formation
social infrastructure

EXERCISES

1. The economic system adopted by India is
(a) Capitalistic (b) Socialistic (c) Mixed Economy (d) None of these
2. When was Planning Commission setup?
(a) 1949 (b) 1950 (c) 1956 (d) 1850
3. In which year was India’s First Five Year Plan launched?
(a) 1951–56 (b) 1952–57 (c) 1947–52 (d) 1950–55
4. Which Five Year Plan was implemented during the year 2012–17?
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(a) Eighteenth (b) Ninth (c) Eleventh (d) Twelfth
5. Which of the following is not a goal of perspective plans in India?
(a) GDP Growth (b) Equity (c) Land reforms (d) Self-reliance
6. In which economy means of production are owned, controlled and operated by the
Government?
(a) Mixed Economy (b) Socialist Economy
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(c) Capitalist Economy (d) None of these
7. In a Capitalist Economy means of production are owned, controlled and operated by:
(a) Private sector (b) Public sector (c) External sector (d) Both (a) and (b)
8. Name the body/institution which was engaged in the formulation of Five Year Plans
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in India.
(a) Planning Commission
(b) Election Commission
(c) National Development Commission
(d) None of these
9. When was NITI Aayog formed?
(a) 1950 (b) 1991 (c) 2015 (d) 2012
10. Who is the ex-officio chairman of the NITI Aayog?
(a) Prime Minister (b) Home Minister
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(c) Finance Minister (d) President

11. Mahalanobis Model was started in ___________ Five Year Plan.
(a) First (b) Second (c) Tenth (d) Eleventh
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12. Which of the following facts are associated with P.C. Mahalanobis?
(a) He is known as the architect of Indian planning.
(b) He started the journal Sankhya.
(c) He established the Indian Statistical Institute.
(d) All of the above.
13. Who is known as the architect of Indian Planning?
(a) Jawaharlal Nehru (b) Dr. B.R. Ambedkar
(c) P.C. Mahalanobis (d) Dadabhai Naoroji
14. The production decision under which economic system is based upon the market forces
of demand and supply?
(a) Capitalism (b) Socialism (c) Mixed (d) Monarchy
15. Which amongst the following are the central problems of an economy?
(a) What to produce (b) How to produce
(c) For whom to produce (d) All of the above

16. Which sector made the maximum contribution in the national income of India from
the period 1950–91?
(a) Agriculture sector (b) Service sector
(c) Industrial sector (d) None of these
17. The term ‘natural rate of unemployment’ is consistent with the situation of:
(a) Full employment
(b) Under employment
(c) Disguised unemployment
(d) Structural unemployment
18. ‘Modernisation’ as a goal of planning in context of Indian economy aimed at:
(a) Use of new technology (b) Change in social outlook
(c) Adopting western lifestyle (d) Both (a) and (b) above
19. The share of agricultural sector in India’s GDP has tended to:
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(a) Decline (b) Rise
(c) Remain constant (d) First decline then increase
20. Equity as a goal of planning aims to achieve the following objectives:
(a) Reduction in economic inequalities
(b) Curbing concentration of economic power
(c) Uplifting the weaker sections of the society
(d) All of the above

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1. (i) Gross Domestic Product (a) A system under which a set of target is
defined by the central authority
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(ii) Long term planning (b) Architect of Indian planning
(iii) Economic planning (c) Market value of all final goods
(iv) P. C. Mahalanobis (d) Perspective plans
C. Fill in the blanks

1. A _________ economy may be defined as an economic system in which the means of
profit motive.
C
2. ___________ economy is a system in which means of production are owned by the

whole community and all economic decisions are taken by a central authority.
3. A ______________ economy is a system in which both private and public sector co-exist
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and both work under the general guidance of an economic planning.

4. The post-independent India chose the path of ___________ economy through economic
planning for her development.
5. __________ is a system under which a set for targets is defined by the central authority
of the country.
6. In India, __________ formulated the plans for the country.
7. The Planning Commission in India was constituted in the year __________ under the
chairmanship of Pt. Jawaharlal Nehru.
8. Long term plan is also termed as __________ plan.
9. Short period objectives of planning are for the term of __________ years.
10. __________ is regarded as the architect of Indian planning.
11. __________ refers to an increase in country’s productive capacity and is measured by
increase in real per capita GDP.
12. With the process of development, the share of __________ sector in GDP declines
whereas the share of industry and service sector increases.
13. __________ implies avoiding dependence on imports of those goods which could be
produced in the country itself.
14. __________ refers to adoption of new technology in the field of production and change
in social outlook.
15. __________ institution replaced Planning Commission in India.
16. __________ is a policy think-tank of Government of India and aims to involve the states
17. An economy in which means of production are used in a manner such that social
welfare is maximised is called __________ economy.
18. Objective of planning necessary to reduce our dependence on foreign goods is called
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__________ .

1. What are the three questions that every economic system has to answer?
2. Define a capitalist economy.
3. Define a socialist economy.

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4. What do you mean by mixed economy?
5. What type of economic system was accepted in post-independent India?
6. What is economic planning?
7. When was India’s Planning Commission constituted and who was its first chairman?
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8. Who is regarded as the architect of Indian planning?
9. List the long-term objectives of Indian planning.
10. What is economic growth?
11. What is meant by sectoral (or structural) composition of an economy?
12. What changes take place in the sectoral composition of an economy during the process
of development?
13. What changes have been observed in the contribution of agricultural sector to GDP
from the period 1950-51 to 1990-91?
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14. What are the three main dimensions of the objective of social and economic justice?
15. What is meant by self-reliance?
16. What is meant by modernisation?
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17. What is the name of the institution which is formed in place of planning commission?
18. When was NITI Aayog formed?
19. What is the main function of NITI Aayog?
20. What is the basic difference between Planning Commission and NITI Aayog?
III. SHORT ANSWER QUESTIONS

1. Why did India adopt the mixed economic system?
2. Give any three arguments indicating the necessity and importance of planning in India.
Or
Why did India opt for planning?
3. What are the main objectives of planning in India. Explain any one of them.
4. Describe ‘economic growth’ and ‘full employment’ as long term goals of planning.

5. What is meant by the long term objective of ‘self-reliance’?
6. Explain the objective of ‘Development with Social Justice’.
7. Briefly explain the goal of modernisation adopted as one of the long term goals of
planning in India.
8. What is sectoral composition of an economy? Is it necessary that the service sector
should contribute maximum to GDP of an economy? Comment. (NCERT)
9. Does modernisation as a planning objective create contradiction in the light of
employment generation? Explain. (NCERT)
10. Poverty in India has reduced, but the gulf between rich and poor has widened. Elucidate.
11. A rise in unemployment has been observed despite a rise in the employment
opportunities during the five year plans. Do you agree? Give reason.
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12. Write a short note on NITI Aayog.
IV. LONG ANSWER QUESTIONS

1. What, how and for whom goods and services are produced in a capitalist system? Why
did India not adopt capitalist system after independence?
2. What is socialism and how economic problems are addressed in this system?

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3. What is mixed economy? Why did India adopt this system?
4. Explain the main goals of Planning in India.
5. Briefly describe the achievements and failures of our planning till 1991 in regard to any
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two development objectives.
6. Planning in India for the period 1951-91 is a mixed blessing. Explain.
Or
Critically evaluate the achievements of five year plans in India.
7. Explain the objectives of NITI Aayog.
ANSWERS
C

1. (c) 2. (b) 3. (a) 4. (d) 5. (c) 6. (b) 7. (a) 8. (a)
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9. (c) 10. (a) 11. (b) 12. (d) 13. (c) 14. (a) 15. (d) 16. (a)
17. (a) 18. (d) 19. (a) 20. (d)
B. Match The Following

1. (i) (c) (ii) (d) (iii) (a) (iv) (b)
C. Fill In The Blanks

1. Capitalist 2. Socialist
3. Mixed economy 4. Mixed
5. Economic Planning 6. Planning Commission
7. 1950 8. Perspective
9. Five 10. Prof. P.C. Mahalanobis

11. Economic growth 12. Agriculture
13. Self-reliance 14. Modernisation
15. NITI Aayog 16. NITI Aayog
17. Socialist 18. Self-reliance

1. The three questions are: (i) What to produce? (ii) How to produce? (iii) For whom to
produce?
2. A capitalist economy may be defined as an economic system in which the means of
profit motive.
3. Socialist economy is a system in which means of production are owned by the whole
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community and all economic decisions are taken by a central authority.
4. A mixed economy is an economy in which both private and public sector co-exist and
both work under the general guidance of economic planning.
5. The post-independent India chose the path of mixed economy for her development.
6. Economic planning is essentially a way of organising and utilising resources to the
maximum advantage in terms of defined social ends.

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7. The planning commission in India was constituted in March 1950 under the chairmanship
of Pt. Jawaharlal Nehru.
8. Prof. P.C. Mahalanobis is regarded as the architect of Indian planning.
9. Rapid economic growth, Equity; Self- reliance; Modernisation; Full employment.
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10. Economic growth refers to increase in country’s productive capacity and it is measured
by increase in real per capita GDP.
11. The contribution of various sectors to the GDP is termed as sectoral composition of the
economy.
12. With the process of development the share of agriculture in GDP declines whereas the
share of industry and service sectors increase.
13. The contribution of agricultural sector to GDP declined from 59 per cent in 1950-51 to
nearly 35 per cent in 1990-91.
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14. (i) Reduction in economic inequalities

(ii) Curbing concentration of economic power
(iii) Uplifting the weaker sections of the society
15. Self-reliance implies avoiding dependence on imports of those goods which could be
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produced in the country itself.

16. Modernisation refers to adoption of new technology in the field of production and
change in social outlook.
17. The name of the new institution is NITI Aayog (or National Institution for Transforming
India).
18. NITI Aayog was formed on January 1, 2015.
19. NITI Aayog is a policy think-tank of government of India that aims to involve the states
20. NITI Aayog will be providing strategic and technical advice to the Central and the state
governments i.e. by adopting bottom-up approach rather than traditional top-down
appraoch as adopted by the Planning Commission.

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INDIAN ECONOMIC

Dr. B.L. GUPTA

University of Delhi, Delhi

First Edition : 2006

Second Edition : 2010

Third Edition : 2014

Laser Typeset by:

It is preliminary textbook in economics especially prepared on the latest syllabus of

Theory: 80 Marks Project: 20 Marks 3 Hours

PART B: INDIAN ECONOMIC DEVELOPMENT

Unit 7: Current Challenges Facing Indian Economy 60 Periods

 onetary policy committee and its

Theory: 80 Marks + Project: 20 Marks Duration: 3 Hrs

Analysing and Evaluating: Examine

Creating: Compile information

Total 20×1=20 4×3=12 6×4=24 4×6=24 80(34)

UNIT VI: DEVELOPMENT POLICIES AND EXPERIENCE (1947-1990) AND

1. Indian Economy on the Eve of Independence 1

2. Goals of India’s Development Plans 21

3. Agriculture, Industry and Foreign Trade 43

UNIT VII: CURRENT CHALLENGES FACING INDIAN ECONOMY

10. Environment and Sustainable Development 223

UNIT VIII: DEVELOPMENT EXPERIENCE OF INDIA:

11. Comparative Development Experiences of India

Very Short Answer Questions, Short Answer Questions and

CBSE SAMPLE QUESTION PAPER

CBSE Sample Question Paper 2019-20 (With Solution) 285

1.1 Introduction 1.6 Demographic Profile

shaped its present structure. In order to

was transferred from the East India

Indian Economy on the Eve of Independence 1

barring a few, most of the people were living in

1.3 AGRICULTURAL SECTOR

2 Indian Economic Development

Main Causes of the Stagnation of Agricultural Sector

agriculture in which they encouraged the production of cash crops in place of

SUBSISTENCE FARMING refers to farming in which the crops are produced to

Indian Economy on the Eve of Independence 3

1.4 INDUSTRIAL SECTOR

I. Decline of Handicrafts Industry

4 Indian Economic Development

II. Slow Growth of Modern Industries

During the second half of the 19th century, modern

Indian Economy on the Eve of Independence 5

III. Lack of capital goods industry

1.5 FOREIGN TRADE

Composition of Foreign Trade

6 Indian Economic Development

TRADE THROUGH THE SUEZ CANAL

Suez canal is an artificial

essential commodities (like foodgrains, clothes, etc.) in the country.

ECONOMIC DRAIN OR DRAIN OF INDIA’S WEALTH

Indian Economy on the Eve of Independence 7

1.6 DEMOGRAPHIC PROFILE

8 Indian Economic Development

1.7 OCCUPATIONAL STRUCTURE

and the tertiary sector.

The following table shows distribution of population in different sectors of

OCCUPATION 1951 (IN%)

Primary Sector 70–75

Tertiary Sector 15–20

1. Pre dominance of Agricultural Sector: Economists are of the view that 70 to 75

Indian Economy on the Eve of Independence 9

Unit 7: Current Challenges Facing Indian Economy 60 Periods

onetary policy committee and its

CBSE Sample Question Paper 2019-20 (With Solution) 285