INDIAN ECONOMY

1950-1990
CHAPTER-2
1. Define plan.
Ans. A plan is a detailed program or strategy worked out
beforehand for accomplishment of an objective. The
planning commission in India formulated the economic
plan.
2. What is economic planning?
Ans. Economic planning implies a deliberate choice of
economic priorities by the central government of a
country and utilization of its resources for the purpose
of achieving targets in accordance with the chosen
priorities within a specified period of time.
3. Why should plans have goals? What are the goals
of five-year plans?
Ans. A plan should have some clearly specified goals in
order to achieve the given objective. The goals of five-
year plans are growth, modernization, self-reliance and
equity. This does not mean that all the plans have given
equal importance to all these goals. Due to limited
resources, a choice has to be made in each plan about
which of the goals is to be given primary importance.
4. Briefly explain the main objectives or goals of
planning in India.
Ans. GROWTH—growth refers to increase in the
country’s capacity to produce the output of goods and
services within the country. It implies—
 A larger stock of productive capital or
 A larger size of supporting services like transport and
banking or
 An increase in the efficiency of productive capital
and services
A good indicator of economic growth is steady increase
in GDP. GDP is the market value of final goods and
services produced in the domestic territory of the
country during an accounting yea. The GDP of the
country is derived from the different sectors of the
economy namely—the agricultural sector, the industrial
sector, and the service sector.
MODERNISATION—adoption of new technology in the
production of goods and services to increase the output
is called modernisation. For example, a factory can
increase output by using new type of machine.
However, modernisation does not refer only to the use
of new technology but also to changes in social outlook
such as recognition that women should have same rights
as men. A modern society makes use of talents of
women in the workplace—in banks, factories, schools,
etc. Such a society is more prosperous.
SELF-RELIANCE—Self-reliance means avoiding imports of
those goods which could be produced in India itself. The
first 7 five-year plans gave importance to self-reliance
due to the following reasons—
 This policy was considered a necessity in order to
reduce our dependence on foreign countries
especially for food. It is understandable that people
who were recently freed from foreign domination
should give importance to self-reliance.
 Further it was feared that dependence on imported
food supplies, foreign technology and foreign capital
 may make India’s sovereignty vulnerable to foreign
interference in our policies.
EQUITY—growth, modernisation and self-reliance may
not may improve the people’s standard of living if
majority of people in the country are living in poverty. So,
in addition to growth, modernisation and self-reliance
equity is also important.
“Equity means to ensure that the benefits of economic
prosperity reach the poor sections as well instead of
being enjoyed only by the rich.” Inequality in the
distribution of wealth should be reduced. Every Indian
should be able to meet his/her basic needs such as foods,
a decent house, education and health-care.
5. What do you mean by land reforms? Why there is a
need for land reforms in the agricultural sector?
Ans. Land reforms refer to change in the ownership of
the land holdings that is, to abolish intermediaries and to
make the tillers the owners of land and fixing the
maximum size of land which could be owned by an
individual that is, land ceiling.
NEED FOR LAND REFORMS—
  At the time of independence the land tenure system
was characterised by intermediaries variously called
zamindars, jagirdars, etc who merely collected rent
from the actual tillers of the soil without
contributing toward improvements on the farm.
 The low productivity of the agricultural sector forced
India to import food grains from the USA.
 Equity in agricultural sector, called for land reforms.
6. Briefly explain different types of land reforms
implemented in agriculture.
Ans. The abolition of intermediaries—the abolition of
intermediaries meant that some 200 lakh tenants came
into direct contact with the government—they were
thus, freed from being exploited by the zamindars
The ownership of land holdings—the policy of “land to
the tiller” is based on the idea that the cultivators will
take more interest, they will have more incentive in
increasing output if they are the owners of the land. This
is because ownership of land enables the tiller to make
profit from the increased output. The tenants do not
have the incentive to make improvements on the land
since it is the land owner who would benefit more from
the higher output.
LAND CEILING—land ceiling was another policy to
promote equity in the agricultural sector. Land ceiling
means fixing the maximum size of land which could be
owned by an individual. The purpose of land ceiling was
to reduce the concentration of land ownership in a few
hands.
7. What are the drawbacks of the land reforms?
Ans.
1. The goal of equity was not fully served by the
abolition of intermediaries and policy of “land to
the tiller”
 In some areas, the former zamindars
continued to own large areas of land by
making use of some loopholes in the
legislation.
 There were cases where the tenants were
evicted and the land owners claimed to be
actual tillers claiming ownership of the land
  Even when the tillers got ownership of land,
the poorest of agricultural labourers did not
benefit from the land reforms
2. The land ceiling legislation also faced hurdles
 The big landlords challenged the legislation
in the courts delaying its implementation
 They used this delay to register their lands
in the name of close relatives thereby
escaping the legislation
 The legislation also had a lot of loopholes
which were exploited by the big landlords
to retain their land
3. The land reforms were successful in Kerala and
West Bengal because these state government
were committed to the policy of “land to the
tiller”. Unfortunately, other states did not have
the same level of commitment and vast inequality
in land holdings continues till date
8. What are HYV or miracle seeds?
Ans. Miracle sees are high yielding variety seeds of rice
and wheat which combine with modern machinery and
most efficient food distribution system [PDS] which
resulted in what came to be known as green revolution.
9. What is market economy?
Ans. An economy in which scarce resources are allocated
by the interaction of the forces of demand and supply in
a free market without government interference is called
market economy.
10. Why did India opt for planning?
 Ans. The colonial government left India as a poor,
stagnant and a backward country
 Initial success of economic planning in USSR
encouraged the Indian thinkers to plan the economy
for growth and self-reliance and put the country on
the path of development.
11. Why was it not possible for India after
independence to adopt socialism as it was adopted
by the soviet -union?
Ans.
 After independence the leaders of India had to
decide among other things the type of economic
system most suitable for our nation.
  There were different types of economic systems
among them, socialism appealed to Nehru. He was
not in favour of socialism established in the former
soviet-union where all the means of production, all
the factories and the farms in the country were
owned by the government. There was no private
property.
 It is not possible in a democracy like India for the
government to change the ownership pattern of
land and other properties of its citizens the way it
was done in the former soviet-union.
12. What is green revolution? What are the benefits
and disadvantages pf green revolution?
Ans. The green revolution refers to the large increase in
the production of food grains resulting from the use of
HYV seeds especially for wheat and rice. HYV seeds are
seeds of better quality than normal quality seeds. The
produce from these seeds is more compared to the
normal seeds. However, the use of HYV seeds require the
use fertilizers and pesticides in correct quantities as well
as regular supply of water
BENEFITS OF GREEN REVOLUTION
  Increase in marketed surplus—a good proportion of
rice and wheat produced during the green revolution
period was sold by the farmers in the market. As a
result income of the farmers increased.
 Decrease in price of food grains—the price of food
grains declined relative to other items of
consumption. The low-income groups who spent a
large percentage of their income on food benefitted
from this decline in relative prices.
 Buffer stock—the spread of green revolution
technology enabled the government to procure
sufficient amount of food grains to build buffer stock
which could be used in times of food shortage
 Self-reliance—Indian agricultural productivity
increased sufficiently to enable the country to be
self-sufficient in food grains. We no longer had to be
at the mercy of America or any other nation for
meeting our country’s food requirement
DISADVANTAGES OR CRITICAL EVALUATION
 The farmers who could benefit from the HVY seeds
required reliable irrigation facilities as well as
financial resources to purchase fertilizers and
 pesticides, which small farmers could not afford.
Thus, green revolution increased the inequalities
between small and big farmers.
 In the first phase of green revolution that is, from
1960s to 1970s the use of HYV seeds was restricted
to the more affluent states such as Punjab, Andhra
Pradesh and Tamil Nadu. Further the use of HYV
seeds primarily benefitted the wheat-growing
regions only.
 The HYV crops were also more prone to attack by
pests and small farmers who adopted this
technology could lose everything in this attack.
13. Explain the statement that green revolution
enables the government to procure sufficient food
grains to build its stock that could be used during
the time of shortage.
Ans.
 The use of new technology increased the agricultural
productivity which enables the country to be self-
sufficient in food grains
 The surplus production was sold in the market by the
farmers thus, bringing down the prices of food grains
 The increased availability of grains enabled to
procure sufficient food grains to build a buffer stock
to be used at the time of shortage.
14. What is the sectoral composition of an
economy? Is it necessary that service sector
contributes more to the GDP? Explain.
Ans.
 GDP of a country is derived from different sectors
of the economy that is, agricultural, industrial and
service sector.
 The contribution made by each of these sectors
makes up structural composition of the economy.
 As a country develops it undergoes structural
changes and in case of India, the structural change
is peculiar in development.
 At a higher level of development the agricultural
sector’s contribution to GDP was more than 50%
but by 1990 the share of service sector was 59%
which is more than that of agriculture. This
phenomena of growing share of service sector
accelerated more in 1991.
 15. Though public sector is very essential for
industries, many public sector undertaking incurred
huge losses and they are drain on economic
resources. Discuss the usefulness of the public
sector undertakings in the light of this fact.
Ans.
 Public sector is very essential for industries but many
public sector undertakings having incurred large
losses and are a drain on the economic resources. As
the scholars point out that public sector is not meant
for earning profits but to promote the welfare of the
nation.
 The public sector firms should be evaluated on the
basis of the extent to which they contribute to
welfare of people and not on profit to earn.
 Regarding protection some economic hold that we
should protect our producers from foreign
competition [rich countries]
16. Why and how was private sector regulated
under IPR [industrial policy resolution] of 1956?
Ans.
  There was a category of industries left to private
sector. This sector was kept under state control
through a system of license.
 No new industries was allowed unless the license
was obtained from the government
 This policy was used for promoting industries in
the backward regions
 It was easier to obtain licence if the industrial unit
was established in an economically backward area
 Such units were given certain concessions like tax
benefits, electricity at lower rates, etc.
 The purpose of this policy was to promote regional
disparity.
17. The economic justification of subsidies in
agriculture is, at present, a hotly debated question.
Some economists believe that subsidies should be
phased out. What arguments do these economists
give against giving subsidies?
Ans. ARGUMENTS AGAINST GIVING SUBSIDIES
 Initially, it was necessary to use subsidies to
provide an incentive for adoption of the new HYV
technology by the farmers. Any new technology
 will be looked upon as being risky by farmers.
Subsidies were, therefore, needed to encourage
farmers to test the new technology. But once the
technology is found profitable and is widely
adopted, subsidies should be eliminated since
their purpose has been served
 Further subsidies are meant to benefit the farmers
but a substantial amount of fertilizer subsidy also
benefits the fertilizer industry, and among
farmers, the subsidy largely benefits the farmers in
the prosperous regions. Therefore, it is argued
that there is no case for continuing with fertilizer
subsidy as it does not benefit the target group and
it is a huge burden on the government’s finances.
18. Though it is argued that there is no case for
continuing with fertilizer subsidies as it does not
benefit the target group and it is a huge burden on
the government finances, yet some experts believe
that the government should continue with
agricultural subsidies. What arguments do they give
in favour of giving subsidies?
 ans. Some economists believe that government
should continue with agricultural subsidies because
 farming in India continues to be a risky business.
Most farmers are very poor and they will not be able
to afford the required inputs without subsidies.
Eliminating subsidies will increase the inequality
between rich and poor farmers and violate the goal
of equity.
 These experts argue that if subsidies are largely
benefitting the fertilizer industry and big farmers,
the correct policy is not to abolish subsidies but to
take steps to ensure that only poor farmers enjoy
the benefits.
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