Revision Notes

Class 11 - Economics
Chapter 2 - Indian Economic Development

ECONOMIC SYSTEM
The term "economic system" refers to a system for resolving an economy's basic
concerns.

Different Form of Economic Systems:

The different forms of economic systems are as follows:
1. Capitalist economy:
● It is the one in which the private sector owns, controls, and operates the
means of production. The primary goal of production is to earn profits.
● As a result, the key questions of what to make, how to produce, and for
whom to produce are settled by market forces of demand and supply.
● So, in a capitalist society, goods are allocated among people based on their
purchasing power to buy products and services rather than on their needs.

2. Socialist economy:
● It is the one in which the government owns, controls, and operates the
means of production.
● According to the demand of society, the government decides what, how,
and for whom to produce.
● The factor that guides decision-making is social welfare.

3.Mixed economy:
● It is a hybrid of the free market and the socialist economy.
● It coexists with both the private and public sectors.
● The government and the market work together to solve the three issues of
what, how, and for whom to produce in a mixed economy.
● For its development, India adopted a ‘Mixed Economic System.'

PLAN:
A plan specifies how a country's resources should be utilised. It should have some
broad aims as well as targets that must be met within a certain time frame. In
India, plans that last five years are referred to as five-year plans. The Planning
Commission was established in 1950, with the Prime Minister as its Chairperson.

THE GOALS OF THE FIVE-YEAR PLAN

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The five-year plan consists of the following goals.
1. Growth: It involves the growth of a country's capacity to generate goods and
services within its borders. Economic growth is defined as a rise in the country's
Gross Domestic Product (GDP). GDP is a method of measuring an economy's
growth. The greater the GDP, the greater the ability of the general populace to
benefit from the country's economic policies.

2. Modernisation: It includes the adoption of innovative production techniques

by manufacturers in order to improve their output of goods and services.
Innovation, inventions, and technological improvement all play a significant role
in modernising our economy and increasing its productivity. One example would
be the adoption of modern agricultural techniques, which resulted in greater
productivity.

3. Self-reliance: It refers to the use of a country's own resources rather than

resources purchased from other countries to promote economic growth and
modernisation. It refers to the use of a country's own resources rather than
resources purchased from other countries to promote economic growth and
modernisation.

4. Equity: It is important to ensure that the advantages of economic progress are

shared equally among the poor and not just the wealthy. Every Indian should be
able to meet his or her fundamental necessities, and there should be less inequality
in wealth distribution.

The Service Sector

● As a country grows, it goes through a process known as "structural
change." In India's instance, the structural transformation is unusual.
● Typically, as a country develops, agriculture's proportion of the economy
declines, and industry takes over. The service sector contributes more to
GDP than the other two sectors at greater levels of development.
● The structural transformation in India, on the other hand, is unusual.
Agriculture accounted for more than half of India's GDP, as one would
anticipate in such a poor country.
● However, by 1990, the service sector had a share of 40.59 percent, which
was higher than agriculture or manufacturing, as it is in industrialised
countries.
This characteristic of increasing service sector share was intensified in the post-
1991 period, known as the “Service-led growth” trend, which signalled the
beginning of globalisation.

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AGRICULTURE
Agriculture is the foundation of India's economic system and activity. It is a wide
phrase that encompasses all that goes into cultivating crops and rearing animals
in order to provide humans with food and materials that they can use and enjoy.

Features of Indian Agriculture:

● Reliance on rainfall: Agriculture in India is primarily dependent on the
rainfall. If the rainfall is favourable, the crops will produce more; if the
rainfall is poor, the crops will fail. Floods can wreak havoc on our crops at
times. Since irrigation facilities are limited, agriculture is reliant on
rainfall.
● Small land holding: A landholding is the amount of land owned by an
individual or family. Land holdings in India are not just limited, but also
dispersed. It is extremely difficult to develop small and dispersed land
holdings.
● A limitation of production: Productivity, or output per hectare of land, is
exceedingly low in India. A low level of output signifies a poor level of
productivity. Despite the fact that extensive regions are under cultivation,
low production may result from fragmentation.
● Unemployment: Farmers find work only a few months of the year due to
insufficient irrigation facilities and unpredictable rains. Hence, their labour
potential is not being utilised effectively, and they remain unemployed for
months.
● Technology that is backward: Agriculture producing methods and
equipment are traditional in India. It is related to people's poverty and
illiteracy. The main cause of low productivity is traditional obsolete
technology.
● Tenant-landlord disputes: Owners were rarely tillers of the land in earlier
times, and they never shared the expense of production. Instead, they
distributed the output. They were mainly concerned with increasing their
rental income. Farmers were given very little money for sustenance. As a
result, agriculture has regressed and stagnated.

Problems of Indian Agriculture:

In comparison to other countries, India's agricultural statistics show that it lags in
both land and labour productivity.
1. Institutional Problems
a. Faulty tenancy reforms: The land tenure system in India is riddled
with flaws. Tenant insecurity was a major issue, especially before
independence, when absentee landlords and fraudulent transfers of
land occurred in several parts of the country.

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 b. Inadequate agricultural credit: The institutional financing sources
available are insufficient to meet the needs of agricultural credit.
Farmers continue to rely on moneylenders for credit.
c. Holding capacity: The average holding size in India is predicted to
fall from 1.5 hectares in 1990-91 to 1.3 hectares in 2000-01. As a
result, agricultural holdings are uneconomically small and dispersed.

2. General Problems
a. Population pressure on land: Farm sizes are smaller in areas with
a higher population density. Greater demand for inorganic fertiliser
is also associated with higher population density. As population
density increases, farm revenue per hectare drops.
b. Negligence of natural resources: When it comes to agriculture,
India has failed to protect and exploit its natural resources. Little was
done to conserve resources, the majority of which were tied to
irrigation. The stories of migration and acute water shortages in the
whole country demonstrate the gravity of the situation.
c. Agricultural Instability: Indian agriculture is always susceptible to
insecurity as a result of weather fluctuations and the risk of
monsoon. As a result, the production of food grains and other crops
varies greatly, causing agricultural produce prices to vary
continuously. This has generated an element of insecurity in the
country's agricultural operations.

3. Technological Problems
a. Production technique: Farmers in India have been using archaic
and inefficient farming methods and techniques. Only in recent
years have Indian farmers begun to embrace upgraded instruments
such as steel ploughs, seed drills, barrows, hoes, and so on.
b. Irrigation facilities are in short supply: The absence of guaranteed
and regulated water supply through artificial irrigation facilities
continues to be a problem for Indian agriculture. As a result, Indian
farmers must rely heavily on rainfall, which is neither consistent nor
even.
c. Cropping pattern: Indicators of sector development and
diversification include the cropping pattern, which displays the
percentage of an area planted in different crops throughout time. As
cash crop prices rise, more land is being shifted away from food crop
production and into cash or commercial crops. This has exacerbated
the country's food situation.

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Reforms in Indian Agriculture:
The agricultural industry did not experience expansion or equity during colonial
control. Institutional Reforms and the Green Revolution were implemented by
the government to address the concerns of agricultural growth and equity.
a. Land Reforms:
● The tillers of the lands were not the landowners during the British era. As
a result, a farmer did not have true possession of the property. Ownership
was held by the middlemen, such as zamindars, jagirdars, and others. The
farmer would cultivate the land while paying the rent to the zamindars.
● These farmers were inevitably exploited when landowners ignored
agricultural needs and were only concerned with the rent they collected
from these labourers.
● In order to fix this situation, the government of a newly independent India
had a few goals in mind.
o The main goal was to make systematic and comprehensive
improvements to the country's agrarian structure.
o Its secondary goal was to eliminate the intermediaries of India's
semi-feudal landlordism system, i.e. the zamindars.
o Ensure economic and societal equity while also ensuring social
justice for past injustices against farmers. The land reforms would
also prevent landowners from exploiting tenant farmers.
o Finally, these farmers must be motivated and techniques to boost
agricultural productivity must be implemented.

b. Land Ceiling Act:

● This entails determining the maximum amount of land that an individual
can own.
● The goal of the land ceiling was to decrease land ownership concentration
in a few hands and promote agricultural equity.

Note: West Bengal and Kerala had effective land reforms because their
governments were committed to the policy of giving land to the tiller, whereas
other states did not have the same level of devotion, and enormous disparities in
landholdings still exist today.

c. Green Revolution:
● The Green Revolution began in 1965, when the first High Yielding Variety
(HYV) seeds were introduced into Indian agriculture. This was combined
with better and more effective irrigation and the proper use of fertilisers to
boost agricultural yield. The Green Revolution had the desired effect of
making India self-sufficient in food grains.

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 ● The HYV seeds performed better in wheat crops and were more effective
in areas with adequate irrigation. As a result, the first stage of the Green
Revolution concentrated on states with stronger infrastructure, like Punjab
and Tamil Nadu.
● Several other states received HYV seeds during the second phase. Other
crops besides wheat were also included in the strategy.
● Proper irrigation is a prerequisite for the HYV seeds. Crops grown from
HYV seeds require alternate quantities of water delivery throughout their
growth. As a result, crops cannot rely on monsoons. The Green Revolution
greatly enhanced India's inland irrigation infrastructure around fields.
● Finally, technology and machinery were introduced that greatly aided the
promotion of commercial farming in the country.

Note: India's agriculture is critically dependent on the monsoon, and if the

monsoon failed to arrive, farmers were in trouble unless they had access to
irrigation, which very few did. The green revolution permanently ended the
agricultural standstill that had occurred during colonial administration. This
refers to the significant rise in food grain production as a result of the usage of
high yielding variety (HYV) seeds, particularly for wheat and rice.

Marketed Surplus:
Farmers sold a significant amount of agricultural produce in the market, and the
increased output impacted the economy. The portion of agricultural produce sold
on the market by farmers is referred to as the marketed surplus. The increase in
marketable surplus resulted in improved agricultural growth. As a result, the price
of food grains fell in comparison to other consumer goods.

Positive effects of Green Revolution:

● Increase in performance and productivity.
● Increase in commercial farming.
● Use of modern technologies such as HYV seeds, fertilisers, etc., has an
impact on the social revolution.
● Increased earnings.
● Growth in employment.
● A significant increase in the average.

Negative effects of Green Revolution:

● Limited to specific crops and places, such as wheat and rice-growing states
like Punjab, Haryana, Uttar Pradesh, and Andhra Pradesh.
● Partial poverty alleviation.

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 ● Land reforms were ignored.
● Widening of the income gap between small and large farmers.
● Degradation of the environment.

d. Subsidies:
In the context of agriculture, subsidy refers to the provision of inputs to
farmers at a lower cost than the market price.

Role of Subsidies:
● Small farmers were given low-interest loans and fertiliser subsidies by the
government, ensuring that they had access to the necessary inputs. As a
result, both small and large farmers benefited from the green revolution.
● The services provided by government-established research institutes
significantly lowered the chance of small farmers being wrecked when
pests attack their crops.

The Debate Over Subsidies:

● The economic validity of agricultural subsidies is currently a strongly
discussed topic. It is widely acknowledged that the government needed to
provide subsidies to encourage farmers in general, and small farmers, to
use the new HYV technology.
● Second, any new technology will be viewed as a hazardous proposition by
farmers. As a result, subsidies were required to encourage farmers to try
out the new technology.

Arguments in favour of subsidies:

● Some argue that the government should continue to provide agricultural
subsidies because farming is a risky business in India.
● The majority of farmers are impoverished, and without subsidies, they will
be unable to purchase the necessary inputs.
● If subsidies are eliminated, it will increase the gap between rich and poor
farmers, and violate the purpose of equity.

Arguments against Subsidies:

● Some economists feel that once a technology proves viable and widespread
adoption, subsidies should be phased out because its objective has been
fulfilled.
● Furthermore, while subsidies are intended to aid farmers, a significant
portion of the fertiliser subsidy goes to the fertiliser business. Farmers in
more wealthier areas gain disproportionately from the subsidies.

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 ● As a result, it is suggested that continuing with fertiliser subsidies is
pointless because they do not benefit the target demographic and place a
significant financial burden on the government.

INDUSTRY AND TRADE

Role of Industrial Sector of India:
The importance of industrialization in a country's economic prosperity cannot be
overstated. Economically affluent economies are those that have advanced
industrially. Industrialisation is a prerequisite for an economy's final take-off.

Role of Industrial Sector:

● Meeting the ever-increasing demands of a society.
● Increasing people's earnings.
● Significant room for expansion.
● Important for a significant number of exports.
● It is a source of employment.
● It promotes modernization.
● Growth of infrastructure

INDUSTRY
Public and Private Sectors in Indian Industrial Development:
Public Sector:
The public sector includes all industrial and commercial firms owned by the
government and administered by the government, either directly or through other
organisations on its behalf.

Role of the public sector in India:

● Filling gaps in the industrial structure to promote rapid economic
development.
● Promoting enough infrastructural facilities to support economic progress.
● Engaging in economic activities in those strategically important
development areas where the private sector could skew the national goal's
spirit.
● Avoiding monopolies and concentration of power in the hands of a few.
● Bridging the gap between the rich and the poor to reduce discrepancies in
income and wealth distribution.

Private Sector:
It refers to businesses that are owned, managed, and controlled by a single person
or a group of people. Because the government has no influence over private firms,

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it cannot intervene in their operations. It is the type of company unit that is run
with the goal of making money.

Role of Private Sector:

● India, as a mixed economy, has placed a high value on the private sector in
order to achieve quick economic development.
● In the fields of industries, trade, and services, the government has assigned
the private sector a distinct function.
● Agriculture and related businesses such as dairy, animal husbandry,
poultry, and so on, which are India's most dominant industry, are
completely controlled by the private sector.
● As a result, the private sector is playing an increasingly vital role in
managing the entire agricultural industry and, as a result, ensuring that
millions of people have access to food.

Industrial Policy Resolution 1956 (IPR 1956):

● The Industrial Policy Resolution of 1956 was passed with the purpose of
the state controlling the economic commanding heights.
● The following industrial strategy goals were set forth in the 1956 resolution
to fasten the industrialisation process.
o Promoting the development of heavy industries.
o To increase the size of the public sector.
o To reduce income and wealth inequality.
o To prevent monopolies and wealth and income concentration in the
hands of a small group of people.

This resolution categorises industries into three groups.

● The first group included industries that would be solely owned by the
government.
● The second group included industries in which the private sector might
assist the public sector's efforts, with the government bearing complete
responsibility for establishing new units.
● The third group included the remaining private-sector industries.

Licensing was also utilised to boost enterprises in underserved areas. Certain

concessions were made to such units, such as tax breaks and lower-cost power.
This policy's goal was to foster regional equity. This contributed to the
diversification of output. The private sector was obliged to seek a licence in order
to create a manufacturing unit, and they also had to obtain a licence in order to
expand their existing firm or enhance their production capacity.

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Small-Scale Industry (SSI):
The Village and Small-Scale Industries Committee, commonly known as the
Karve Committee, stated in 1955 that small-scale industries may be used to
promote rural development.
The maximum investment allowed on a unit's assets is used to define a "small-
scale industry." In 1950, a small-scale industrial unit was defined as one that
invested little more than Rs. 5 lakhs; today, the highest investment authorised is
Rs. 1 crore.

Role of Small-scale Industry:

● Focused on high-intensity labour.
● It relies on self-employment.
● It requires less capital.
● Promotion of exports.
● Large-scale enterprises' seed beds
● Demonstrates flexibility in terms of location.

Issues faced by Small-Scale Industries:

● Financial difficulties.
● Scarcity of raw materials.
● Marketing difficulty.
● Out-of-date machinery and equipment.
● Large-scale industries pose a threat.

TRADE POLICY : IMPORT SUBSTITUTION

Import substitution or trade policy is a policy that aims to replace or substitute
imported goods with domestically produced goods. In India's first seven five-year
plans it was often referred to as an “inward-looking trade strategy.”
● The government's major goal with this strategy was to limit imports and
safeguard native businesses from international competition.
● Tariffs and quotas were used to protect against imports.
a. Tariffs are monetary limits on imported goods in the form of a tax; they
raise the cost of imports and discourage their use.
b. Import quotas are non-monetary or quantitative limitations on the
number of goods that can be imported.
Tariffs and quotas have the effect of restricting imports and so protecting native
businesses from foreign competition.

Foreign Trade:
At the period of independence, raw materials were abundantly exported from
India to Britain, while completed goods from Britain were imported into India.

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Notably, the trade balance was positive.
Following independence, India's foreign trade experienced significant changes,
including:
● A decrease in the percentage share of agricultural exports.
● Increase in the proportion of manufactured items in total exports.
● A shift in the direction of export and import trade.

Effect of Policies on Industrial Development:

The first seven five-year plans had a significant impact on the industrial sector.
The industrial sector's contribution to GDP climbed from 13% in 1950-51 to 24.6
percent in 1990-91. The increase in the industry's share of GDP is a key sign of
progress.
The industrial sector's yearly growth rate of 6% during the time is commendable.
Protection from foreign competition allowed indigenous industries in the
electronics and automobile sectors to emerge that would not have otherwise been
possible. Some industries were privatised, while others remained in the public
sector.

Permit Licence Raj

The requirement for obtaining a licence to start a business was abused by
industrial houses; a large industrialist would seek a licence not to start a new
business, but to prevent competitors from doing so. Excessive regulation, known
as the permit licence raj, stopped certain enterprises from becoming more
efficient.
Hence issues like government licensing, evaluation of the success and extent to
which the public sector fulfils its social objective, competition from foreign
countries, control by the private sector led to the introduction of a new economic
policy in the year 1991.

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