Chapter-2 INDIAN ECONOMY

(1950-1990)

Content of the chapter:

1) planning commission
2) agriculture policy
3) industrial policy
4) foreign trade policy

In order to reconstruct the backward and stagnant Indian

Economy into developed economy, it was important for the
government to decide the type of ‘Economic System’, which
would be most suitable for India.

Economic System refers to an arrangement by which central

problems of an economy are solved.
 Types of Economic System

1. Capitalistic Economy: An economy, in which the means

of production are owned, controlled and operated by
the private sector. Production is done mainly to earn
profits. So, the central problems are solved through the
market forces of demand and supply.

2. Socialist Economy: An economy, in which means of

production are owned, controlled and operated by the
government. So, the central problems are solved in
accordance with needs of the society.

3. Mixed Economy: A system in which the public sector and

the private sector are allocated their respective roles for
solving the central problems of the economy.
 INDIAN ECONOMIC SYSTEM

Some leaders were in favour of socialist economy but in

a democratic country like India, complete dilution of
private ownership was not possible. Jawahar Lal Nehru
did not appeal for Capitalist Economy as there would be
less chance for improvement in quality of life of majority
of people.
As a result, Mixed Economy was adopted by the Indian
Economy.

Economic Planning

It refers to making major economic decisions (What,

how and for whom to produce) by the conscious decision
of a determinate authority, on the basis of a
comprehensive survey of the economy as a whole.
P.C. Mahalonobis is known as the Architect of Indian
Economic Planning.
To make economic planning effective, the government of
India set up Planning Commission in 1950, under the
chairmanship of Prime Minister Jawahar LAl Nehru.
The Planning Commission fixed the planning period at
five years, which began the era of ‘five year plans’.
(Planning commission was replaced by NITI Aayog
(National Institution for Transforming India) on 1st
Jan, 2015)
 Goals of five Year Plans

1st Five Year plan: 1st April, 1951 to 31st March, 1956.

Last Five year plan: !2th Five Year plan (2012-17)

Concept copied from soviet union.

Basic Goals of Five Year plan are:

i. Growth
ii. Modernization
iii. Self-reliance
iv. Equity
Growth

Growth refers to increase in the country’s capacity to

produce the output of goods and services within the country.

A good indicator of economic growth is Gross Domestic

Product (GDP).

GDP refers to market value of all the final goods and

services produced in the country during a period of one year.

By 1990, the share of service sector in GDP rise to 40.59%

.This share was accelerated in the post 1991 period, which
marked the beginning of globalisation.

Modernisation

Modernization includes:

i. Adoption of new technology

ii. Change in social outlook

Self Reliance

To promote economic growth and modernization, the five year

plan stressed on the use of own resources, in order to reduce
our dependence on foreign countries.

Self reliance was necessary because of following reasons:

1. To reduce foreign dependence

2. To avoid foreign interference
Equity

According to equity, every Indian should be able to meet basic

needs (food, house, education and health care) and
inequalities in the distribution of wealth should be reduced.

Achievements of the Goals

Increase in
per capita
National income Progress in
availability of
and per capita Agriculture
consumer goods
income

Development of Increase in saving

economic and capital
infrastructure formation
Industrial Development

Main features of Industrial Policy Resolution, 1956

1) According to IPR 1956, industries were classified into the

following:
a. Schedule A: 17 industries were listed in this category
and were exclusively owned by public sector (state)
like arms, atomic energy, heavy and core industries,
aircraft, oil, railways, shipping etc.
b. Schedule B: 12 industries were listed in this category
for which the public sector will perform the main role
and private sector will supplement efforts of the state
like cotton, textile, fertilizers, aluminium etc.
c. Schedule C: The remaining industries were left for
Private Sector.
2) Private sector Industries could be established through a
license from the state.
3) Tax rebates, ease in availability of license and other
concessions were offered to those private enterprises whose
industry was established in backward region of the country.
4) More importance was given to the development of Small Scale
Industries through subsidies and tax concessions.

Industrial Licensing

An Industrial License is a written permission from the

government, to an industrial unit to manufacture goods.
The Industries (Development and Regulation) Act, 1951,
empowered the govt. to issue licences for:
  Setting up new industries
 Expansion of existing industry
 Diversification of products

Small Scale Industries

 A small-scale industry is defined as a unit having a

fixed investment of a maximum of Rs. 10 crores with
a turnover of a maximum of Rs. 50 crores.
At the beginning of planning (1981), it was
defined as one whose investment did not exceed Rs.
5 lakhs.
 Role of small- scale industries in achieving the
goals of planning was underlined by the Karve
Committee (also known as Village and small-scale
industries Committee) in 1955.

Some important points about SSIs

1. Employment Generation
2. Need for protection from big firms (so
reservations of product and concessions are
given by government)
3. MSME

Role of Public sector in Industrial Development

1. Shortage of capital with private sector

2. Lack of incentives with private sector
3. Objective of social welfare
 Agriculture Sector

Problems of Agriculture Sector

 Low productivity
 Disguised Unemployment
 High dependency on Rainfall
 Subsistence Farming
 Outdated Technology
 Conflicts between Tenant and Landlords
 Small Land Holdings

LAND
REFORMS
POLICIES OF
GROWTH OF
AGRICULTURE
GREEN
REVOLUTION
 Land Reforms

Land Reforms also known as Institutional reforms refer to

change in the ownership of landholdings.

Land reforms were successful in Kerala and West Bengal due to

commitment of the Govt.

Major Reforms in the agriculture were:

 Abolition of Intermediaries
 Land Ceiling
 Consolidation of Landholdings
 Regulation of rent

 Abolition of Intermediaries:

o Govt. took various steps to abolish intermediaries and to

make tillers, the owners of land.
o Idea behind this was to give incentive to the tillers to make
improvement and to increase output.
o This brought 200 lakhs tenants under the direct contact with
the govt.
o However, the goal of equity was not fully served by abolition
of intermediaries because:
1. In some areas, the former Zamindars continued to own
large areas of land by making use of some loopeholes in
the legislation;
2. In some cases, tenants were evicted and zamindars
claimed to be self-cultivators;
 3. Even after getting the ownership of land, the poorest of
the agricultural labourers did not benefit from land
reforms.

 Land Ceiling

 It refers to fixing the specified limit of land, which

could be owned by an individual.
 If any person holds land beyond the prescribed
limit, such land would be taken over by govt. and
will be allotted to landless farmers.
 This helped to promote equity in agricultural sector.

Green Revolution

The new agricultural strategy was adopted during the Third

plan, i.e. during 1960s whose aim was to raise agricultural
production and productivity in selected regions of the country
through the introduction of Fertilizers, credit, marketing
facilities etc.

 Green revolution refers to the large increase in production

of food grains due to use of high yielding variety (HYV)
seeds especially for wheat and rice.
 Dr. Norman E. Borlaug , an American agricultural
scientist, is considered as the ‘Father of the Green
Revolution’ (Awarded Noble peace prize in 1970 for HVY).
In India, it was founded by M.S. Swaminathan.
 India adopted HYV programme for the first time in the
kharif season in 1966.
 In the year 1967-68, food grain production increased by
28.8% more than 1966-67. This success was because of new
agricultural strategy and India became self- sufficient in
the production of food grains.

 HYV Seeds: these were the miracle seeds which increased

the yield by 3 times on an average. Compared to other
seeds, these seeds need heavy doses of chemical fertilizers
to get the largest possible production. Thus, farmers need
financial resources to purchase fertilizers and pesticides
and also reliable irrigation facilities.

 Green Revolution was implemented in two phases :

• Mid 60s to Mid 70s

• use of HYV seeds was restricted to more affluent states like
Punjab, Andhra Pradesh, Tamil Nadu etc.
first phase • benefited wheat growing regions only

• Mid 70s to Mid 80s

• use of HYV seeds spread to large number of states
Second • benefited more variety of crops
Phase
 Advantages of Green Revolution

India has become self- sufficient in food grains. India was

no longer dependent on America or any other country.
1. Marketable Surplus: It means it means that part of
agriculture produce which is sold in the market by the
farmers after meeting their own requirement. Green
Revolution resulted in marketable surplus.
2. Buffer stock of food Grains: Due to Green Revolution
govt. was able to maintain sufficient stock of food
grains which could be used in times of food shortage.
3. Benefit to low income group: Due to large production
of food grains their prices declined. So, the low
income groups who spend large portion of income on
food were benefited.

Disadvantages / Risks of Green Revolution

 Risk of pest attack

 Risk of Increase in Income Inequalities (as HYV
seeds were costly and could be afforded by big
farmers only).
 Debate over subsidies to Agriculture

Subsidy in agriculture means that farmers get inputs at prices

lower than the market prices.

ECONOMISTS IN ECONOMISTS
FAVOUR OF AGAINTS
SUBSIDIES SUBSIDIES
Agriculture is Huge burden
still a Risky on govt.
Business Finances

The majority
of Farmers are Subsidies do
very poor not benefit
poor farmers
as benefit
Eliminating would go to
subsidies will fertilizer
increase industry and
income wealthy
inequalities farmers

Critical Appraisal of Agriculture Development (1950-

1990)

 Land Reforms and green revolution were the major

achievements.
 There has been substantial increase in the agricultural
productivity.
  Proportion of GDP contributed by agriculture declined but
not the population depending on it (around 65%
population employed in agriculture till 1990).

Foreign Trade

Import substitution

It refers to a policy of replacement of imports by domestic

production.

Basic aim of this policy was

 To protect domestic industries from foreign competition;

 Saving of foreign exchange;
 Achieving self-reliance.

Govt. made use of two ways to protect goods produced in India:

1. Tariffs: It refers to taxes levied on imports.

Heavy taxes were imposed on imported goods to
make them expensive and discourage their use.
2. Quotas: It is a non-tariff barrier in which a
maximum limit is fixed on import of a
commodity by a domestic producer.
 IMPORTANT DATES

Year Event
1948 First Industrial policy Resolution
1950 Setting up of planning commission
1951 Launch of 1st five year Plan
1951 Industries (Development and
Regulation) Act
1955 Karve Committee or Village & small-
scale Industries Committee
constituted
1st April,1951 to 31st March, Duration of First Five year plan
1956
30th April, 1956 Second Industrial Policy Resolution
1966 First phase of Green revolution
1991 New Economic Policy
2015 Planning commission replaced by
NITI Aayog