Indian Economy (1950-1990)

2
After independence there is need to Reconstruct the Indian economy.
Therefore, the most important Task before the government of India was
to decide the Type of “Economy system” which would be most suitable for
India.
Economic system refers to an arrangement by which central problems of an
economy are solved.
There are three central problems of an economy:
(i) What to produce? It is the problem related to selection of goods and
services. What good and services are to be produced? In what quantity?
With the help of limited amount of resources.
(ii) How to poduce? It is the problem related to selection of technique of
poduction. In labour intensive used of labour is more whereas in capital
intensive more capital is used.
(iii) For whom to produce? It is the problem related to Distribution of goods
and services. Poducer should offer high quality products at high price to
rich sectors and low quality products at reasonable price to poor sector.

Types of Economy
(i) Capital Economy (Market Economy): It is a type of economy where
the Decision Related to what to produce, how to produce and for whom
to produce are taken by private producers according to market forces of
demand & supply with the objective of profit maximisation.
(ii) Socialist Economy: Here the decision related to what to produce, how
to produce and for whom to produce are taken by government with the
objective of Social welfare.
(iii) Mixed Economy: Here the decision related to what to produce, how to
produce and for whom to produce are taken by both private owners &
government with the objective of profit maximisation & social welfare.
India is adopting mixed economy whereas Hong Kong, Singapore,
Netherlands, Sweden, US are adopting Capitalist Economy.

* Economic Planning
Economic planning means utilistion of country’s resources in different
development activities in all over the country.
To make economic planning effective, the goverment of India set up Planning
Commission in 1950. It has a fixed Planning Period of 5 years i.e. “Five
Years Plans.”
Prime Minister is the Chairman of Planning Commission.

(5)
6 Indian Economic Development

Objectives of Planning Commission to promote a rapid rise in the standard

of living of people, increasing production and offering opportunities to all for
employment in different sector of the economy.
First five year plan launched in 1951. Whereas Planning Commission formed
in March 1950.
1st five year plan 1st April 1951 to 31st March,1956.
12th five year plan (2012-17) was India’s last five year plan.
Plan which is to be achieved over a period of Twenty years is called ‘Perspective
Plan’.
Now, NITI Ayog was replaced the Planning Commission National Institution
of Transforming India formed on 1st Jan. 2015.
Long Term Goals of Five Year Plan
(i) Growth: Growth refers to increase in the production capacity of the
country. So that more goods and services can be produced.
The aim of the govt. is to increase in GDP (Gross domestic product). It
leads to increase in per Capita GDP (availability of goods and services per
person).
GDP is considered as a welfare by increase in GDP welfare of people can
be raised. It also leads to increase in distribution of income.
GDP refers to the market value of all final goods and services produced
in an economy during a fiscal year.
GDP can be increased by improving production capacity, efficient
utilisation of resources, innovative technology, improvement in
infrastructure like Transport, Banking, insurance, communication etc.
Government also promote saving and investment.
(ii) Full Employment: Unemployment is another problem of our economy.
So reduction in unemployment is another objective. Country wants to
attain a situation of full employment.
It is a situation where people are willing to work and able to work they get
work. Without the development of people of a country, growth of economy
is not possible. Focus of government is to reduce both rural and urban
employment. This is an extremely important social objective of planning.
It also reduce the inequalities of income and wealth.
(iii) Modernisation: Modernisation is necessary for improving living standard
of people. Updation of new techology helps in growth process.
Modern age is the age of science and innovations. Green revolution
in Indian agriculture is a well known example of how technology can
transform a country. Modernisation is required in every sector. Technology
in agriculture leads to increase in agricultue produce leads to Attain
Self Sufficiency. Not only in agriculture it requires in transportation,
production, communication, health and insurance, information
technology in education and production process also.
Modernisation also requires change in social outlook, such as gender
empowerment or providing equal rights to women.
INDIAN ECONOMY (1950-1990) 7

(iv) Self-reliance: It means dependence on domesticaly produced goods

particularly on food grains. During British period India was depending
on Britain for finished goods but in five year plans. Many steps are taken
by government to reduce dependency on foreign countries. Through
self sufficiency government can use domestic resources in production
process, provides employment opportunity, reduce foreign interference.
(v) Equity: Economic growth would become a meaningless exercise if the
benefits it accrue to only a handful of people in the society.
It refers to give the benefits of economic prosperity to all sections of the
society living standard of all people should rise.
Equity aims to provide basic needs (food, cloth shelter, education and
health care) to every sections of the society through this the aim of
government is to reduce the inequalities of distribution of wealth.
Here we are taking about equitable distribution not equal distribution.
Equal distribution would mean every individual in the society get the
same share in the country’s National income. It would simply mean that
Doctors, Clerk and every staff gets same salary. This is not possible. Here
we are taking about equitable distribution it means differneces in income
are allowed but within certain limits. Equitable distributioin leads to
development of whole economy.
* Features of Agriculture during 1950-1990
(i) Low level of productivity: Productivity per hectare of land in India
was very low, due to exploitation of farmers in Colinal rule and lack of
technology.
(ii) Depending on Rainfall: In India mostly farmers depended on rainfall.
There was no permanent irrigation facilities (wells and canals).This also
a cause of poor performance in agriculture.
(iii) Disguised unemployment: It is a kind of unemployment in which there
are people who are visibly employed but are actually unemployed. This
situation is also known as Hidden unemployment in such situation more
people are engaged in a work than required. It was high in agriculture
during 1950-1990.
(iv) Subsistence farming: It occurs when farmers grow food crops to feed
themselves and their families. There was no intention to sell those is
market.
(v) Conflicts between owner of the soil (Landlords) and Tenant of the
Soil (Tillers): In British raj due to Zamidari system the condition of
farmers was very poor. Landlords used to extract huge amount of interest
from farmers. In five year plan government tries to remove the conflicts
between owner and Tiller of the soil.
(vi) Fragmented Landholding: Farmers have land but in scattered pieces
in different area out of these few lands were uneconomic due to this
agriculture output was low.
8 Indian Economic Development

* These are the following measures taken by government to promote

growth in agricultue.
1. Land Reforms
Land reforms involves the changing of laws, regulations or customs
regarding land ownership.
In any country, the basic of all economic activity is the land.
In India majority of its population depending on agriculture so there is a
great need for land reforms in India.
These are the following steps taken by the government with regard
to land reforms or institutional reforms.
(i) Abolition of intermediaries: Indian government took various steps to
abolish intermediaries or Zamindar’s and to make tillers, the owners
of land. This has been done with a view to stopping exploitation of the
cultivators by the Zamindars. This leads to increase in output and growth
in agriculture. But even after getting the ownership of land, the poorest
of the agriculture labourers did not benefit from land reforms.
(ii) Regulation of rent: Condition of farmers was very bad due to excessive
and illegal extortions from them in form of rent. So in land reforms rent
have been fixed generally, there is a rule that rent can not be exceed
1/3rd of the value of crop.
(iii) Land ceiling: It refers to fixing the limit of land that any one can owned.
Beyond these specity limit, all lands belong to a particular person would
be taken by the government and alloted the same to landless farmers.
The main aim behind land ceiling is to promote equity so that every
farmer can improved and contribution to agriculture also increased.
(iv) Consolidation of Holdings: People have land but in scattered places. So
government tries to consolidation of holdings and provide them land in
one place.
(v) Co-operative farming: Co-operative farming is encouraged to further
consolidate the gains of consolidation of holdings. This would help small
holders.
Land reforms were successful in Kerala and West bengal because
governments of these states were committed to the policy of land reforms.
Where as other states did not have the same level of commitment.
2. Technical Reforms (Green revolution)
The new agriculture strategy was adopted in India during the third
five year plan i.e. during 1960’s. The Traditional agricultural practices
followed in India were replaced by Modern Technology and Agriculture
Practices.
The aim to raise the agriculture produce through modern inputs and
technology.
INDIAN ECONOMY (1950-1990) 9

These are the following steps taken by the govt. to upgrade the level
of technology in Indian agriculture:
(i) Use of HYV (High Yielding Variety) Seeds: High yielding variety seeds
have replaced the conventional seeds due to HYV seeds relating to wheat,
bajra, rise, jawar, maize and cotton. Productivity rise an organisation is
formed to promote the growth and distribution of HYV seeds. i.e. National
Seeds Corporation.
(ii) Use of chemical fertilizers: To increase producivity government promote
use of chemical fertilizers.
(iii) Use of insecticides and pesticides: To protect the crops against
diseases and insects. Various insecticides and pesticides are introduced,
integrated pest management programme was adopted along with the
adoption of HYV seeds.
(iv) Scientific farm management practices: More focus is on scientific
cultivation instead of conventional method of farming. Scientific methods
are used for selection of crops, quality of seeds, preparation of soil, use
of fertilizers, dry farming practices, etc.
(v) Mechanised means of cultivation: Introduction of machinery in
agriculture like Tractors and Tubewell, government help small farmers
so that they can buy these machineries through commercial banks.
* Important effects of Green Revolution:
(i) Attaining marketable surplus: Now farmers can sell their excess
agriculture produce in market after meeting their own consumption
requirement.
(ii) Buffer stock of food grains: The green revolution enables the government
to procure sufficient amount of food grains to build a stock which could
be used in times of food shortage.
(iii) Benefit to low-income groups: Due to large scale selling of food grain
in market its pricing goes down. Now low income group people can easily
buy food grain for their family consumption. Who earlier spend large
portion of their income on food grains.
(iv) Rise in productivity: A substantial rise in foodgrain production due to
green revolution reforms and use of technology in agriculture.
Industrial Development
Besides agriculture sector industrial sector also provides the job
opportunities to the people of country. So it was necessary to develop the
industrial sector. At the time of independence industries were limited. The
cotton textile and jute industries were mostly developed in India. There
was only two well-managed iron and steel firms : one in Jamshedpur and
the other in Kolkata.
10 Indian Economic Development

Role of Public Sector in Industrial Development

(i) Lack of Capital in Private Sector: Except Tatas & Birla most of private
sector companies have lack of capital. Lack of investment in industrial
sector leads to unemployment and low GDP of the economy.
(ii) Employment Creation: Public sector is playing an important role in
generating employment in the country public sector employment are of
two categories.
(a) employment in government administration, defence and other
government services.
(b) employment in public sector economic enterprises of both centre,
state and local bodies.
(iii) Strong Infrastucture: Without the development of infrastrctural
facilities, economic development is impossible. Public sector investment
on infrastructure sector like power, transportation, communication,
basic, and heavy industries, irrigation, education and technical training
etc. These all are necessary for economic development and these all
are contributed by public sector. Private sector investments are also
depending on these infrastructural facilities developed by public sector
of the country.
(iv) Generation of Income: Public sector in India has been playing a definite
positive role in generation of income in the economy.
(v) Obective of Social Welfare: The objective of equity and social welfare
of the government could be achieved only through direct participation of
the state in the process of Industrialisation.
Industrial Policy Resolution 1956 (IPR 1956)
It is a resolution adopted by the Indian Parliament in April 1956. It was
the first comprehensive statement on industrial development of India.
According to this resolution the objective of the social and economic
policy in India was the establishment of a socialistic pattern of society. It
provided more powers to the government machinery.
Resolution defined three categories of industries:
I. Schedule A
II. Schedule B
III. Schedule C
I. Schedule A: Under this schedule there are 17 industries which are
exclusively owned by the state. Industries like arms and ammunitions,
atomic energy, iron and steel, heavy machinery, mineral oil, coal, aircraft,
oil, railways, shipping etc.
II. Schedule B: Under this schedule there are 12 industries which are state
owned. In which the state would generally set up new enterprises, but
in which private enterprises would be expected only to supplement the
INDIAN ECONOMY (1950-1990) 11

effort of the state industries like fertilizers, aluminium, machine tool,

other mining activities etc.
III. Schedule C: Under this schedule the remaining industries are developed
by the private sector but they have to take license from the government
in order to open new industry or to expand production etc. However now
a days it is easy to obtain license from the government. Government also
provide subsidy and tax benefit to those company who establish their
business in Backward area.
Small Scale Industries (SSI)
These are those industries in which manufacturing, providing services,
productions are done on a small scale. Business of Natkins, tissues,
chocolates, toothpick, water bottles, small toys, papers, pens etc.
Small scale industries play an important role in social and economic
development of India. But investment in small scale industries does not
exceed ` 1 crore.
Role of Small Scale Industry in Indian Economy
(i) Employment Generation: These small scale industries are a major
source of employment in the country. These industries are more labour
intensive due to lack of capital. Hence it generate employment to a large
portion of the workforce after agricutlure.
(ii) Contribution to export: Nearly half of the goods (45-55%) of the goods
that are exported from India are produced by these small enterprises.
So India’s export industry majority relies on these small industries for
their growth and development.
(iii) Welfare of the public: Other than economic reasons, these industies
are also important for the social growth and development of our country.
These industries are usually started by the lower or middle class people.
They have an opportunity to earn wealth and employee other people.
It helps in income distribution.
[Small scale industries must be protected from large and medium scale
industries then only they can survive. So government has taken various
steps to protect them like Tax concessions and reserving few products only
to small scale industries.]
Foreign Trade
Foreign Trade in India includes all imports and exports to and from India.
It is administrated by the Ministry of Commerce and Industry India’s
share in the total World Trade was 1.78% in year 1950.
Trade Policy : Import Substitution
In order to be self reliant in vital sectors, India has followed the strategy
of replacing many imports by domestic production.
Import substitution refers to a policy of replacement or substitution
of imports by domestic production. e.g. industries were encouraged to
12 Indian Economic Development

manufacture vehicles and cars within India itself, instead of having them
imported from foreign countries.
The government aimed to protect domestic production from foreign
competition using this policy. This will save foreign exchange reserve and
economy will achieve self-reliance.
Government also protect domestic producer’s from Imports through:
(i) Tariffs: These are the Taxes levied on imported goods. The main aim is
to discourage the use of foregin goods. Due to imposing heavy duty on
imported goods. These goods become more expensive and import will
reduce.
(ii) Quotas: It refers to fixing maximum limit on the imports of a commodity
by a domestic producer. It restricts the amount of imports. These results
less imports in our economy and now domestic firms or producers could
expand without the fear of competition from the foreign market.