Chapter 2

Chapter 2
Indian Economy (1950-1990)
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Economic System
• The production and consumption of goods and services are
used to fulfil the needs of those living and operating within
the economy is referred to as an economic system. The
leaders of independent India had to decide, among other
things, the type of economic system most suitable for our
nation, a system which would promote the welfare of all
rather than a few.
• There are different types of economic systems- Capitalist,

Socialist
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& Mixed
• Capitalist Economic System: In a capitalist society the goods produced are distributed
among people not based on what people need but based on Purchasing Power. Low cost
housing for the poor is much needed but will not count as demand in the market sense
because the poor do not have the purchasing power to back the demand. As a result, this
commodity will not be produced and supplied as per market forces. Such a society did
not appeal to Jawaharlal Nehru.
• Socialist Economic System: In a socialist society the government decides what goods are
to be produced in accordance with the needs of society. It is assumed that the
government knows what is good for the people of the country. In principle, distribution
under socialism is supposed to be based on what people need and not on what they can
afford to purchase. For example, a socialist nation provides free health care to all its
citizens. Strictly, a socialist society has no private property since everything is owned by
the state. In Cuba and China, for example, most of the economic activities are governed
by the socialistic principles.
• Mixed Economic System: Most economies are mixed economies, i.e. the government and
the market together answer the three questions of what to produce, how to produce and
how to distribute what is produced. In a mixed economy, the market will provide
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whatever goods and services it can produce well, and the government will provide
essential goods and services which the market falls to do.
Why did India adopt Mixed Economic
System?
→The socialism appealed to Jawaharlal Nehru the most. However, he
was not in favor of the kind of socialism established in the former
Soviet Union where all the means of production, i.e. all the factories
and farms in the country, were owned by the government. There was
no private property.
→So, Nehru, and many other leaders and thinkers of the newly
independent India adopted Mixed Economic System. The leaders of
independent India had to decide, among other things, the type of
economic system most suitable for our nation, a system which would
promote the welfare of all rather than a few.
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Economic Planning
“Economic planning means planned coordination and utilization of
available resources in an economy to achieve certain pre-specified
social and economic objectives in a time bound program”
• NITI Aayog (National Institute for Transforming India) was

established in the year 2015 which is responsible for doing Economic
planning in India for 15-year long term vision plan (roadmap),
accompanied by a 7-year strategy plan and a 3-year action plan.
• Formally, Planning Commission of India was responsible for 5-year &

20-year plans which began planning from 1951 & discontinued in
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Economic Plan/ Plan
An Economic plan spells out how the resources of a nation should be
put to best possible use. It should have some general goals as well as
specific objectives which are to be achieved within a specified period.
In India plans were made for five years duration and are were called
five-year plans. Our plan documents not only specified the objectives
to be attained in the five years of a plan but also what is to be
achieved over a period of twenty years. This long-term plan was
called ‘perspective plan’. The five-year plans were supposed to
provide the basis for the perspective plan.
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Directive and Comprehensive Planning
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Directive Planning
It refers to a system in which planning is introduced just to direct the
forces of supply and demand, so that the system does not go
wayward from the state of equilibrium.
→In such a planning there is no direct participation of the state in the
process of growth.
→It is more like directing the private sector with regard to a set of
do’s and don’ts, so that the national interest does not suffer while
individual gains are allowed to be maximised.
→Directive planning is pursued in capitalist economies.
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Comprehensive Planning
It refers to a system in which govt. itself participates in the process of
growth and development.
→Comprehensive planning is pursued in socialist economies as well
as mixed economies.
→In case of mixed economies (like India), both private and public
sectors co-exist as agents of growth.
→While Individual gains are allowed to be maximised as under
capitalism, social gains (or collective gains) are fostered through
direct participation of the state as under socialism.
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Differentiate between 5-year plan
and perspective plan
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Basis Perspective Plan Five-Year Plan
1. Duration They are long term objectives to They are objectives to be
be achieved in over 20-year achieved in short-term of
period. 5 years.
2. Purpose They are general goals. They are specific goals.
3. Aim They aim at structural changes. They aim at quantitative
changes.
4. Other Name Planning Objectives Plan Objectives
5. Objectives Their objectives relate to growth, They are different in
modernization, self-reliance and different five-year plans.
equity. Basically, the objectives
relate to growth and
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Important facts about 5 year plans in India
• Planning Commission (authority which was established for
designing Perspective & 5-year plans) was established in
the year 1950.
• 1st Five-Year Plan- 1951-1956 (under Harrod–Domar
model with few modifications, model focused on
Agricultural development)
• 2nd Five-Year Plan- 1956-1961 (under Mahalanobis model,
model focused on Industrial development)
• Last Five-Year Plan- 2012-2017 (it wasn’t completed as
Planning Commission was abolished in the year 2015). It
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was 12th five year plan.
Common goals/objectives of every 5-year plan
• Growth
• Equity
• Modernisation
• Self-Reliance
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1. Growth
It is an increase in aggregate output of goods and services in a
country in given period. It implies sustained expansion in economic
activities including- trade, agriculture, industry etc. over a long period
of time. When an economy attains such a stage of growth, it does not
require the assistance of external agencies. The indicator of economic
growth is mainly GDP. The contribution made by each sector of an
economy gives the structural composition of an economy. By 1990,
the share of the service sector was 40.59%, more than that of
agriculture or industry.
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2. Equity
It refers to reduction in inequality of income or wealth, uplifting
weaker sections of the society and a more even distribution of
economic power. The socialist pattern of our economy focuses on
raising the standards of living of all people and promoting social
justice by reducing inequalities of income and wealth. It is highly
important to ensure that benefits of economic prosperity are availed
by all sections (rich as well as poor) of the economy. Every Indian
should be able to basic needs (food, house, education and health
care).
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3. Modernization
It refers to adoption of new technology, new methods of production
and changes in living style of people in domestic territory. For e.g.
adaptation of HYV seeds, women empowerment etc. It implies use of
advanced technology. Advanced technology requires less labor per
unit of output. It leads to unemployment. Modernization also
requires change in social outlook such as gender equality or providing
equal rights to women.
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4. Self-reliance
It means reducing dependence on imports of those goods which can
be produced within the country itself. Every country wants to achieve
self-reliance since dependence on imports for necessary goods invites
foreign interference in domestic policies. India wanted to be self-
reliant, which means it wants:
• Self-sufficiency in food grains.
• Rise in exports.
• Rise in GDP.
• Reduction in foreign dependence.
• Avoid foreign interference
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Features of Economic Policy pursued
under Planning till 1991
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1. Heavy reliance on Public Sector
Economic policy prior to 1991 indicated heavy reliance on public
sector. Thus, in Industrial Policy Resolution, 1956; as many as 17
industries were reserved for public sector as against 12 industries
earmarked for private sector. It was realised that the objective of
socialistic pattern of society could be achieved only through a
comprehensive development of public sector enterprises.
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2. Regulated development of private sector
According to Industrial Development and Regulation Act 1948; new
industry in the private sector could not be established without a
licence and registration. Similarly, MRTP Act, 1969 placed a several
restrictions on the expansion of existing industries in the private
sector.
Regulated development of private sector was to ensure that there
was no concentration of economic power in the private banks.
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3. Protection of small-scale industry and
regulation of large-scale industry
Large scale industry was regulated through several acts, particularly
MRTP Act.
Small scale industries, on the other hand; was offered protection
from competition: certain areas of production were exclusively
reserved for the small-scale industries. Besides; Financial institutions
were developed to cater to the needs of small-scale industries.
Several boards (like Handloom Board and Silk Board) were
established to promote the products of small-scale industries in the
global market.
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4. Protection from foreign competition
Domestic industries were protected from foreign competition. High
import duties and quantitative restrictions were levied on imports.
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5. Focus on Import Substitution
It implied domestic production of goods which were imported from
abroad. The basic idea was to save foreign exchange, and become
self-sufficient.
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Features of Economic Planning before 1991
F-SIPP
i) Protection from Foreign Competition
ii) Protection of Small Scale Industries and regulation of large scale
industries
iii) Focus on Import Substitution
iv) Regulated development of Private sector
v) Heavy reliance on Public Sector
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Success (Achievements) of planning
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1. Increase in National Income
It indicates Economic Growth. During the period prior to planning,
national income indicates increased at the rate of just 0.5% per
annum. Indian economy was, therefore a stagnant economy. Increase
in national income during the First five year plan was 4.6% per annum
against the target of 2.1% per annum. However, in most of the plans
we failed to achieve the targeted rate growth. Yet, a deadlock was
broken, the deadlock of economic stagnation that had gripped the
Indian Economy prior Independence.
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2. Increase in Per capita income
Over time, per capita income has recorded a significant rise. Here,
following observations needed to be noted:
→During the period prior to planning, rate of increase in per capita
income had only been notional.
→During the period of planning, initially the pace of growth was
slow, just 2.7% during the first plan. But, it picked up subsequently.
→In 2016-17, rate of increase in per capita income was 5.7% per
annum.
Increase in per capita income is a significant achievement as it implies
greater availability of goods and services per head of a population of
the country. However, this doesn’t show any promise of a rise in the
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institute of life of each and every individual in the economy.
3. Institutional and Technical change in
agriculture
Five year plans have contributed to the development of agriculture in
2 ways – i) through land reforms and ii) through improvement in
technology.
i) Land reforms included abolition of intermediaries, moderation
and regulation of rents, ceiling on land holdings etc.
ii) Improvement in technology (particularly HYV seeds) led to
revolutionary rise in agricultural output and productivity. Self-
sufficiency in food grains was the hallmark of this change.
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4. Growth and Diversification of Industry
Five year plans gave a big push to the basic and capital goods
industries (iron and steel machinery, chemical fertilizers etc.).
Following points bring out this fact:
→During the planning period, growth rate of industrial production
has been around 7% per annum.
→Consumer goods industries have substantially grown to achieve the
level of self-sufficiency.
→Indian economy is now ranked as the 10th largest industrial
economy in the world.
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5. Economic Infrastructure
Means of transport and communication, irrigation facilities and
power generation capacity, banking and insurance facilities are the
key elements of economic infrastructure. During planning, economic
infrastructure has recorded a significant growth. Here are a few
examples: -
→Indian railways has become one of the world’s largest railways
network.
→Installed power generation capacity which was 2,300 MW in 1950-
51, increased to 3,30,861 MW in 2017.
→A revolutionary growth in IT sector has earned India the distinction
of a global player in the international market.
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6. Social Infrastructure
Health and Educational facilities are the key parameters of social
infrastructure. These have recorded a significant rise over time. It is
owing to expansion of health facilities that:
→Death rate has come down to 6.4 per thousand in 2016 from 27 per
thousand in 1951.
→Average life-expectancy has risen from 32 years in 1951 to 68.3
years in 2015
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Success (Achievements) of Planning
PINGES
i) Increase in Per Capita Income
ii) Institutional and Technical changes in agriculture
iii) Increase in National income
iv) Growth and Diversification of industry
v) Economic Infrastructure
vi) Social Infrastructure
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Failures of Planning in India
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1. Abject Poverty
Alleviation of poverty was the central theme of planning. In India,
21.9% of population still lives below the poverty line. These are those
people who are not getting even the essentials of life (food, shelter
and clothing). Amazingly, nearly 50% of those who are absolutely
poor in the world are living in India.
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2. High rate of inflation
By and large, we have failed to tackle inflationary spiral in the
economy. Because of high rate of inflation during Five Year Plans, real
income of the people has tended to erode. Also, economic divide
between haves and have not’s has tended to rise. First plan was the
only exceptional plan where the price level got down, in all other
plans, the price levels recorded a steep rise.
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3. Unemployment crisis
While more and more opportunities of employment have been
generated, challenge of unemployment has not subsided. At the end
of First Plan, 53 lakh persons were unemployed. This number rose to
over 4 crore at the end of 11th five year plan. This is emerging as a
serious cause of social unrest threatening the process of growth.
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4. Inadequate infrastructure
Development of infrastructure (including power, roads, dams,
bridges, schools, colleges and hospitals) continues to be inadequate
despite 67 years of planning. Consequently, actual growth has failed
to match the targets of growth. Particularly, shortage of power has
been a serious constraint in the overall process of growth and
development.
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Failures of Five year plans in India
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i) Unemployment crises
ii) Abject Poverty
iii) High rate of Inflation
iv) Inadequate infrastructure
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Agriculture (1950-1990)
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Importance of Agriculture in the Indian Economy
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1. Contribution to GDP
Agriculture makes a significant contribution to GDP in India. During
the period of planning, contribution of agriculture sector to GDP has
been ranging between 51 to 17.4% for different years. It has tended
to decline over time, from as high as 51% in 1950-51 to 17.4% in
2016-17. However, the decline (in percentage contribution of
agriculture to GDP) does not indicate the decline in importance of
agriculture in the economy. It only indicates the relatively faster
growth of secondary and tertiary sectors of the economy.
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2. Sources of Employment
In India, agriculture is a significant source of employment. Over 50%
of working population in India is engaged in agriculture sector.
Implying that agriculture is the principle source of subsistence for the
people in India
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3. Supply of raw material
Agriculture supplies industrial raw material like cotton for the textile
industry, seeds for the oil industry and sugarcane for the sugar mills.
As a supplier of raw material, agriculture sector is of primary
significance for the growth of the industrial sector in the economy.
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4. Contribution to international trade
Agriculture makes a significant contribution to India’s international
trade. India exports tea, jute, cashew nuts, tobacco, coffee and spices.
Exports are a source of foreign exchange, which India needs for the
import of defence goods as well as crude oil.
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5. Contribution to domestic trade
Agriculture also plays a significant role in the country’s domestic
trade. This is borne out by the fact that huge expenditure in India is
incurred on the purchase of farm products needed by more than a
billion people in the country.
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Importance of Agriculture in India
E-GRID
i) Contribution to Economic Grid
ii) Contribution to GDP
iii) Supply of Raw material
iv) Contribution to International trade
v) Contribution to Domestic trade
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Features of Indian Agriculture
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1. Low productivity
Productivity means output per hectare of land. It is extremely low in
India compared to advanced nations in the world. Low productivity is
a sign of backwardness. Since agricultural sector generates demand
for the industrial sector, backwardness of the agriculture implies slow
growth of the industry.
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2. Disguised unemployment
Disguised unemployment is a situation of hidden unemployment. It
occurs when the number of persons engaged on a piece of land is
much higher than what is actually needed. So, apparently all are
unemployed. But, in reality; many are unemployed. Even when some
are withdrawn, total output will not fall.
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3. Dependence on rainfall
Agriculture in India is heavily dependent on rainfall. Accordingly, crop
production is highly uncertain. Good rainfall means good crop and
bad rainfall means bad crop. Volatile farm output leads to volatile
farm incomes. Consequently, growth process fails to be stable.
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4. Subsistence farming
Farming in India is subsistence-oriented. It means the primary
objective of the farmer is to secure subsistence for his family; it is not
to earn profits. It implies that farming in India is not much
commercial in nature. Subsistence agriculture fails to generate
surplus for investment. It leads to stagnation in agriculture.
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5. Lack of modern inputs
Modern inputs like chemical fertilizers, insecticides and pesticides are
not judiciously used. It is owing to poverty of the bulk of farming
population in India. It leads to low productivity and therefore,
backwardness.
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6. Backward technology
Because, bulk of the farms in India are small in size and bulk of the
farming population is poor; use of backward technology becomes a
compulsive choice. We find heavy reliance of cultivators on cattle-
power and manpower rather than on the modern equipment like
tractors and harvester-machines. Consequently, productivity remains
low.
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Features of Indian Agriculture
STD-RPM
i) Subsistence farming
ii) Backward Technology
iii) Disguised unemployment
iv) Dependent on Rainfall
v) Low Productivity
vi) Lack of Modern inputs
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Problem of Indian Agriculture
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1. Lack of permanent means of irrigation
Crop farming in India is heavily dependent on rainfall. Permanent
means of irrigation are extremely deficient. Dependence on rainwater
makes Indian agriculture extremely vulnerable; good rainfall brings
good harvest, while droughts cause a substantial loss of output.
Stability in agricultural output requires that permanent means of
irrigation are developed across all parts of the country.
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2. Deficiency of finance
It is another major problem in Indian agriculture. For bulk of their
financial needs, the small farmers depend upon non-institutional
sources, including moneylenders and the landlords. They charge very
high rate of interest. Institutional finance is extremely scarce in
relation to needs of the farmers. Lack of finance hinders growth of
Indian agriculture.
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3. Small and scattered holdings
Holdings in India are not only small, but scattered as well. Small
holdings do not allow the use of modern technology. Scattered
holdings increase the cost of management. This contributes to
backwardness of farming and poverty of the farmers.
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4. Exploitative Agrarian Relations
It refers to the business relations between landlords and tenants.
Most of the landlords exploit their tenants by way of high rents and
related charges. Having paid exorbitant rents to the landlords, the
tillers of the soil are left with little surplus for further investment.
Accordingly, land continues to be used as a source of subsistence
rather than a source of business profits.
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5. Conventional outlook
Conventional outlook towards farming is yet another problem of
Indian agriculture. Despite, innovative farming technology and farm
management practices, Indian farmer continues to rely on
conventional wisdom. He continues to consider farming more as a
means of subsistence and less as a business venture.
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Problem of Agriculture in India
CP-FES
i) Conventional outlook
ii) Lack of Permanent means of Irrigation
iii) Deficiency of Finance
iv) Exploitative agrarian relations
v) Small and scattered holdings
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Agrarian Reforms
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Agrarian Reforms
2. Institutional
1. Technical Reforms 3. General Reforms
Reforms
Abolition of Expansion of
Use of HYV Seeds
intermediaries irrigation facilities
Use of Chemical
Regulation of rent Provision of credit
Fertilizers
Consolidation of
Use of Insecticides Regulated markets
holdings
Scientific farm Ceiling on land

management holdings
Price Support Policy
practices
Cooperative farming
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Technical Reforms
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1. Use of HYV seeds
Since Mid 1960s, HYV seeds have replaced the conventional varieties.
HYV seeds (Especially relating to wheat, bajra, rice, maize, jowar and
cotton) have led to a substantial rise in crop productivity. This
breakthrough is popularly known as Green revolution. National seeds
Corporation has been set up to promote the growth and distribution
of HYV seeds. In 2015-16, nearly 304 lakh quintals of certified seeds
were distributed among farmers in different parts of the country.
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2. Use of chemical fertilizers
Chemical fertilizers are being increasingly used to enhance
productivity. Use of chemical fertilizers has considerably increased
over time. In 2015-16, nearly 267.5 lakh tonnes of chemical fertilizers
were used.
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3. Use of insecticides and pesticides for crop
production
Steps have been initiated to protect crops against diseases and insects
by using insecticides and pesticides. For plant protection, Integrated
Pest Management Programme was adopted along with the adoption
of HYV technology.
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4. Scientific Farm Management Practices
Scientific methods of farming relate to selection of crops and their
quality, preparation of soil, rotation of crops, selection of seeds and
use of fertilizers besides others. In this connection, Intensive
Agriculture Area programme has been introduced. Also, Integrated
Rural Development Programme has been launched to speed up the
process of growth in agriculture.
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Institutional Reforms or Land Reforms
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1. Abolition of intermediaries
Intermediaries (between the state and the actual tiller of the soil),
popularly known as Zamindars who collected rent from the actual tillers
of the soil without contributing towards improvements on the farm. The
low productivity of the agricultural sector forced India to import food
from the United States of America (USA)
• → Just an year after independence, steps were taken to abolish
intermediaries and to make the tillers the owners of land.
• → The idea behind this move was that ownership of land would give
incentives to the tillers to invest in making improvements provided
enough capital was made available to them.
• →The abolition of intermediaries meant that some 200 lakh tenants
came into direct contact with the government — they were thus freed
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2. Regulation of Rent
To put an end to excessive and illegal extortions from the cultivators,
rents have been fixed. Generally, these are not to exceed 1/3rd of the
value of crop.
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3. Consolidation of Holdings
With a view to reducing fragmentation, steps have been initiated for
the consolidation of holdings. Consolidation is a practice to allot land
to the farmer at one place as a replacement for his scattered holdings
here and there. It saves the cost by cultivation. By 2004, more than
1,633 lakh hectares of land was brought under consolidated holdings.
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4. Ceiling of land holdings
Land ceiling was another policy to promote equity in the agricultural
sector. This 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.
The surplus land (over and above the ceiling limit) has been resumed
by the govt. and redistributed among small holders or landless
labourers.
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5. Cooperative farming
It is encouraged to enhance bargaining power of the small holders.
Together they can buy inputs at a lower price and sell their produce at
a higher price.
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General Reforms
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1. Expansion of irrigation facilities
With a view to raising productivity in agriculture, irrigation facilities

have been expanded. Several major and minor irrigation projects
have been launched across different parts of the country. In 1951,
barely 17% of land was under permanent means of irrigation.
Now, irrigation is covering about 45% of land under cultivation.
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2. Provision of Credit
Cooperative credit societies have been set-up to provide credit to the
farmers at low rate of interest. Also, Rural Development Banks have
been established to cater credit needs of the farmers. Commercial
banks have also been catering to credit needs of the farmers. These
banks provide about 72% of total institutional credit. Regional rural
banks have been established to further enhance credit facilities to the
farmers. In 1982, National Bank for Agriculture and Rural
Development (NABARD) was established to institutionalise credit
facilities to the farmers at the national level.
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3. Regulated Markets and Cooperative
marketing societies
Regulated markets have been established across all parts of the
country. This is with a view to offering remunerative price to the
farmers and protect them against exploitation by the middlemen.
These markets are governed by the market committees appointed by
the govt.
These committees ensure timely payment to the farmers, and also
ensure that only specified weights and measures are used to weigh
and value the farmer’s produce. Cooperative marketing societies have
been established to enhance bargaining power of the farmers in the
markets.
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4. Price Support Policy
Under this policy, govt. assures a minimum support price (MSP) to the
farmer for his produce so as to protect him against uncertainties of
the market. The govt. is committed to buy the surplus produce of the
farmer at the minimum support price when the market price is lower
than that.
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Problems associated with Abolition of
intermediaries & Land Ceiling
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Problem that was associated with Abolition
of intermediaries
Land reforms were successful in Kerala and West Bengal because
these states had governments committed to the policy of land to the
tiller. Unfortunately, other states did not have the same level of
commitment and vast inequality in landholding continues to this day.
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Problem that was associated with Land
Ceiling
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 from the legislation. The legislation also
had a lot of loopholes which were exploited by the big landholders to
retain their land.
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Name the major Agrarian Reforms
- Abolition of Intermediaries
- Land Ceiling
- Green Revolution
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Green Revolution
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Meaning
Green revolution was the phase of large increase in crop production by the
use of artificial fertilizers, pesticides, and high-yield variety seeds.
• At independence, about 75 per cent of the country’s population was
dependent on agriculture. Productivity in the agricultural sector was very
low because of the use of old technology and the absence of required
infrastructure for most farmers. → The stagnation in agriculture during
the colonial rule was permanently broken by the green revolution (two
phases- Mid 1960s & Mid 1970s). This refers to the large increase in
production of food grains resulting from the use of high yielding variety
(HYV) seeds especially for wheat and rice.
• →The use of these seeds required the use of fertiliser and pesticide in
the correct quantities as well as regular supply of water; the application
of these inputs in correct proportions is vital.
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Green Revolution in India happened in two phases – Mid 60s (1965-1975) & Mid
70s (1975-1985).
The first phase was restricted to few states and only 2 crops- Wheat & Rice. Since
the best results were shown by wheat, the green revolution of this phase is also
known as “Wheat Revolution”.
The second phase was successful in more parts of India and more crops.
Initially, the new technology was tried in seven districts and was called Intensive
Agriculture District Program (IADP). Later, the High-Yielding Variety Program
(HYVP) was also added and the strategy extended to entire country. The demand
for Green Revolution arose because demand for seeds by farmers exceeded the
supply. The Green revolution was restricted to 5 crops: -
• Wheat
• Rice
• Bajra
• Maize
• Jowar
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Achievements
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1. Rise in production and productivity
Green Revolution helped in removing continuing food shortages. HYV
output was restricted to only five crops namely wheat, rice, jowar,
bajra and maize. Commercial crops were excluded from the ambit of
the new strategy. Substantial increase in wheat production was
noticed.
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2. Increase in Income
Since the green revolution was limited to wheat and rice for several
years, its benefits were enjoyed by wheat and rice growing areas of
Punjab, Haryana, Western UP and Andhra Pradesh.
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3. Rise in commercial farming
With green revolution and announcement of minimum support price,
subsistence farming was completely transformed into commercial
farming i.e. for sale in the market
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4. Impact on social revolution
Along with economic revolution there was a social revolution. The old
social beliefs and customs were destroyed, and people were willing to
accept changes in technology, seeds and fertilizers. The traditional
methods of farming were transformed into modern methods of
farming.
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5. Increase in employment
Green Revolution solved the problem of seasonal unemployment to a
great extent because with the possibility of growing more than one
crop on a piece of land, more working hands were needed throughout
the year. Also, package inputs required better irrigation facilities
which raised the employment rate.
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Problems
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1. More inequality among farmers (Inter-
personal inequalities)
The new technology requires a huge amount of investment which can
be only, afforded by the big farmers. Hence, these farmers are getting
the absolute benefits of the green revolution and became
comparatively richer than farmers. This increased inequality in rural
India.
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2. Regional inequality
Benefits of the new technology remained concentrated in wheat
growing area since green revolution remained limited to wheat for
several years. These were thy regions of Punjab, Haryana and
Western Uttar Pradesh. On account of the above reasons new
agricultural strategy has led to an increase in regional inequalities.
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3. Undesirable Social Consequences
Some micro level socio-economic studies of green revolution areas
have revealed certain undesirable social consequences of the green
revolution. Many large farmers have evicted tenants as they now find
it more profitable to cultivate land themselves.
Thus, many tenants and sharecroppers have lost their lands and have
been forced to join the ranks of agricultural labourers. Wet lands have
also attracted outsiders (non-agriculturists from nearby towns to
invest capital in buying farms.
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4. The Question of Labour Absorption
There is a consensus that the adoption of new technology had
reduced labour absorption in agriculture. The uneven regional growth
was mainly responsible for the low absorption of labour within
agriculture. The growth of output was also slow to generate adequate
employment opportunities. The sudden rise in the demand for labour
in these areas induced mechanisation and labour-saving practices in
general.
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Marketable Surplus
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The portion of agricultural produce which is sold in the market by the
farmers is called marketed surplus. A good proportion of the rice and
wheat produced during the green revolution period (available as
marketed surplus) was sold by the farmers in the market.
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Risks which were involved under Green
Revolution
• Risk of pest attack: The HYV crops were more prone to attack by
pests. So, there was a risk that small farmers who adopted this
technology could lose everything in a pest attack. However, this
risk was considerably reduced by the services rendered by research
institutes established by the govt.
• Risk of increase in income inequalities: There was a risk that costly
inputs (HYV seeds, fertilizers etc.) required under green revolution
will increase the disparities between small and big farmers since
only the big farmers could afford the required inputs. However,
govt. provided loans at a low interest rate to small farmers so that
they could also have access to the needed inputs.
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What is meant by subsidies? What do they
mean in context of agriculture
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• Subsidy is an economic benefit direct or indirect, granted by
a govt. to domestic producers of goods or services, often to
strengthen their competitive position against foreign
companies.
• Subsidies in context of agriculture, means that the farmers

get inputs at prices lower than the market prices.
• In future, there is a scope of improving the resources use
efficiency by reducing subsidies and aiming them better to
small farmers and regions lagging.
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Economists in favour of subsidies: -
• The govt. should continue with agriculture subsidies as farming in
India continues to be a risky business.
• Majority of farmers are very poor, and they will not be able to
afford the required inputs without subsidies.
• Eliminating subsidies will increase the income inequality between
rich and poor farmers.
Economists against subsidies: -

• Some economists believe subsidies acted as grants for adoption of
HYV technology. So after the wide acceptance of technology,
subsidies should be phased out as their main purpose has been
served already.
• Subsidies do not benefit the poor and small farmers as benefits of
substantial amount of subsidy go to fertilizer industry and
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prosperous farmers.
Industrial Sector Reforms in India (1950-1990)
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“Public Sector is meant for Public welfare
rather than profit maximisation”. Comment
Public sector is not meant for earning profits but to promote the
welfare of the nation. The public sector firms, on this view, should be
evaluated based on the extent to which they contribute to the
welfare of people and not on the profits they earn
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a) Public and Private Sectors in Indian
Industrial Development
b) Industrial Policy Resolution 1956 (IPR 1956)
c) Small-Scale Industry (SSI)
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a) Public and Private Sectors in Indian
Industrial Development
At the time of independence, Indian industrialists did not have the
capital to undertake investment in industrial ventures required for
the development of our economy; nor was the market big enough to
encourage industrialists to undertake major projects even if they had
the capital to do so. It is principally for these reasons that the state
had to play an extensive role in promoting the industrial sector.
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b) Industrial Policy Resolution 1956 (IPR 1956)
This resolution formed the basis of the Second Five Year Plan, the
plan which tried to build the basis for a socialist pattern of society.
Main features of IPR, 1956: -

i) Three-fold classification of industries
ii) Industrial licensing
iii) Industrial concessions
-{These are discussed in next slides}

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Three-fold classification of industries
Classification of
Industries
Schedule A Schedule B Schedule C

(Comprising of 12 (Comprises of
(Comprising of 17
industries, which remaining industries
Industries Exclusively were to be in private
would be progressively
Owned by state) sector)
state-owned)
• Industries whose future development would be the exclusive responsibility of the state. 17
such industries were listed in Schedule “A’ which included defence industries, heavy industries
like steel, machinery, heavy electrical, mining industries, energy and power.
• Industries in which the state would increasingly establish new units but private sector units
would be allowed to expand existing units and set up new units. 12 industries were included in
Schedule “B”. These were machine tools, fertilizers, drugs and pharmaceuticals, synthetic
rubber etc.
• Other residual industries were left open to the private sector. In this category, the state had the
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power to start any new undertaking in public interest.
Industrial licensing
Govt. didn’t allow industry to operate without acquisition of license
for establishing new industry, expanding existing industry &
diversifying existing industry. This policy was used for promoting
industry in backward regions as it was easier to obtain a license if the
industrial unit was established in an economically backward area.
License to expand production was given only if the government was
convinced that the economy required a larger quantity of goods.
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Industrial concessions
Tax concessions for industries that were established in backward
regions - such units were given certain concessions such as tax
benefits (subsidies, tax holiday etc.) and electricity at a lower tariff.
The purpose of this policy was to promote regional equality
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c) Small-scale industries
In 1955, the Village and Small-Scale Industries Committee, also called
the Karve Committee, noted the possibility of using small-scale
industries for promoting rural development. A ‘small-scale industry’ is
defined with reference to the maximum investment allowed on the
assets of a unit. This limit has changed over a period. In 1950 a small -
scale industrial unit was one which invested a maximum of rupees
five lakh; at present the maximum investment allowed is rupees ten
crore. They were given concessions such as lower excise duty and
bank loans at lower interest rates.
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Benefits of SSIs to the society
Or
Characteristics of SSI
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• Labour Intensive: SSI’s are labour intensive in character i.e. they
require more units of labour and are best suited for solving the
problem of unemployment.
• Equal Distribution of income: SSI’s bring about decentralization of
industries and, thus promote the objective of regional
development. SSIs are given concessions such as lower excise duty
and bank loans at lower interest rates.
• Less capital intensive: SSI’s are less capital intensive i.e. they
require relatively smaller amount of capital to produce a
commodity. In a country like India where capital is scarce. SSI is
best suited to bring about industrial development.
• Export promotion: SSI’s offer vast opportunities for export
promotion. These goods are in great demand in advance countries.
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Benefits of Industrial Development during
1950-1990 in India
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i) Increase in GDP: The proportion of GDP contributed by the industrial
sector increased in the period from 11.8 per cent in 1950-51 to 24.6 per
cent in 1990-91. The rise in the industry’s share of GDP is an important
indicator of development.
ii) Diversification of Industries: No longer was Indian industry restricted

largely to cotton textiles and jute; in fact, the industrial sector became well
diversified by 1990, largely due to the public sector
iii) Ease in establishing SSI: The promotion of small-scale industries gave

opportunities to those people who did not have the capital to start large
firms to get into business.
iv) Development of indigenous industries: Protection from foreign

competition enabled the development of indigenous industries in the areas
of electronics and automobile sectors which otherwise could not have
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institute
Bad Effects of Industrialisation
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i) Public sector monopolies gradually turned out to be a “dead
social weight”. Inefficiency, corruption, leakage and pilferage
emerged as their principle characteristics. By incurring huge
losses, public sector enterprises led to inefficient use of scarce
national resources.
ii) Protection of domestic industry stimulated its growth. But, it
failed to achieve international standards of product-quality. Lack
of competition prompted the domestic entrepreneurs to focus
upon monopoly-control of the market. Growth through
competition and diversification was conveniently avoided.
iii) Saving FOREX through import substitution (rather than generating
it through export promotion) proved to be an inefficient policy
instrument. Our FOREX reserves started shrinking, and by the end
of 1990, these stocks reached their bottom. So much so that we
had to pledge our gold reserves with the World Bank to salvage
our borrowings.
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How did few industrialists’ mis-used
licensing conditions in IPR,1956
The need to obtain a license to start an industry was misused by
industrial houses; a big industrialist would get a license not for
starting a new firm but to prevent competitors from starting new
firms. The excessive regulation of what came to be called the permit
license raj prevented certain firms from becoming more efficient.
More time was spent by industrialists in trying to obtain a license or
lobby with the concerned ministries rather than on thinking about
how to improve their products.
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Foreign Trade Reforms in India
(1950-1990)
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Trade Policy refers to complete framework of laws, regulations and
international agreements adopted by the govt. to affect the quantity
and value of a nation’s exports and imports. Examples include tariffs,
import and export quotas, and import and export subsidies.
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Import Substitution Policy
“Import substitution is a strategy under trade policy that abolishes
the import of foreign products and encourages for the production in
the domestic market”
In the first seven plans, trade was characterised by what is commonly

called an inward-looking trade strategy. Technically, this strategy is
called Import substitution Policy. This policy aimed at replacing or
substituting imports with domestic production. For example, instead
of importing vehicles made in a foreign country, industries would be
encouraged to produce them in India itself. In this policy the
government protected the domestic industries from foreign
competition.
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Protection from imports took two forms: -
• Tariffs: It refers to taxes levied on imported goods. The basic aim

for imposing heavy duty on imported goods was to make them
more expensive and discourage their use.
• Quotas: They refer to fixing the maximum limit on the imports of a
commodity by a domestic producer.
Both helped in restricting level of imports. As a result, the domestic
firms could expand without fear of competition from foreign market.
The policy of protection is based on the notion that industries of
developing countries are not able to compete against the goods
produced by more developed economies. It is assumed that if the
domestic industries are protected, they will learn to compete in the
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institute of time
Positive impacts of Inward Looking Strategy
→High rate of industrial growth with structural transformation:
Despite Green Revolution, the percentage contribution of industrial
sector to GDP increased from nearly 12% in 1951 to nearly 25% in
1991. Rising share of industrial sector in GDP is a sign of economic
growth based on structural transformation in the economy.
→Diversification of Industrial growth: The period 1950-90 saw
diversification of industrial growth- Modern industry was no longer
confined to textile and jute, there was a noticeable rise in electronic
and automobile industry.
→Opportunities of Investment: Protection to SSI (Small-scale
industry) opened new opportunities of investment for those who
did not have much capital. New investment opportunities implied
new opportunities of self-employment. It promoted growth with
equity.
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Negative Impacts of Inward Looking
Strategy
→Growth of inefficient Public Monopolies: Protection of Public sector
industry led to the growth of inefficient monopolies. Telecommunication
was a Govt. Monopoly till about 1990, people had to wait for years just
for telephone connection.
→Indiscriminate spread of Public Sector Enterprises: The period 1950-80
was marked with a trend to do anything and everything for public sector
undertakings. One can appreciate commanding heights of the economy
to be public sector undertakings, but one fails to understand the logic
when public sector enterprises start producing bread and shoes. It leads
to indiscriminate spread of Public Sector Enterprises.
→Economically unviable state enterprises: Any private sector enterprise
would ultimately shut-down if found to be an economically unviable unit.
But, in case of Public sector enterprises, it always has been a political
compulsion to bear the losses and continue operating unviable
enterprises.
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Some economists argue that Strict Trade policy
does more harm than good to an economy. Do
you agree???
Yes, I agree with the given statement.

• The protection from foreign competition is criticised on the ground
that it continued even after it proved to do more harm than good.
Due to restrictions on imports, the Indian consumers had to
purchase whatever the Indian producers produced. The producers
were aware that they had a captive market; so, they had no
incentive to improve the quality of their goods.
• Still, some economists hold that we should protect our producers
from foreign competition if the rich nations continue to do so.
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“This, along with other problems, led the
government to introduce a new economic policy
in 1991”
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Chapter Over
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Chapter 2 - Indian Economy 1950-1990

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Chapter 2 - Indian Economy 1950-1990

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Indian Economy (1950-1990)

• There are different types of economic systems- Capitalist,

• NITI Aayog (National Institute for Transforming India) was

• Formally, Planning Commission of India was responsible for 5-year &

Scientific farm Ceiling on land

With a view to raising productivity in agriculture, irrigation facilities

• Subsidies in context of agriculture, means that the farmers

Economists against subsidies: -

b) Industrial Policy Resolution 1956 (IPR 1956)

c) Small-Scale Industry (SSI)

Main features of IPR, 1956: -

-{These are discussed in next slides}

Schedule A Schedule B Schedule C

ii) Diversification of Industries: No longer was Indian industry restricted

iii) Ease in establishing SSI: The promotion of small-scale industries gave

iv) Development of indigenous industries: Protection from foreign

In the first seven plans, trade was characterised by what is commonly

• Tariffs: It refers to taxes levied on imported goods. The basic aim

Yes, I agree with the given statement.

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