Class 12 Indian Economic Development

Economic System
Economic System refers to an arrangement by which
central problems of an economy are solved.

Main central problems

of an economy

What to How to For whom

produce produce to produce
 What to It involves deciding the final combination of goods
produce? and services to be produced, i.e., it involves the
selection of goods and services and the quantity of
each, that the economy should produce.

How to It involves deciding the technique of production, i.e.

produce? whether selected goods be produced with more
labour and less capital (known as Labour Intensive
Technique) or with more capital and less labour
(known as Capital Intensive Technique).
For whom It involves deciding the distribution of output
to produce? among people, i.e., it involves the selection of the
category of people who will ultimately consume the
goods.
 Different Types of Economic System

Types of Economic Systems

Mixed
Capitalist Socialist
Economy
Economy Economy (Both the Public and
(Means of production are (Means of production are Private Sector are allotted
owned, controlled, and owned, controlled, and respective roles for solving
operated by Private Sector) operated by Government) the Economy's Central
Problems)
 A Capitalist Economy is an economic system in which means of
Capitalist production are owned, controlled, and operated by the private
sector. Production is done mainly for earning profits. So, the
Economy central problems (what, how and for whom to produce) are solved
through the market forces of demand and supply.

Under Capitalist Economy, the three central problems are solved in the following manner :
1) What to Produce : Under this system, only those goods are produced that can be sold profitably either in the
domestic or in the foreign market.
2) How to Produce : Goods are produced using cheaper techniques of production. In case of cheap labour,
labour-intensive methods of production are used and in case of costly labour, capital-intensive methods of
production are used.
3) For whom to Produce : In a capitalist society, goods produced are distributed among
people not on the basis of their needs but on the basis of their income or purchasing power.

Features
a) There is private ownership of the means of production.
b) Means of production are used in a manner such that the profits are maximised.
c) The role of the government is largely confined to the maintenance of law & order
and defence of the country.
 Socialistic A Socialistic Economy is one in which the
Economy means of production are owned, controlled,
and operated by the government.
Under Socialist Economy, the three central problems are solved in the following manner :
1) What to Produce : In a socialist society, the government decides what to produce in accordance
with needs of the society.
2) How to Produce : The government decides how the goods are to be produced.
3) For whom to Produce : Distribution under socialism is supposed to be based on what people
need and not on what they can afford to purchase. A socialist nation provides free health care
to the citizens, who need it.

Features
a) Means of production are collectively owned by society as a whole or there is a
public ownership of the means of production.
b) Means of production are used in a manner such that social welfare is maximised.
c) There is the direct participation of the government in the process of production.
The role of the government is not merely confined to law & order and defence.
  A Mixed Economic system refers to a system in which the
Mixed public sector and the private sector are allotted their
Economy respective roles for solving the central problems of the
economy.
 In a Mixed Economy, the government and the market
together solve the 3 central problems - what to produce,
how to produce and for whom to produce.
 The private sector provides whatever goods and services,
it can produce well, and the government provides
essential goods and services, which the market fails to
do.

Features
a) Means of production are owned by private entrepreneurs as well as the government.
b) In the private sector, production decisions are governed by the principle of profit
maximisation, while in the public sector, social welfare had the upper hand.
c) Both private and public sectors play a significant role in the process of production.
 After the freedom, leaders of independent
India adopted the
India (like Jawaharlal Nehru) were confused
Mixed Economy
about the economic system, to be followed in
System because of
India. Some leaders were in favour of
the following
socialist economy and some were in favour of
reasons :
capitalist economy.

As a result, a mixed economy (with the best

features of both a socialist and capitalist
economy) was adopted by the Indian
economy. In this view, India would be a
socialist society, with a strong public sector,
but also with private property and
democracy.
Economic For the development of the Indian Economy, it was necessary for the
Government to ‘plan’ for the economy, known as Economic planning.

Planning Economic planning can be defined as making major economic decisions

(what, how, and for whom to produce) by the conscious decision of a
determinate authority, based on a comprehensive survey of the
economy as a whole

The Industrial Policy Resolution of 1948 and the Directive Principles of

the Indian Constitution assigned a leading role to the public sector.
Private sector was also encouraged to be part of the plan efforts

To make economic planning effective, the Government of India set up

the Planning Commission in 1950, with the Prime Minister as the
Chairman. The first chairman of the planning commission was Prof.
Mahalanobis.

The purpose of the commission was to carefully assess the human and
physical resources of the country and to prepare the plans for the
effective use of resources.

The Planning Commission fixed the planning period at five years, which
began the era of Five-Year Plans’.
Meaning of Plan
Plan is a document showing a detailed
scheme, program and strategy, worked out
in advance for fulfilling an objective.
Reason for Making Plans
Planning is done to achieve some
predetermined goals within a specified time
period. It involves detailed analysis of the
problems at hand and making conscious
decisions to solve them.
Plans & Period Focus of the plan or the principal objectives
1st Plan: April 1, 1951 -- i. Increase in agricultural production.
-- march 31, 1956 ii. Equitable distribution of production, income and wealth
2nd plan: April 1, 1956 - i. Increase in industrial production.
-- march 31, 1961 ii. Development of heavy industry.
i. Self-sufficiency in food grain production.
3rd plan: April 1, 1961 -
ii. Generation of employment opportunities.
-- March 31, 1966
iii. Reduction in inequality.
Three Annual plans/April 1, 1966 – March 31, 1969
4th plan: April 1, 1969 - i. Accelerating the process of growth.
-- March 31, 1974 ii. Price stability.
5th plan: April 1, 1974 -
Raising the living standards with a focus on weaker sections of society.
--- march 31, 1979
Annual Plan/April 1, 1979 ---- March 31, 1980
i. Removal of poverty
6th plan: April 1, 1980 -
ii. Reduction of inequality
-- march 31, 1985
iii. Development of infrastructure.
7th plan: April 1, 1985 --- i. Generation of employment opportunities
- March 31, 1990. ii. Increase in agricultural productivity.
Two Annual Plans/April 1, 1990 ---March 31, 1992
8th plan: April 1, 1992 --- i. Fuller utilization of manpower by the turn of the century.
March 31, 1997 ii. Universalization of elementary education.
iii. Strengthening of infrastructure
9th plan: April 1, 1997--- i. Agricultural and rural development
- March 31, 2002 ii. Growth with price stability
iii. Checking the growth of the population.
10th plan: April 1, 2002 - i. Improving the quality of life through better health and educational
--- March 31, 2007 facilities and improved levels of consumption.
ii. Reduction in inequality through inclusive growth.
11th Plan: April 1, 2007 - i. Multiple targets covering not only growth but also poverty reduction.
---March 31, 2012 ii. Improving the quality of education and public health services.
iii. The Strategy of the second green revolution.
iv. Generating high-quality of job.
v. Protection of the environment.
12th Plan: April 1, 2012 -- Faster, more sustainable , and more inclusive growth.
- march 31, 2017
 Features of Economic Policy Pursued under Planning 1950-1991

 Economic policy before 1991 indicated heavy reliance on the public sector.
Heavy Reliance  Thus, in Industrial Policy Resolution 1956, as many as 17 industries were reserved for the
on the Public public sector as against 12 industries earmarked for private sector.
Sector  It was realised that the objective of socialist pattern of society could be achieved only
through a comprehensive development of public sector enterprises.

 According to the Industrial (Development and Regulation) Act of 1948 new industry in
Regulated
the private sector could not be established without a licence and registration.
Development of  The regulated development of the private sector was to ensure that
the Private Sector there was no concentration of economic power in the private hands.

Protection of  Large-scale industry was regulated through several acts, particularly

Small-scale MRTP (Monopolistic and Restrictive Trade Practices Act).
 Small-scale industry, on the other hand, was offered protection from the competition-
Industry &
certain areas of production were exclusively reserved for the small-scale industries,
Regulation of particularly labour-intensive industries such as readymade garments, chemicals, etc.
Large-scale  Several boards (like Handloom board and Silk board) were established to promote the
Industry products of small-scale industries in the global market.
  Saving and investment were identified as the
Focus on Saving key determinants of economic growth.
and Investment  High-interest rates were offered to promote saving, while
investment was induced through subsidies and capital grants.

Protection from  Domestic industry was protected from foreign competition.

Foreign  High import duties and quantitative restrictions were levied on
Competition imports
 It implied the domestic production of goods that
Focus on Import were imported from abroad.
of Substitution  The basic idea was to save foreign exchange and
become self-sufficient.

 Foreign direct investment was controlled and regulated through

Restriction on the Foreign Exchange Regulation Act (FERA).
Foreign Capital  This was to minimise economic control of the domestic market by
foreign investors.
 The Various Points in Success / Achievement of Planning
1) Increase in National Income
An increase in national income indicates economic growth.
 During the period before planning, the national income of India increased at the rate of just 0.5
per cent per annum. The Indian economy was, therefore, a stagnant economy.
 The increase in national income during the Twelfth plan was 6.8 per cent against the target of 8
per cent. In 2018-19, the increase in national income is estimated to be 6.9 per cent.
Thus, during most plans, we failed to achieve the targeted rate of growth.

2) Increase in Per Capita Income

Over time, per capita income has recorded a significant rise :
 During the period before planning, the rate of increase in per capita income
had only been nominal.
 The twelfth plan estimated a growth rate of 5.5 per cent per annum. In 2017-18 and 2018-19, rate
of increase in per capita income was 5.7 per cent and 5.6 per cent per annum respectively.
 Increase in per capita income is a significant achievement as it implies greater availability of
goods and services per head of population of the country.
 3) Rise in Saving and Investment
 In 1950-51, the rate of saving was 9.5 per cent of national income.
 It increased to 31.3 per cent by the end of the eleventh plan (2011-12) and
was estimated to be 30.5 per cent in 2017-18.
We all know that saving and investment are the principal drivers of economic growth.

4) Growth and Diversification of Industry

 Five-year plans gave a big push to the basic and capital goods industries.
 In the eleventh plan, the industrial production growth rate was 7.2 per cent. It increased to 6.9
per cent in 2018 - 19.
 Consumer goods industries have substantially grown to achieve a level of self-sufficiency.

5) Employment
 Serious efforts have been made during plans to increase employment opportunities.
 During the eleventh plan, the unemployment rate came down from 8.3 per cent in 2004-05 to 5.6
per cent in 2011-12. It increased to 6.9 per cent in 2018-19.
 In the twelfth five-year plan, the government has fixed the target of creating 50 million
employment opportunities.
 Failures of Planning in India
Abject Poverty
 In India, 21.9 per cent of the population still lives below the poverty line.
 There are those people who are getting even the essentials of life.
 Nearly 50 per cent of those who are poor in the world are living in India.

High Rate of Inflation

 We have failed to tackle the inflationary spiral in the country because the high rate of inflation has tended to erode the real income of the
people.
 Also, the economic divide between haves and have-nots has tended to rise.
 The first plan is the only exception in which the price level slides down, in all other plans the prices recorded a steep rise.

Unemployment Crises
 While more and more opportunities for employment have been generated, the challenge of unemployment has not been subsided.
 At the end of the First Plan, 53 lakh persons were unemployed. This number rose to over 4 crores at the end of the eleventh plan.
 This is emerging to be a serious cause of social unrest, threatening the process of growth.

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, the shortage of power has been a serious constraint in
the overall process of growth and development.
 Different Goals of the Five-Year Plan

Four Basic Goals of Five-Year Plans

Modernization Equity
Growth
(Aims to Self – reliance (Aims to ensure
(Aims to increase
adoption of new (Aims to make that everyone
country’s
technology and the economy self- gets basic needs
capacity to
change in social reliant) and to reduce
produce goods)
outlook) inequalities)
 Growth
 Growth refers to the increase in the country's capacity to produce
the output of goods and services within the country. Growth implies :
a) Either a larger stock of productive capital;
b) Or a larger size of supporting services like transport and banking;
c) Or an increase in the efficiency of productive capital and services.
 A good indicator of economic growth, in the language of economics, is steady
increase in the 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. Increase in GDP or availability of goods and
services enables people to enjoy a more rich and varied life.
 The GDP of a country is derived from the different sectors (Agricultural sector,
Industrial sector and Service sector) of the economy.
 In some countries, growth in agriculture contributes more to the GDP growth,
while in some countries, growth in service sector contributes more to GDP growth.
 Modernization
Indian planners have always recognised the need
for modernisation of society to raise the standard of
living of people. Modernisation includes :
Adoption of New Technology : Modernisation aims to increase the
production of goods and services through the use of new technology.
For example, a farmer can increase the output on the farm by using
new seed varieties instead of using the old ones. Similarly, a factory
can increase output by using a new type of machine.
Change in social outlook : Modernisation also requires a change in
social outlook, such as gender empowerment or providing equal
rights to women. A society will be more civilised and prosperous if it
makes use of the talents of women in the work place.
 Self-reliance
The third major objective is to make the economy self-reliant.
 Self-reliance under Indian conditions means overcoming the need of external
assistance. In other words, it means to have development through domestic resources.
 To promote economic growth and modernisation, the five-year plans stressed on the
use of our own resources, in order to reduce our dependence on foreign countries.

The policy of self-reliance was considered a necessity because of two reasons :

a) To reduce Foreign Dependence : As India was recently freed from foreign control, it is necessary
to reduce our dependence on foreign countries, especially for food. So, stress should be given to
attain self-reliance.
b) To avoid Foreign Interference : It was feared that dependence on imported food supplies,
foreign technology and foreign capital may increase foreign interference in the policies of our
country.
  The objectives of growth, modernisation and
Equity self-reliance, by themselves, may not improve
the kind of life, which people are living.
 So, it is important to ensure that the benefits of
economic prosperity are availed by all sections
(rich as well as poor) of the economy.
 In addition to the objectives of growth,
modernisation and self-reliance, equity is also
important.
 According to Equity, every Indian should be
able to meet his or her basic needs (food, house,
education and health care) and inequality in
the distribution of wealth should be reduced.
 In short, Equity aims to raise the standard of
living of all people and promote social justice.
  The agriculture sector accounted for the
Agriculture largest share of the workforce with
approximately 70-75 percent. So,
agricultural development was focused
right from the First Five Year Plan.
 At the time of independence, the land
tenure system was characterised by
intermediaries (like zamindars) who
merely collected rent (lagaan) from the
actual tillers of the soil.
 The low productivity of the agricultural
sector forced India to import food from
the United States of America.
 Features of Agriculture
1) Low Productivity :
 The Indian agriculture sector was known for its low productivity. Lack of knowledge was
responsible for stagnation in this sector.
 Since the agricultural sector generates demand for the industrial sector, the backwardness
of agriculture implies slow growth of the industry.
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 employed. But,
in reality, many are unemployed. Even when some are withdrawn, total output will not fall.
3) High Dependency on Rainfall :
 The Indian economy is heavily dependent on agriculture and the livelihood of the Indian
farmer largely depends on the Monsoon rains.
 Good rainfall means good crops and bad rainfall means bad crops. Consequently, the growth process fails to be stable.
4) Subsistence Agriculture :
 It means the primary objective of the farmer is to secure subsistence for his family; it is not to earn profits.
 Subsistence agriculture fails to generate a surplus for investment. It leads to stagnation in agriculture.
5) Depreciated Technology :
 There were many obsolete technologies and harvesting machines. Harvesting was generally done manually and was very
tedious.
 The bulk of the farming population in India is extremely poor. Lack of modern inputs leads to low productivity and therefore,
backwardness.
6) Landlord Tenant Conflicts :
 Farmers were often part of a critical contract that bound them to their landlords. Landlords used to extract huge amounts of
interest from farmers and deprived them of their necessities.
 Little or no surplus is left with the tenants for re-investment. Accordingly, agriculture tends to stagnate.
 Importance of Agriculture in the Indian Economy
1) Contribution to GDP :
 Agriculture makes a significant contribution to the GDP in India.
 During the period of planning, contribution of agricultural sector to GDP has tended to decline over time, from as high
as 51 per cent in 1950-51 to 14.4 per cent in 2018-19.
 It often occurs owing to the relatively faster growth of secondary and tertiary sectors of the economy.
2) Source of employment :
 In India, agriculture is a significant source of employment.
 Over 50 percent of the working population in India is engaged in the agricultural sector
implying that agriculture is the principal source of subsistence for the people in India.
3) Supply of raw materials :
 Agriculture supplies industrial raw materials like cotton for the textile industry, seeds
for the oil industry, and sugarcane for the sugar mills.
 As a supplier of raw materials, the agricultural sector is of primary significance for the
growth of the industrial sector in the economy.
4) Source of demand for industrial goods :
 The agricultural sector is an important source of demand for industrial goods, particularly capital goods.
 Tractors and harvestor-machines are demanded exclusively by the agricultural sector. Thus, Agricultural prosperity
leads to industrial prosperity.
5) Contribution to international trade :
 Agriculture makes a significant contribution to India’s international trade. Thus, in 2018-19, share of agricultural
sector in total exports of the country stood at 11.76 percent.
 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.
 Problems Faced by Indian Agriculture
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.
2) Deficiency of Finance :
 For bulk of their financial needs, the small farmers depend upon non-institutional sources,
including 'mahajans', moneylenders and the landlords. They charge very high rate of interest.
 Lack of finance hinders the growth of Indian agriculture. The high cost of borrowing leads to the
vicious circle of poverty for the farmers.
3) Small and Scattered Holdings :
 Holdings in India are not only small but scattered as well. Smallholdings do not allow the use of modern technology.
 Scattered holdings increase the cost of management. This contributes to the backwardness of farming and the poverty of the
farmers.
4) Lack of Organised Marketing System :
 An agricultural marketing system is highly unorganised.
 They are obliged to sell their produce to the mahajans and money lenders (in the local markets) in return for the loans they raise
from these middlemen.
 At the level of marketing, the bulk of smallholders fails to get a remunerative price for their crops, because of the lack organised
marketing system.
5) Exploitative Agrarian Relations :
 Agrarian relations refer to the business relations between landlords and tenants.
 Having paid exorbitant rents to the absentee landlords, the tillers of the soil are left with a little surplus for further investment.
 Accordingly, land continues to be used as a source of subsistence (or as a means of livelihood) rather than a source of business
profits.
Agrarian
Reforms With a view to tackling the
problems of Indian
agriculture, the government
has taken a series of reform
measures since independence.
These reform measures are
popularly known as agrarian
reforms.
 Types of Agrarian Reforms
1) Technical Reforms/New Agricultural Strategy : Following steps have been taken
by the government to upgrade the level of technology in Indian agriculture.
a) Use of (High Yielding Variety) HYV Seeds :
 HYV seeds have replaced conventional varieties. HYV seeds (especially relating to wheat,
bajra, rice, maize, jowar, and cotton) have led to a substantial rise in crop productivity.
b) Use of Chemical Fertilizers :
 Chemical fertilizers are being increasingly used to enhance productivity. The use
of chemical fertilizers has considerably increased over time.
c) Use of Insecticides and Pesticides for Crop Protection :
 Steps have been initiated to protect crops against diseases and insects by using insecticides and pesticides.
 For plant protection, an integrated Pest Management Programme was adopted along with the adoption of
HYV technology.
d) Scientific farm Management Practices :
 Stress has been laid on scientific cultivation, as against conventional farming.
 Scientific methods of farming relate to :
i. Selection of crops and their quality.
ii. Preparation of soil
iii. Rotation of crops
iv. Selection of seeds
v. Use of fertilizers besides others.
2) Land reforms/Institutional Reforms : The action plan of the government for land
reforms includes the following steps :
a) Abolition of Intermediaries :
 Intermediaries (between the state and the actual tiller of the soil) popularly
known as zamindars have been abolished.
 Ownership rights have been conferred upon those who cultivate the soil.
b) Regulation of Rent :
 To put an end to excessive and illegal extortions from cultivators, rents have been fixed.
 Generally, these are not to exceed 1/3rd the value of the crop.
c) Consolidation of Holdings :
 To reduce fragmentation, steps have been initiated for the consolidation of holdings.
 Consolidation is the practice to allot land to the farmer in one place as a replacement for his
scattered holdings here and there. It saves the cost of cultivation.
d) Ceiling on Land Holdings :
 To promote equality in the distribution of land, a ceiling has been imposed on the holding size.
 The surplus land has been resumed by the government and redistributed among smallholders or
landless labourers.
e) Cooperative Farming :
 Cooperative farming 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.
3) General Reforms : General Reforms include the following Steps :
a) Expansion of Irrigation Facilities :
 To raise productivity in agriculture, irrigation facilities have been expanded. Several major and minor irrigation
projects have been launched across different parts of the country.
 Now, irrigation is covering about 45% of land under cultivation.
b) Provision of Credit :
 Cooperative societies have been set up to provide credit to farmers at a low rate of interest.
 Commercial banks have also been catering to the credit needs of the farmers.
 Regional Rural Banks have been established to further enhance credit facilities for farmers.
 The National Bank for Agriculture and Rural Development (NABARD) was established to institutionalise credit
facilities for farmers at the national level.
c) Regulated Markets and Cooperative Marketing Societies :
 Regulated markets have been established to offer remunerative prices to the farmers and protect them against
exploitation by the middlemen.
 These committees ensure timely payment to the farmers and also ensure that only specified weights and measures are
used to weigh and value the farmers' produce.
 Cooperative marketing societies have been established to enhance the bargaining power of the farmers in the
markets and Provision for storage of the crops is made by the societies on behalf of the member farmers.
d) Price Support Policy :
 Government assures a minimum support price (MSP) to the farmer for his produce to protect him against
uncertainties in the market.
 The government is committed to buy the surplus produce of the farmer at the minimum support price as and when
the market price is lower than that.
 Agriculture Policies (1950-90)

Role & Policies to Solve

Importance of Agricultural
Agriculture Main Features of Problems
Problems of • Technical Reforms
• Contribution to Indian Agriculture Indian Agriculture a) Use of HYV Seeds
GDP • Low Productivity b) Use of Chemical fertilizers
• Lack of Permanent c) Use of Insecticides &
• Contribution to • Disguised
means of Irrigation Pesticides for Crop
Source of Unemployment Protection
• Deficiency of d) Scientific farm Management
Employment • High Dependency Practices
Finance
• Contribution to on Rainfall • Land Reforms
• Small and Scattered
Supply of Raw • Subsistence a) Abolition of Intermediaries
Holdings b) Regulation of Rent
Material Agriculture c) Consolidation of Holdings
• Lack of Organized d) Ceiling on Land holdings
• Contribution to • Depreciated
Marketing System e) Cooperative Farming
Source of Demand Technology • General Reforms
• Exploitative
for the Industrial • Landlord Tenant a) Expansion of Irrigation
Agrarian Relations Facilities
Goods Conflicts b) Provision of Credit
c) Regulated Markets and
• Contribution to Cooperative marketing
International Trade societies
d) Price Support Policy
Green Revolution :
New Agriculture Green Revolution refers to the large increase in the
production of food grains due to the use of high-
Strategy yielding variety (HYV) seeds. The green revolution
is a spectacular advancement in the field of
agriculture.

The new agricultural strategy was adopted in

India during the Third Plan, i.e., during 1960’s.
The traditional agricultural practices followed in
India were gradually being replaced by modern
technology and agricultural practices. The aim of
this strategy was to raise agricultural production
and productivity in selected regions of the
country through the introduction of modern
inputs like fertilizers, credit, marketing facilities,
etc.
Indian Economy Experienced the Success of Green Revolution in 2 Phases

First Phase Second Phase

In the first phase (Mid 60s to In the second phase (Mid
Mid 70s), the use of HYV seeds 70s to Mid 80s), the HYV
was restricted to more technology spread to a
affluent states (like Punjab,
Andhra Pradesh, Tamil Nadu,
larger number of
etc.). Further, the use of HYV states and
seeds primarily benefited the benefited more
wheat growing regions only. variety of crops.
 Need for  At the time of independence, about 75% of
the country's population was dependent on
Green agriculture.
Revolution  India's agriculture vitally depends on the
monsoon and in the case of storage of
monsoon; the farmers had to face a lot of
troubles.
 Moreover, the productivity in the
agricultural sector was very low due to the
use of out-dated technology and the
absence of required infrastructure.
 As a result of the intensive and continued
efforts of many agricultural scientists, this
stagnation in agriculture was permanently
broken by the 'Green Revolution'.
 Effects of the Green Revolution
1) Attaining Marketable Surplus : Green Revolution resulted in Marketable
Surplus. Marketable surplus refers to that part of agricultural produce which is
sold in the market by the farmers after meeting their own consumption
requirement.
 Growth in agricultural output makes a difference to the economy only when
a large proportion of this increase is sold in the market.
 Fortunately, a good proportion of rice and wheat produced during the green
revolution period was sold by the farmers in the market.
2) Buffer Stock of Food Grains : The green revolution enabled
the government to procure a sufficient amount of food grains
to build a stock which could be used in times of food shortage.
3) Benefit to Low-Income Groups : As a large proportion of food grains was sold
by the farmers in the market, their prices declined relative to other items of
consumption. The low-income groups, who spend a large percentage of their
income on food, benefited from this decline in relative prices.
Risk involved Risk of Pest Attack : The HYV crops were
in Green more prone to attack by pests. So, there
Revolution was a risk that small farmers who
adopted this technology could lose
everything in a pest attack.

Risk of Increase in Income Inequalities :

There was a risk that costly inputs
required under the green revolution will
increase the disparities between small
and big farmers since only the big
farmers could afford the required
inputs.
 Limitations of Green Revolution
Limited Revolutionary rise in output (due to green revolution) is confined mainly to the
production of food grains (wheat and rice). There has been no similar rise in
Crops the production of pulses and commercial crops like jute, cotton, tea, etc.).

Un-even Spread of Green Revolution has not been uniform across all regions. In states like
Punjab, Haryana, Maharashtra and Tamil Nadu, it made a remarkable impact. But in
Spread Eastern UP, Bihar, Madhya Pradesh and Odisha, its impact was relatively insignificant.

Limited The bulk of the farming population in India consists of small and marginal farmers. The
Farming gains of Green Revolution have eluded these farmers. Because, HYV technology require
expensive inputs which are beyond the reach of marginal farmers.
Population

Thanks to Green Revolution, the economic divide - the gap between the rich and the
Economic poor farmer has substantially risen over time. Poverty is widespread and indebtedness
is extremely high. Loan waivers are frequently offered. Yet, suicides among the farmers
Divide is emerging to be a serious challenge.
 Industrial The developing countries (like India) can
progress only if they have a good industrial
Development sector. Industry provides employment, which is
more stable than the employment in
agriculture. Industrialisation promotes
modernisation and overall prosperity.

At the time of independence, the variety of

industries was very limited. The cotton textile
and jute industries were mostly developed in
India. There were only two well-managed iron
and steel firms: one in Jamshedpur and the
other in Kolkata. So, there was a strong need to
expand the industrial base with a variety of
industries.
 Features of Industrial Growth
 Public enterprises were to play a central role in the process of
industrialisation.
 The process of industrialisation focused on 'import substitution' implying
that the production of such goods was to be accorded at high priority which
was imported from the rest of the world. The idea was to achieve self-
reliance as well as to economise the use of the foreign exchange.
 As far as possible, domestic industry was to be protected from foreign
competition. Protection was to be offered through :
a) Heavy duty on imports, and
b) Fixation of import quotas. It was realised that protection
would foster the growth of the domestic industry.
 Large-scale industry was to be developed to build an
infrastructural base in the country.
 Effects of Industrialization
Positive Effects
 Economic growth got a big push. Industrial output recorded a significant rise. There
was about a 6 percent annual increase in output during the period 1950-1990.
 The growth of SSI made a substantial contribution to achieving the objectives of
growth with social justice.
 There was a marked diversification in the industrial sector. The then sunrise industry
(electronics in particular) marked its emergence in the domestic economy.
 Growth of large-scale industries (like Rourkela and Bhilai Steel Plants) projected an
infrastructural shift in the Indian economy.

Negative Effects
 Public sector monopolies gradually turned out to be a 'dead social weight'. Inefficiency,
corruption and leakage emerged as their principal characteristics.
 Lack of competition promoted domestic entrepreneurs to focus on monopoly control of
the market. Growth through competition and diversification was conveniently avoided.
 Saving foreign exchange through import substitution (rather than generating it through
an export promotion) proved to be an inefficient policy instrument.
There was a need for a leading role in the public sector due to the following reasons

1) Shortage of Capital with Private Sector : Private entrepreneurs did

not have the capital to undertake investment in industrial
ventures, required for the development of Indian economy.
2) Lack of Incentives for the Private Sector : The Indian market was
not big enough to encourage private industrialists to undertake
major projects, even if they had the capital to do so.
Due to the limited size of the market, there was a
low level of demand for industrial goods.
3) The Objective of Social Welfare : The objective of equity and social
welfare of the government could be achieved only through the
direct participation of the state in the process of industrialisation.
 Industrial  Industrial Policy Resolution of 1956 (IPR
Policy 1956) is a resolution adopted by the Indian
Resolution 1956 Parliament in April 1956.
 Industrial policy is a comprehensive package
of policy measures that cover various issues
connected with different industrial
enterprises of the country.
 After the industrial policy, in 1948, the
Indian economy had to face a series of
economic and political changes, which
necessitated the need for a fresh industrial
policy for the country. So, on 30th April 1956,
a second industrial policy resolution was
adopted in India.
 Classification of Industries
Classification of Industries as Per IPR, 1956

Schedule A Schedule B Schedule C

(Comprises of Industries (Comprises of 12 Industries, (Comprises of remaining
exclusively owned by the which would be Industries which were to be
State) progressively State-owned) in the private sector)

a) Schedule A : This first category compromised industries which would be exclusively owned
by the government state. In this schedule, 17 industries were included, like arms and
ammunition; atomic energy; heavy and core industries; aircraft; oil; railways; shipping; etc.
b) Schedule B : In this schedule, 12 industries were placed which would be progressively
state-owned. The state would take the initiative of setting up industries and the private
sector will supplement the efforts of the state.
c) Schedule C : This schedule consisted of the remaining industries which were to be in the
private sector. These industries were controlled by the state through a system of licenses,
enforced under the Industries (Development and Regulation) Act 1951.
 Industrial Licensing
An Industrial License is written permission from the
government, for an industrial unit to manufacture
goods.
The Industries (Development and Regulation) Act, 1951,
empowered the government, to issue licenses for :

Setting up of Expansion of Diversification

New Industries Existing Ones of Products
 According  No new industry was allowed
to Industrial unless a license is obtained from
Licensing the government.
 It was easier to obtain a license if
the industrial unit was established
in an economically backward area.
 The purpose of this policy was to
promote regional equality.
 Licenses were needed even if an
existing industry wants to expand
output or diversify production.
  In 1955, the Village and Small-scale
Small-scale Industries Committee (Karve
Industry Committee) recognised the
possibility of using small-scale
industries to promote 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 from
rupees five lakh in 1950 to present
limit of rupees one crore.
 Important Points about Small-Scale Industries
 Small-scale industries are more labour intensive, i.e., they use more
labour than the large-scale industries and, therefore, they generate
Employment
more employment.
Generation  After agriculture, small-scale industries provide
employment to the largest number of people in India.

 Small-scale industries cannot compete with the big industrial firms.

They can flourish only when they are protected from the large firms. So,
Need for various steps were taken by the government for their growth.
 Reservation of Products : Government reserved production of a number
Protection of products for the small-scale industry. The criterion for reserving the
from Big products depends on the ability of these units to manufacture the
Firms goods.
 Various Concessions : Small-scale industries were also given concessions,
such as lower excise duty and bank loans at lower interest rates.
Foreign  Every country in the world exports
certain goods and imports certain others.
Trade Export and import of goods and services
across different countries is called
international or foreign trade.
 Foreign trade in India includes all
imports and exports to and from India.
India entered into planned development
era in 1950's and at that time 'Import
Substitution' was a major element of
India's Trade and Industrial Policy. In
1950, India's share in the total world
trade was 1.78%.
 Brief Composition of Foreign Trade
After independence, there has been a substantial change
in the composition of India’s foreign trade :
It happened owing to the facts that :
Decline in percentage
 India started using its farm products as raw materials for its domestic industry.
share of agricultural
 Substantial rise in India's population has raised the domestic consumption of farm
exports
products.

 Conventional items of India's exports include jute, tea, food grains, and minerals. These
Decline in percentage
items constituted the bulk of India’s exports at the time of independence.
share of conventional
 But with planned development programmes in place, domestic demand for
items
conventional items has tended to rise.

Increase in  The percentage share of manufactured goods in total exports has tended to rise.
percentage share of  Presently, Gems and precious metals, machinery and vehicles are the notable exports of
manufactured goods India.
 Inward Looking Strategy
 Import substitution refers to a policy of replacement or substitution of imports by
domestic production.
 The basic aim of the policy was to protect domestic industries
from foreign competition.
 The policy of Import substitution can serve 2 definite objectives :
a) Savings of precious foreign exchange; and
b) Achieving self-reliance
 By adopting an inward-looking trade strategy, the government preferred to
economise the use of foreign exchange (through import substitution) rather than
maximise the generation of foreign exchange (through an export promotion).
 Also, the government wanted to protect the domestic industry from international
competition.
 For example : Instead of importing vehicles made in a foreign country, domestic
industries would be encouraged to produce them in India itself.
 Impacts do an inward-looking strategy left on the domestic industry
Good Impacts
1) Diversification of Industrial Growth :
 Modern industry was no longer confined to
textile and jute. Industrial growth started
spreading across engineering goods and a wide
range of consumer goods.
 It is widely recognised that the electronic
industry would have failed to take root in the
domestic economy, had the policy of
'protection' not been pursued.
2) Investment Opportunities :
 Protection of SSI (small-scale industry) opened
new opportunities for investment for those who
did not have much capital.
 New investment opportunities implied new
opportunities for self-employment. It promoted
growth with equity.
Bad Impacts
1) Growth of Inefficient Public Monopolies :
 Protection of public sector industry led to the
growth of inefficient monopolies.
 Telecommunication was a government
monopoly till about 1990. We all know that
people had to wait for years and years just
for a telephone connection.
2) Lack of Competition :
 Old users of cars still remember that
Ambassador and Fiat were the
only two models produced by
the domestic industry in India.
 No doubt that the domestic car
industry flourished as a near-monopoly
owing to the policy of protection.
Protection from Imports through ‘Tariffs’ and ‘Quotas’ : The
government made use of two ways to protect goods produced
in India from imports :
Tariffs refers to taxes levied on imported goods. The basic aim
Tariffs for imposing a heavy duty on imported goods was to make
them more expensive and discourage their use.

Quotas refer to fixing the maximum limit on the imports

Quotas of a commodity by a domestic producer.

Reasons for Import Substitution

 The policy of protection is based on the fact that industries of developing countries like India are
not in a position to compete against the goods produced by more developed economies. With
protection, they will be able to compete in the due course of time.
 Restriction on import was necessary to overcome the fear of the drain of foreign exchange
reserves on the import of luxury goods
 Critical Appraisal of Industrial Development (1950 – 1990)
The achievements of India’s Industrial Sector during the First Seven Plans are impressive indeed :

 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.
 Indian industry was no longer restricted to cotton textiles and jute. It also included
engineering goods and a wide range of consumer goods. The industrial sector
became well diversified by 1990, largely due to the public sector.
 The promotion of small-scale industries gave opportunities to people with small
capital to get into business.
 Protection from foreign competition enabled the development of indigenous
industries in the areas of electronics and automobile sectors which otherwise could
not have developed.
 Licensing policy helped the government to monitor and control the industrial
production.
 Public sector made a remarkable contribution by creating a strong industrial
base, developing infrastructure and promoting development of backward areas.
 Conclusion
The progress of the Indian economy in the three sectors can be summarised as under :

 India became self-sufficient in food production,

In Agriculture thanks to the green revolution.
Sector  Land reforms resulted in the abolition of Zamindari system.

 The industries became far more diversified compared to the

In Industrial situation of independence. However, many economists became
Sector dissatisfied with the performance of public sector enterprises.

 Our policies were ‘inward oriented’ and so we failed to develop

In Trade a strong export sector. The domestic producers were protected
against foreign competition and this did not give them
Sector the incentive to improve the quality of the goods
that they produced.