INDIAN ECONOMY :1950-1990

 Backward and Stagnant at time of Independence

 Economic System: Arrangement by which central problems of an economy are solved-What to

Produce, How to Produce, for whom to Produce

Capitalist Economy- Means of production are owned, controlled and operated by the private
sector, market forces of demand and supply

Socialist Economy- Means of production are owned, controlled and operated by the government

Mixed Economy- Public sector and private sector allotted respective roles for solving the central
problems of the economy- private sector provides whatever it can produce well and
government produces essential goods which the market fails to do

In India

 Complete dilution of private sector ownership not possible

 Less chances of improvement in life of majority of people if followed Capitalist economy

Economic Planning-

Refers to the utilization of countries resources in different development activities in accordance to the
national priorities, making major economic decisions on the basis of comprehensive survey of the
economy as a whole

1950-Planning Commission set up, Prime Minister as Chairman

IPR 1948 and Directive Principles gave leading role to Public Sector and Private sector efforts
encouraged

1st 5 Year Plan-1st April 1951 to 31st March 1956

Long Term Goals

 Growth

Increase in the country’s capacity to produce the output of goods and services within the
country
larger stock of productive capital, supporting services or increase in their efficiency

Indicator-GDP (Market value of all final goods and services produced in the country during a
period of one year)
Structural Composition: Composition of each sector in GDP, share of service sector was 40%-
accelerated after NEP-globalization and outsourcing
  Modernisation

Adoption of new technology

Change in Social Outlook
Shift in sectoral composition

 Self-reliance

Overcoming the need of external assistance, development through domestic resources Reduce
foreign dependence (Food, Tech, Capital) and avoid foreign interference

 Equity

Raise standard of living of all the people and promote social justice, benefits availed by all the
sections, meet basic needs and reduce wealth inequality

AGRICULTURE

 No growth or equity
 Dependent on food imports
 75% population

Features/Problems of Agriculture

1. Low Productivity
2. Disguised Unemployment
3. High Dependency on Rainfall
4. Subsistence Farming
5. Outdated Technology
6. Conflicts between Tenants and Landlords
Policies for Growth in Agriculture

Land Reform: Change in ownership of land holdings- abolition of intermediaries, tenancy

reforms, land ceiling

Land Reforms: Successful in Kerala and West Bengal

 Abolition of Intermediaries and Tenancy Reforms – Make tillers the owners of land, they will be
incentivized to make improvements to the land, 200 lakh tenants in contact with government

Demerit-
1) Loopholes in legislation by zamindars
2) Zamindar claimed to be self-cultivator and evicted tenants
3) Poorest Agricultural labourers did not benefit

 Land Ceiling- Fixing of specified limit of land which could be owned by an individual. Landlord
challenged legislation-delayed implementation-registered in the name of close relatives

GREEN REVOLUTION:

Large increase in production of food grains due to the use of HYV Seeds, Irrigation facilities, fertilizers
and finance

Third Plan-1960

 Modern Technology and Agricultural practices to replace old technology and dependency on
monsoon
 Raise agricultural production and productivity

Success of GR in 2 phases

Mid 60 to Mid-70 – Use of HYV restricted to Punjab, Andhra Pradesh, Tamil Nadu , wheat growing
regions only

Mid 70 to Mid 80 – Larger number of states and variety of crops

 Important Effects of Green Revolution

1) Attaining Marketable Surplus- Part of produce which is sold in the market by the farmers after
meeting their consumption requirements

2) Buffer Stock of Food Grains- Can be used during shortages

3) Benefit to Low Income Groups- Food supply increased thus price decreased, spending on food
decreased

Risks involved under Green Revolution

1) Risk of Pest Attacks: HYV prone to pests, services rendered by government research reduced
considerable risk

2) Risk of Increase in Income Inequalities-only big farmers could afford inputs

Mitigation of Risks

 Research institutes reduced considerable risk

 Loans at low interest rate to small farmers
 Subsidies: Inputs lower than market price

Debate over Subsidies

New technology looked as risky, necessary to grant subsidies to provide incentive for HYV seeds

In Favour: Farming is risky business; majority of farmers are very poor and eliminating subsidies will
increase inequality

Against: Should be phased out as purpose used, benefits go the prosperous farmers and fertilizer
industry, burden on finances , incentive for wasteful use of resources
Critical Appraisal of Agricultural Development:

1) Land Reform and Green Revolution – greatest achievements

2) Increase in agricultural productivity
3) Self-sufficient in food production
4) Abolition of Zamindari system
5) Share in GDP declined but not population on it
6) Disguised Unemployment- 65% at 1990, industrial and service sectors unable to absorb extra
people involved in agriculture

INDUSTRIAL DEVELOPMENT

Benefits of Industrialization

 Provides employment, modernization and overall prosperity

 Limited industries at time of independence- cotton, jute and iron
 Increase in per capita income
 Diversification of market
 Helps earning foreign exchange
 Provides infrastructural facilities like railways, power generation

Role of Public Sector

 Shortage of Capital with Private sector

 Lack of Incentive with private sector
 Objective of Social welfare

Industrial Policy Resolution 1956 (IPR 2)

Comprehensive package of policy measures to cover issues connected with different industrial
enterprises, launched on 30th April 1956

Classification of Industries
Schedule A: Exclusively owned by the state, 17 industries-arms, atomic energy, railways, oil

Schedule B: Progressively state owned, state would take initiative of setting up industries and private
sector will supplement state efforts, 12 industries-aluminium, fertilizer

Schedule C: Owned by Private sector, controlled through IDR 1951 by the State through licenses

Industrial Licensing:

License – Written permission from government to industrial unit to manufacture goods

Enacted through Industries Development and Regulation Act 1951

1) Setting up of new industries

2) Expansion of existing ones
3) Diversification of products

 Easier to obtain license if industry in economically backward area, given certain concessions to
promote regional equality
 License to expand given if need for larger quantity in economy

Small Scale Industry

1955- Karve Committee (Village and Small-scale Industries Committee) using SSI for Rural Development

Maximum Investment: Five lakh in 1950 to one crore

 Employment Generation: Labour Intensive

 Need for protection from big firms: Reservation of Products, various concessions

Trade Policy: Import Substitution

Replacing imports by domestic production

 Protect domestic industries from foreign competition

 Savings of forex-risk of drain of Forex
 Achieving self-reliance

Tariffs: Taxes on imported goods

Quotas: Maximum limit on imports of a commodity by domestic producer

Appraisal of Industrial Development

 Proportion of GDP increased; 11% to 24.6%

 6% growth is admirable
 Well diversified sector
 Small scale industry-people with small capital
 Employment generation and equitable growth

Protection from foreign competition-

Inward looking trade strategy-failed to develop exports

Lack of Competition- no increase in product quality

Licensing Policy – Excessive regulation

Misuse -get license to prevent competition from starting

Time Consuming process to get license

Public Sector- Strong industrial base and development of backward areas

 Monopolise ineffectively in non-essential areas like Telecommunication, goods

 Precious funds channelized into unwanted areas
 Incurred huge losses but continued to function