TNPSC

11th Economy
Learn from the Experienced
Chapter-8
Indian economy before and after
independence

Introduction
1. Colonialism refers to a system of political and social relations between two countries
one is the ruler and other its colony

Indian economy during the British period

1. India's sea route trade to Europe started only after the arrival of Vasco da Gama in
Calicut in India on May 1498
2. 1601 east India company was chartered and the English began their first inroads into
the Indian Ocean
3. In 1614 sir Thomas Roe was successful in getting permission from Jahangir for setting
up factories and slowly moved all parts of India
4. Hundred year after the Battle of Plassey (1757), the rule of the East India Company
finally came to an end
5. In 1858 British parliament passed a law in which the power for Governance of India
was transferred from the East India Company to the British crown did not materially
alter situation
6. The British had exploited India over a period of two centuries of its colonial rule
7. Economic historians have divided the whole period into three phases namely the
period of merchant capital, the period of industrial capital, period of financial capital

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Period merchant capital

1. The period of Merchant capital was from 1757 to 1813
2. The only aim of the East India Company how to earn profit by establishing by
monopoly trade in the goods with India
3. They considered India as the best hunting ground for capital by the East India
Company to develop industrial capitalism in Britain
4. when Bengal and south India came under political shake of the East India Company in
1750 and 1760, the objective of monopoly trade was fulfilled
5. The company administration succeeded in generating huge surpluses which were
repatriated to England, Indian leaders linked this problem as a drain of wealth
6. Above all the officers of the company were unscrupulous and corrupt

Period of industrial capital

1. The period of industrial capital (1813 to 1858)

2. During this period India had become a market for British textiles
3. India's raw material were exported to England at low price and imported finished
textile commodities to India at high price
4. India's traditional handicrafts were thrown out of gear

Period of Finance capital

1. It starting from the closing years of the 19th century and continuing till independence
2. During this period, finance imperialism begins to entrench itself through the Managing
agency firms, export, import firms, exchange banks and some export of capital
3. Britain decided to make massive investment in various fields like rail, road, postal,
irrigation, European banking system etc in India by plundering Indian capital
4. Railway construction policy of the British led to unimaginable as well as uneconomic
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5. The poor Indian taxpayers had compelled to finance the construction of Railways
6. The political power was handed over to the British government from east India
company in 1858

Decline of Indian handicrafts

1. The Indian handicraft products had a worldwide market
2. Indian exports consist of hand weaved cotton and Silk fabrics, calicoes, artistic wares,
wood carving etc
3. Discriminatory tariff policy, British government purposefully destroyed the handicraft
4. The disappearance of Nawab and Kings, there is no one to protect Indian handicraft
5. Indian handicraft could not compete with machine made products
6. Introduction of railways in India increase the domestic market for the British goods

Land tenure system in India

1. Land tenure system refers to the system of land ownership and Management
2. This feature that distinguish a land tenure system from the others relate to the
following
A. Who owns the land
B. Who cultivates the land
C. Who is responsible for paying the land revenue to the Government?
Three different types of land tenure existed in India before independence they were
Zamindari system, Mahalwari system and Ryotwari system

Zamindari system or landlord tenant system

1. This system was created by the British East India company in 1793
2. Lord Cornwallis introduced permanent settlement act, under the system landlords or
zamindars were declared as the owners of the land

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3. They were responsible to pay the land revenue to the government

4. The share of the government in total rent collected was fixed at 10/11th, the balance
was given to the Zamindar as remuneration

Mahalwari system or communal system of farming

1. After introduction of the system, it was later extended to Madhya Pradesh and Punjab
2. The ownership of the land was maintained by the collective body usually the villagers
which served as the unit of Management
3. Distributed land among the peasants and collected revenue from them and pay it to
the state

Ryotwari system or the owner- cultivator system

1. This system was initially introduced in Tamilnadu and later extended to Maharashtra,
Gujarat, Assam, Coorg, East Punjab Madhya Pradesh
2. Under this system the ownership right of use and control of land were held by that
tiller himself
3. There was a direct relationship between owners
4. This was the least oppressive system before independence

Important industrial policies prior to 1991

1. India is the Asia's third largest economy

2. 70 years of independence have brought a Remarkable change in the socio-economic
landscape of India

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Industrial policy of India

1948, 1956, 1977, 1980, 1990 and 1991

1. Economic development of a country depends on the process of industrialisation

2. At the time of independence India’s industrial base was weak
3. During the post-independence period the Government of India special emphasis on the
development of a solid industrial base
4. The industrial policy resolution of 1948 and 1956 state the need for developing both
small-scale industries and large-scale industry

Industrial policy resolution 1948

1. The Government of India declared its first industrial policy on 6th April 1948
2. The main importance of this policy that to make India the system of mixed economy
3. The industries were classified into four groups such as public sectors, private sector,
public cum private sector and cooperative sector
4. This policy endeavoured to protect Cottage and small-scale industries
5. The central and state government had virtual monopoly in railroads and exclusive rights
to develop mineral, iron ore etc
6. The government encouraged the significance foreign capital for industrialisation but the
government decided that the control should remain with Indian hands

Industrial policy resolution 1956

1. This policy gave dominant role to public sector at the same time it assured a fair
treatment to the private sector

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2. The government would support and encourage cottage and small-scale Enterprises by
restricting volume of production in the large-scale sector by differential taxation or by
direct subsidies
3. This industrial policy emphasized reducing regional disparities in levels of development
4. The government recognised the need for foreign capital for progressive Indianization of
foreign concerns

Green Revolution

1. The term green revolution refers to the technological breakthrough in agricultural

practices
2. During 1960's the traditional agriculture practices were gradually replaced by modern
technology
3. It was called as the high yielding varieties programme (HYVP)

Achievement of Green Revolution

1. Boost the production of major cereals eg; wheat and rice

2. India was depending on the US for the food grains
3. The United States by using public law 480 exported wheat to India
4. On other side Indian mineral resources was exploited at cheapest rate for
manufacturing missiles and weapons which gave job opportunity for larger United
States youth and largely contributed to US GDP
5. Now India is food surplus exporting food grains to the other European countries
6. The Green Revolution confined only to high yielding varieties cereals
7. The strategy was mainly directed to increase the production of commercial crops or
cash crops such as sugar cane, cotton, jute oilseed and potatoes
8. Per hectare productivity of all crops had increased due to better seeds
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9. Green revolution had positive effect on development of industries in which

manufactured agriculture tools like tractors, engines, threshers and pumping set
10. Green revolution had brought prosperity to rural people
11. Increased production has generated employment opportunities for rural masses, which
raised their standard of living
12. Due to multiple cropping and use of chemical fertilizers the demand for labour
increase
13. Financial resources were provided by banks and cooperative societies, banks provided
loans to farmers on easy terms

Weaknesses of Green Revolution

1. Indian agriculture was in the hands of gambling of monsoon

2. This strategy needs heavy investment in seeds, fertilizer, pesticides and water
3. The income gap between large marginal and small farmers had increased
4. The gap between irrigated and rainfed area had widened
5. Except in Punjab and Haryana, farm mechanization had created widespread
unemployment among agricultural labourers in rural area
6. Largest chemical use and inorganic materials reduced the soil fertility and spoiled
human health

Second Green Revolution

1. The Government of India implemented the second Green Revolution to achieve higher
agriculture growth
2. To increase 400 million tons of food grain production as against about 214 million
tons in 2006 and 2007, this to be achieved by 2020

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3. In agriculture sector the growth rate 5% to 6% has to be maintained over next 15

years

Need of second Green Revolution

1. Introduction of genetically modified seeds with double the per acreage production
2. Contribution of private sectors to market the usage of genetically modified foods
3. Government can play a key role in expediting irrigation schemes and managing water
resources
4. Linking of rivers to transfer surplus water to deficient areas

Large scale industries

1. Industries which requires huge infrastructure, manpower and have an influx of capital
assets
2. All the heavy industries of India like the iron and steel industry, textile industry,
automobile and manufacturing industry fall under the large-scale industry
3. Information Technology industry can also be included within the jurisdiction of the
large-scale industrial sector
4. Indian economy is heavily dependent on the large-scale industry for its economic
growth, generation of foreign currency and providing job opportunities to millions of
Indians

The following are the major large-scale industries in India

Iron and steel industry
1. The first steel industry at kulti near Jharia, west Bengal, Bengal iron works company
in 1870

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2. The first large scale steel plant TISCO at Jamshedpur in 1907 followed by IISCO at
Burnpur in 1919 both belong to private sector
3. The first Public Sector Unit was Vishveshvaraya iron and steel works at Bhadrawati
4. All these are managed by Steel Authority of India Limited (SAIL), (at present all
important Steel plants except TISCO are under public sector)
5. Steel Authority of India Limited (SAIL) was established in 1974 and was made
responsible for the development of steel industry
6. Presently India is in the eighth largest steal producing country in the world

Public sector Steel plants

a. Rourkela (orissa)- germany
b. Bhilai (madhya Pradesh)- russia
c. Durgapur (west Bengal)- united Kingdom
d. Bokaro (jharkhand)- russia
e. Burnpur (west Bengal)- Acquired from private sector in 1976
f. Visakhapatnam (Andhra Pradesh)- russia
g. Salem (Tamil Nadu)- government of India- no external assistance
h. Vijai nagar (karnataka)- Government of India
i. Bhadrawati (karnataka) - nationalisation of Vishveshvaraya Iron and Steel Limited
(owned by centre and state government)

Jute industry
Jute industry is one of the important industries in India it earns foreign exchange but
also provide substantial improvement opportunities in agriculture and industry sector
The first modernised industrial unit was established at Reshra in West Bengal in 1855
The jute industry in the country is traditionally export oriented
India ranked number one in the raw jute production and number two in export of
jute goods in the world.
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Cotton and textile industry

Oldest industry of India and employs largest number of workers

It is the largest organised and broad-based industry which accounts for 4 percentage
of GDP, 20% of manufacturing value added and one-third of export earnings
The first Indian modernised cotton cloth mill was established in 1880 at fort Gloaster
near calcutta but this Mill was not successful
The second mill named Mumbai's spinning and weaving co was established in 1854 at
Bombay by KNG Daber

Sugar industry
Sugar industry is the second largest industry among agriculture-based industries in
India
India is now the largest producer and consumer of sugar in the world
Maharashtra contributes over one third of the total sugar output followed closely by
Uttar Pradesh

Fertilizer industry
India is the third largest producer of nitrogenous fertilizers in the world

Paper industry
The first mechanised paper mill was set up in 1812 at Serampur in West Bengal
The paper industry in India is ranked among the 15 top Global paper industries

Silk industry
India is the second largest country in the world introducing natural silk
Present India produce about 16 % silk of the world
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India enjoys the distinction of being the only country producing all known five
commercial varieties of silk
Example; Mulberry, Tropical Tussar, Oak Tussar, Eri and Muga

Petroleum and natural gas

First successful oil well was dug in India in 1889 at Digboi, Assam
For exploration purpose oil and natural gas Corporation (ONGC) was established in
1956 at Dehradun, Uttarakhand

Small scale industry

Small scale industries play an important role for the development of Indian economy
in many ways
About 60 to 70 percentage total innovations in India comes from the small-scale
industry

Role of small-scale industry in economic development

Provide employment

Small scale industry use labour intensive techniques

They provide employment opportunities to a large number of people and they reduce
unemployment
Small scale industry provide employment to artisans, technically qualified persons and
professionals, people engaged in traditional arts, people in village and unorganised
sector
The employment capital ratio is high for the small-scale industry

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Bring balanced regional development

Small scale industry promotes decentralized development of industries

Most of the small-scale industry setup in backward and rural areas
They remove regional disparities by industrializing rural and backward area and bring
balanced regional development
To reduce the problems of congestion, slums, sanitation and pollution in cities
They mostly found in outside city limits
They help in improving the standard of living of people residing in sub Urban and
rural areas in India
The entrepreneurial talent is tapped in different regions and the income is also
distributed instead of being concentrated in the hands of a few individual or business
families

Help mobilization of local resources

Small scale industries help to mobilise and utilise the local resources like small saving,
entrepreneurial talent etc
They Pave way for promoting traditional family skills and handicrafts
There is a great demand for handicraft goods in developed countries
They help to improve the growth of local entrepreneurs and the self-employed
professionals in small town and villages in India

Pave for optimisation of capital

Small scale industries require less capital per unit of output

They provide quick return on investment due to shorter gestation period

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Small scale industries function as a stabilizing force by providing high output capital
ratio as well as high employment capital ratio
The increase the people’s standard of living in rural areas and small towns to
mobilize savings and analyse them into industrial activities

Promote Exports
Small scale industry does not require sophisticated machinery
Hence import the machine from abroad is not necessary
They reduce the pressure on the country's balance of payment
Small scale industries earn valuable foreign exchange through exports from India

Complement large-scale industries

Small scale industries play a complementary role to large scale sectors and support
the large-scale industries
By providing spare parts, components, accessories to large-scale industries
Small scale industry serves as an ancillary to large scale unit

Meet consumer demands

Small scale industries produce wide range of products required by consumers in India
Hence, they serve as an anti-inflationary force by providing goods of daily use

Develop entrepreneurship

Small scale industries help to develop a class of entrepreneurs in society

They help job seekers to become job givers
They promote self-employment and spirit of self-reliance in the society
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Small scale industries help to increase the per capita income of India in various ways
They facilitate the Development of backward areas and weaker sections of society
Small scale industries are adept in distributing National income in more efficient and
equitable manner among the various participants of the society

Micro small and medium enterprises (MSME)

Manufacturing Enterprises

Micro manufacturing Enterprises

1. The investment in plant and machinery does not exceed rupees 25 lakhs

Small manufacturing Enterprises

1. Investment in plant and machinery is more than 25 lakh rupees but does not exceed
rupees 5 crore

Medium manufacturing Enterprises

1. The investment in plant and machinery is more than 5 crores but does not exceed
rupees 10 crores

Service Enterprises

Micro service Enterprises

1. The investment in equipment does not exceed rupees 10 lakhs

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Small service industries

1. The investment in equipment is more than 10 lakhs but does not exceed rupees 2
crores

Medium service Enterprises

1. The investment in equipment is more than 2 crores but does not exceed 5 crores

Public sector and private sector bank

Public sector banks

1. In public sector banks the government holds major portion of the shares
2. Example; state Bank of India is a public sector bank, the government holdings in this
bank is 58.60%
3. Similarly, in Punjab National Bank government's stake is around 58.87%

Public sector banks are classified into two categories

a. Nationalised bank
b. State Bank and its Associates

1. In case of Nationalised banks, the government controls and regulate the functioning of
the banking entity

Private sector banks

1. In these banks most of the equity is owned by private bodies, corporations,
institutions or individuals rather than government
2. These banks are managed and controlled by private promoters
3. Total banking industry in India public sector banks constitute 72.9% share while the
rest is covered by private players
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4. Currently in India we have 34 banks- 12 public sector banks and 22 private sector
banks
5. Reserve Bank of India the apex banking body give license to payments bank and
small finance banks
6. As an attempt to boost the government's financial inclusion drive Airtel payment Bank
and Paytm payments Bank have entered into banking sector

Nationalisation of banks
1. After independence government planned economic development, five-year plans came
into existence since 1951
2. The main objectives of economic planning aimed at social welfare
3. Before independence commercial banks were held in the hands of private individual
4. These commercial banks failed in helping the government to achieve social objectives
of planning
5. Therefore, the government decided to Nationalise 14 major commercial banks on 19th
July 1969
6. In 1980 again the government took over other 6 commercial banks

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Objectives of nationalisation
1. The main objectives of nationalisation were to attain social welfare
2. Agriculture, small scale and village industries needed funds for their expansion and for
economic development
3. Nationalisation of banks helped to curb private monopolies and to ensure a smooth
supply of credit to socially desirable section
4. In India nearly 70 percentage of population lived in rural areas therefore it was
needed to encourage the banking habit among the rural population
5. Nationalisation of banks was required to reduce the regional imbalances
6. Before independence the number of banks was certainly inadequate and after
nationalisation new branches were opened in both rural and urban areas
7. Banks created credit facility mainly to the agriculture sector and its allied activities
after nationalisation

Performance of India's five-year plans

1. Economic planning is the process in which the limited natural resource is used
skilfully to achieve the desired goals
2. The concept of economic planning in India is derived from Russia
3. India has launched 12-year plans so far
4. Twelfth five-year plan was the last one
5. The Government of India has stopped launching five-year plans and it was replaced
by NITI Aayog

First five-year plan (1951-1956)

1. It was based on the Harrod-Domar model
2. Its main focus was on the agricultural development of the country
3. The plan was successful and achieved the GDP growth rate of 3.6%
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Second five-year plan (1956- 1961)

1. It was based on the P.C Mahalanobis model
2. Its main focus was on the industrial development of the country
3. This plan was successful and achieve the growth rate of 4.1%

Third five-year plan (1961- 1966)

1. This plan was called Gadgil Yojana
2. The main target of this plan was to make the economy independent
3. Due to Indo China war, this plan could not achieve its growth target of 5.6%

Plan holiday (1966- 1969)

1. The main reason behind the plan holiday was the Indo Pakistan war and failure of
third plan
2. During this plan annual plans were made and equal priority was given to agriculture
and its allied sectors and industrial sector

Fourth five-year plan (1969-1973)

1. There are two main objectives of this plan they were
2. Growth with stability and progressive achievement of self-Reliance
3. This plan failed and could achieve growth rate of 3.3% only against the target of
5.7%

Fifth five-year plan (1974- 1979)

1. The top priority was given to agriculture, next industry and mines
2. Overall, the plan was successful and achieved the growth rate of 4.8% against the
target of 4.4%
3. This draft was prepared and launched by D.P. Dhar
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4. This plan was terminated in 1978

Rolling plan
1. This plan was started with an annual plan for 1978- 79 and as a continuation of the
terminated fifth five-year plan

Sixth five-year plan (1980 - 1985)

1. The basic objective of the plan was poverty eradication and technological self-Reliance
2. Garibi hatao was the motto
3. It was based on investment Yojana
4. Its growth rate was 5.2% but it achieved 5.7%

Seventh five-year plan (1985- 1990)

1. Objective of this plan to include the establishment of the self-sufficient economy and
opportunities for productive employment
2. For the first time private sector has got the priority over public sector
3. The growth target was 5.0% but achieved 6.0%

Annual plans
1. Eighth five-year plan could not take place due to volatile Political situation at the
centre
2. SO, two annual programs are formed in 1990- 91 and 1991- 192

Eight five-year plan (1992-1997)

1. The top priority was given to development of the human resources
example; employment education and public health
2. During this plan new economic policy of India was introduced

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3. This plan was successful and got annual growth rate of 6.8% against the target of
5.6%

Ninth five-year plan (1997- 2002)

1. The main focus of this plan was growth with justice and equality
2. This plan failed to achieve the growth target of 7% and Indian economy grew only at
the rate of 5.6%

Tenth five-year plan (2002- 2007)

1. This plan aimed to double the capital income of India in the next 10 years
2. Aimed to reduce the property ratio to 15% by 2012
3. Its growth target was 8% but achieved only 7.2%

Eleventh five-year plan (2007- 2012)

1. Its main theme was faster and more inclusive growth)
2. Its growth rate target was 8.1% but it reached only 7.9%

Twelfth five-year plan 2012-2017

1. Its main theme is faster more inclusive and sustainable growth
2. Is growth rate target being 8%

NITI Aayog- national institution for transforming India

1. The planning commission has been replaced by NITI Aayog on 1st January 2015
2. It will monitor, co-ordinate and ensure implementation of the accepted sustainable
development goals
3. Its serve as a knowledge hub and monitor process in the implementation of policies
and programmes of the Government of India
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Development indicators

Human Development Index

1. United Nations development programme has been publishing human development report
annually since 1990
2. Human Development Index help the government to the real uplifting of standard of
living of the people
3. Human development index was developed by the Pakistani economist Mahbub ul Haq
and the Indian economist Amartya Kumar Sen in 1990 and was published by the
United Nations development programme
4. It is constructed based on life expectancy index, education index and GDP per capita

Human Development Index is based on the following three indicators

A. Longevity is measured by life expectancy at birth
B. Educational attainments
C. Standard of living, measured by real GDP per capita

1. As per 2016 human development report united Nations development programme, India
has been ranked 131 out of 188 countries
2. India lies in medium Human Development bracket
3. The Other Nation such as Bangladesh, Bhutan, Pakistan, Kenya, Myanmar and Nepal
attained the medium Human Development
The top three countries of Human Development Index
A. Norway
B. Australia
C. Switzerland

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Physical quality of life index (PQLI)

1. Morris De Morris developed the physical quality of life index
2. It is measure to calculate the quality of life
Included three indicators such as
A. life expectancy
B. Infant mortality rate
C. Literacy rate
3. The main difference between human development index and physical quality of life
index is inclusion of income in HDI and exclusion of income from (PQLI)
4. Human Development Index has both physical and financial attributes of development
5. Physical quality of life index has only the physical aspects of life

GOOD LUCK

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