UNIT 11 INDIAN DEVELOPMENT

EXPERIENCE
Structure
11.0 Objectives
11.1 Introduction
11.2 Colonial Legacy - Initial Constraints
11.3 Five Year Plans-The \'c:iicle of Growth

14 Development Strategy -From 'Command and Control' to Liberalization

1 1.5 Developments in Certain Sectors of the Economy
11.5.1 Industrial Development
11.5.2 Agricultural Development
11.5.3 International Trade

11.6 Social Issues

11.7 Let Us Sum Up
11.8 Key Words
11.9 HintdAnswers to Check Your Progress Exercises

1 1 . OBJECTIVES
After going through this unit you should be able to:
discuss the growth path of the Indian economy;
identify the initial constrahitsfaced by the economy;
explain the limitations of the command and control policy;
explain the circumstancesunder which the new economic policy was launched;
and
find out the challenges to be overcome by the Indian economy.

1 . 1 INTRODUCTION
In recent years India has been able to achieve a growth rate of about 6 per cent per
mium in gross domestic product (GDP) for the period 1991-92 to 2006-07. If India
could sustain this growth rate, its GDP will double every 12 years. Such an achievement
is considered to be very good by world standards. There are rapid technological
developments in the country in many fields and we see Indian professionalsexcellingin
many parts of the world. There is an increase in Indian exports to foreign countries
leading to a rise in foreign exchange reserve. Alongside this, rapid inve~tmentsin
industries are taking place. On the whole, there is an atmosphere of dynamism and
optunismin the country.
These developments in India are somewhat new. Hardly two decades back, India
was: considered as an economy in deep crisis-economic growth was sluggish,foreign
 Preparatory Course exchange reserve was abysmally low, public debt was quite high, and many industrial
in Social Sciences units were running at a loss. Indian economy is often compared with an elephant -
large in size and slow to react. Interestingly, when the elephant moves, it creates a
strong impact. The real turn around in growth and technologicaldevelopment coincide
with a series of economic liberalization measures initiated in 1991. This leads many us
to believe that economic reforms in India has been successful. There are, however,
certain deep-rooted problems in the Indian economy that gets sidelined when we see
the growth performance.
In this unit we will discuss the factors that contributed to the development process. We
will learn how India could transform itself from a stagnant economy to a dynamic one.

I 11.2 COLONIAL LEGACY-INITIAL CONSTRAINTS

At the time of Independence India was in a precarious position - agriculture was
backward; industry had hardly come up; there was large scale illiteracy as well as ill-
health. Most people were ignorant of modem ideas. There was widespread poverty
and malnutrition. Infrastructuresuch as roads, railways, power and telecommunication
were not developed. There were very few schools and colleges, mostly in urban areas.
People did not have access to health facilities, as a result of which life expectancy was
very low. You can imagine the extent of backwardness from the fact that in 1951 only
18.3 per cent population was literate, life expectancy was 32 years and per capita
income was less than one-third of today's level. Per capita income of India was one
of the lowest in the world.
At that time agriculture was the backboneof the economy. Agriculture contributed 60
per cent of GDP in 1950-51 while industries contributed only 13 per cent. Production
technology was obsolete - tilling was through bullock power, cow dung was used as
manure,irrigation facility was non-existent except in few pockets, and locally available
seeds were used for cultivation. In such environment yield per hectare of land was low.
Most of the workforce was employed in agriculture. Industry had hardly developed.
On the whole, the standard of living of people was low. Due to low income people
were not in a position to save. Funds were not available for investment. Moreover,
there were very few entrepreneurs, who could take the risk of undertaking investment.
In the year 1951 savings was about 10 per cent of GDP compared to 29 per cent
today (in 2005-06).
The division of the country into India and Pakistan created widespread social turmoil
and displacement of people. It also had led to imbalances in supply of goods, particularly
food grains. The immediate task before the newly formed Indian government was to
restore supply of necessary commodities and to rehabilitate the displaced persons.
Moreover, India needed to grow as fast as possible. The task was enormous before
the planners - creation of a strong workforce through imparting education, provision
of health facilities to people, setting up of industries to provide modem amenities,
and development of infrastructure such as roads, railways, power plants,
telecommunication, etc. The constraints were equally forceful - lack of funds,
poverty and illiteracy of the masses, and shortage of technology to exploit the
available resources.

11.3 FIVE YEAR PLANS - THE VEHICLE OF

GROWTH
India started economic planning in 1951 in the form of Five Year Plans. The basic
.
objective was to accelezategrowth rge and give a direction to the development path.
At that point of time Russia (erstwhile USSR) had successfully implemented Five Year Indian Developn~ent
Experience
Plans and realized high growth rates. This provided incentives to leaders such as
Jawaharlal Nehru to draw lessons from Russia and pursue Five Year Plans in India.
In&a followed the policy of a 'mixed economy' where private sector and public sector
co-existed.

Tht: objective of the First Five Year Plan (1951-52 to 1955-56) was very
modest; it tried to consolidate the economy which was ravaged by the division of the
country in 1947 and the Indo-Pak war in 1948. With this objective in mind, the First
Fivs Year Plan emphasized agricultural development by bringing in more area under
cultivation,increasingarea under irrigation,and resettlement of displacedfamilies.While
the target was set at a modest 1.5 per cent per annum growth rate in GDP, the realized
growth rate was 3.6 per cent per annum. The enthusiasm of the planners can be judged
from the fact that India had just come out of nearly five decades long period (1901-
194-7)of stagnancy in production.

The more than expected performance of the First Five Year Plan made the
policy makers more optimistic and set higher goals for the Second First Five Year
Plan (1956-57 to 1960-61). The Second Five Year Plan was more elaborate
ancl larger in size (in terms of investments) than the First Five Year Plan. As we
will see below the Second Five Year Plan created the groundwork for development
of ',isocialist pattern of society. The principal objectives of the Second Five Year
Plan were

sizeable increase in national income so that standard of living of people can be

raised,

rapid industrialization with emphasis on basic and heavy industries,

expansion of employment opportunities, and

reduction in inequalities in income and wealth.

The Second Plan document stated that these objectives were to be pursued in a balanced
way, for excessive emphasison any one of them might damage the economy and delay
the realizationof the other objectives.In fact, the above four objectives were maintained
in rhe subsequent Five Year Plans also. However, the emphasis shifted from one
objective to another as India proceeded from one Five Year Plan to another. While the
first Five Year Plan put emphasis on agriculture, the second Five Year Plan (1956-61)
ant1the third Five Year Plan (1961-66)emphasized more on industrialization, particularly
on heavy industries. I

Wllile the 1950s was'a decade of hope and optimism, the 1960s was a decade of
despair. During the 1960s India had to tackle several crises: the Indo-China war of
19152, the Indo-Pak war of 1965, the severe droughts of 1965-66 and 1966-67.
Inclia lost two successive Prime Ministers, ~awkarlal~ e h r in
u 1964 and Lal Bahadur
Shastri in 1966. Moreover, the performanceof the third Five Year Plan was very poor
(a meager 2.8 per cent per annum) compared to earlier Plans. All these developments
prompted the policy makers to delay the launch of the fourth Five Year Plan to allow
for a period of consolidation of the economy. Thus there were Annual Plans for three
years during 1966-69.

By the late-1960s it was realized that the economic policy followed that far had not
been able to reduce poverty; the poor had not gained much from industrialization.
Preparatory Course Therefore, the fourth Five Year Plan (1969-74) laid special emphasis on removal of
in Social Sciences poverty as one of the important objectives. During 1973-74 there was a major global
hike in crude oil prices (as we see these days, in 2005-06) that increased our imports
bill considerably. Our exports were not enough to pay for our imports. This led the
Indian government to restrict the use of foreign exchange.Controlson import of goods,
even on machineries,were imposed to conserveforeign exchange. Self-reliance became
one of the major objectives of the fifth Five Year Plan (1974-79). In order to cope
with the turmoil, national emergency was declared in 1975. The excess controls imposed
on people led ultimately to the fall of the Congress government at the centre in 1977
and formation of a non-Congress government for the first time. The non-Congress
government, however, could not continue for long. The economic crisis deepened
further with drought, shortages and inflation.In 1980 there was a change in government
at the centre - the Congress party came back to power.

During the 1980s two Five Year Plans were implemented - the sixth Five Year Plan
(1980-85) and the seventh Five Year Plan (1985-90). During this period employment
generation became an important goal apart from increasing agriculturalproduction and
productivity of industries. The growth rate in GDP during the 1980s was 5 per cent
per annum, much higher the growth rate during 1980-90. There was discontinuationin
implementationof Five Year Plans during the period 1990-92 due mainly to change in
government at the centre. There was a major shift in economic policy towards
liberalization since 1991. We will discuss further on the circumstancesunder which a
policy shift took place in India in the next Section.

The eighth Five Year Plan (1992-97) and the ninth Five Year Plan (1997-2002) put
emphasis on economic growth and creation of infrastructure. The 1990s witnessed a
serious political crisis: the government at the centre changed many times -mostly
coalition governments remained in power. Earlier, during 1979-80 and again during
1990-92, the change in government resulted in the abandonment of the Plan prepared
by the erstwhile government. Since 1996, however, such practice has not taken place.
The economic reforms process has continued irrespective of which political party
remained in power.

India has completed the Tenth Five Year Plan (2002-07) and the eleventh Five year
Plan is in the offing. The tentli Five Year Plan continued the same objectives as the
ninth Five Year Plan.The eleventh Five Year Plan (2007-12) focuses on growth again.
However, it speaks of 'inclusive growth', that is, the growth process should not exclude
the marginalized sections of society like the poor, the women and children, and the
scheduled castes and the scheduled tribes.

Check Your Progress 1

Choose the most appropriate alternative.

1) At the time of IndependenceIndia

a) was industrially developed

b) was one of poorest countries

C) majority population were literate

d) none of the above

'2) When did Five Year Plan begin in India?

a) 1947

b) 1950

c) 1951

d) 1956
.3) Which of the following was emphasizedduring the fourth Five year Plan?
a) heavy industries
b) removal of poverty
c) higarion
d) exports

1 4 DEVELOPMENT STRATEGY - FROM

'COMMAND AND CONTROL' TO
LIBERALIZATION
'I'here is a difference between 'plan objective' and 'plan strategy'. While objective
relates to the goal to be achieved, strategy points out the path or procedure to be
followed to achieve the goal. Let us take a concrete example: suppose you reside in
I3elhi and your objectiveis to visit Jaipur during the forthcoming holidays. The options
( strategy) before you are either to take a bus or a flight to Jaipur. Notice that selection
of a particular strategy depends upon availability of resources; in this case time and
cost. If you can afford it, boarding a fight will cut short your journey time and you can
]-eachyour destination in an hour. Otherwise, if you do not have sufficient money, you
can take a bus that will take about five hours to reach Jaipur.
l'n Sectionli.3we mentioned the objectives of planning and how emphasis has shifted
from one objective to another. Moreover we discussed the developments that took
place during 1950-80. These changes were thought necessary keeping in view the
tlevelopments in the economy. Let us continue with the developments that took place
(luringthe 1980s and 1990s.
liecall that the Industrial Policy of 1956 emphasized on creation of a strong public
sector. The objective was to develop India as a socialist pattern of society. During the
1970s the government had exercised too much control on industries. A license was
I-equiredto establish a production unit. Permission from the government was required
to expand production capacity or change the location of the plant. Separate permission
was required if the proposal contained foreign collaboration. In many cases the
government decided the prices at which certain essential commodities (for example,
txment, fertilizer and medicine) could be sold. Such a policy is termed 'command and
control' policy.
'The policy of self-reliance pursued during 1970s had isolated the Indian economy
j'rom international trade. Indian producers did not explore the possibility of exporting
their products. There was no scope for adopting new technology developed abroad
clue to restrictions on imports. Import of consumer goods was ruled out. Thus Indian
producers faced no competition- neither on the domestic front (due to strict licensing
policy) nor h m foreign goods (due to restrictions on imports).
Preparatory Course In such an environment Indian producers had no incentivefor improving their efficiency.
in Social Sciences There was assured demand for whatever they produced. Thus the producers did not
look into product quality. The Indian consumers also were not exposed to foreign
products. On the whole, the cost of production was increasing due to low productivity.
India was considered as a 'high cost economy'. Due to price controls and obsolete
technology manyfirms were making huge losses.Thesefirms,however, were not allowed
to close shop, as it would make the workers unemployed. In order to protect the
interest of the factory workers, government nationalized many sick units, continued
production, and incurred heavy losses. Recall that in the industrial policy of 1956 it
was envisaged that the core (or basic) industries would remain with the government.
But over the decades the government produced everythmg; s t d g from bread, textiles
and automobiles to managing hotels. The emphasison productivityimprovement during
the seventh Five Year Plan was in response to the widespread industrial sickness.
Another crucial development during the 1980s was the problem of public debt. The
government provided subsidies to farmers,consumers and exporters. It also nationalized
many sick units to protect employment and incurred losses. The government mechanism
was expanding rapidly which required higher government expenditure. The scope for
generation of revenue though taxation was limited as tax rates were already too high
In order to carry out such expenditure the government resorted to huge public debt.
By the year 1990 the Indian situation was chaotic and there was a financial crisis
before the government.
In order to cope with the situation the government changed its position in 1991. The
new economic policy declared in 1991 brought in an atmosphere of economic
liberalization.Reforms were carried out on the following three lines.
i) There was emphasis on privatization. Existing loss making public sector units
were sold to private firms. Licensing policy was scrapped and no industrial license
was required to produce except for 6 strategic industries.Such measures increased
competition in the economy.
ii) The restrictions on foreign trade were removed. Import of machineries helped
Indian producers to increase their efficiency.Import of consumer goods increased
competition further and made Indian producers quality conscious. The government
reduced import duties to encourage imports. In turn, Indian producers aimed for
higher exports.
m) The government earlier controlled interest rate and foreign exchange rate -both
were kept artifkially low. During liberalization these controls were scrapped. As
a result, the exporters got true market price for their exports. The borrowers also
paid the real cost of their borrowing. You may be surprised that in the wake of
liberalization, in 1991, there was a sharp rise in interest rate. Still there was a
sharp increase in investment.Similarly, the value of foreign currency increased
sharply. As interest rate increased in India there was inflow of foreign funds.
Earlier banks were the only source of funding for investors. Financial liberdization
led to emergence of stock markets as an important source of funding.
The liberalizationmeasures helped bdia to come out of a crisis situation. As mentioned
in the beginning of the unit, India has been able to maintain high growthrate. Economic
liberalization has integrated India with the world economy. India is looking forward to
world markets for selling its products. Instead of self-reliance, there is emphasis on
foreign trade, both exports and imports. There is no need for restrictive foreign excharige '

policy as India is itia strong position withpfficient foreign exchange reserve.

 Indian Developnaent
115 DEVELOPMENTS IN CERTAIN SECTORS OF Experic:nce
THE ECONOMY
We have discussed in the previous section the developments that led to shift in
development strategy. Let us look into the developments in some of the important
sectors of the economy, viz., industries,agricultureand international trade.
ll.iS.1 Industrial Development
As mentioned earlier, at the time of Independence industry had hardly come up in
India. There were very few industries. Shortly after Independence(on 6~April 1948)
the governmentcame up withan industrialpolicy that emphasized the need for continuous
increase in industrial production and its equitable distribution. It also pointed out that
the government should play an active role in the development of industries.
Afit:r the First Five Year Plan was over, the government came up with the Industrial
Policy Resolution of 1956, which remained a benchmarkin policy formulation for the
nexl --five years. The industrial policy of 1956 drew upon the directive principles
of the Indian constitution, which states that 'the State shall strive to promote welfare of
the people by securing and protecting as effectively as it may a social order in which
justice, social, economic and political, shall inform all the institutions of the national
life'. Secondly, in 1954 the Indian parliament accepted 'socialist pattern of society' as
the c~bjectiveof social and economic policy. Thirdly,it was felt that in order to accelerate
growth and speed up industrialization it was necessary to put emphasis on heavy
industries and machine-making industries. Thus emphasis was laid on development of
iron and steel, non-ferrous metals, coal, cement and heavy chemicals. Keeping the
above factors in view it was suggested that the public sector should be expanded. A
strong public sector would create employmentand reduce the possibility of concentration
of wealth in a few hands. Thus public sector was viewed as a tool for containing
regional and interpersonal disparities.
The zxcessive control over industries through licensing policy had many adverseeffects
as mentioned earlier. One, it restricted competition among firms as new finns could not
entei: into the industry without a license.Two, the licensing policy led to corruption as
it wsls in the discretion of the bureaucrats to issue licenses. Three, industries found it
difficult to expand capacity and determine product price leading to higher cost of
production and losses. Four, there was no incentiveto improveproductivity and product
qual~tyin a command and control policy regime.
As mentioned earlier, there was a change in policy during the 1990s. The licensing
requrement was removed except for six industriesthat include manufacture of hazardous
chenlicals, alcoholic drinks and pharmaceuticals. Foreign equity participation up to
100 per cent is also allowed in many cases. Now a person can set up an industry
without taking permission from the government so long as it does not degrade the
environment.
The industrial growth during the post-reforms period, however, has not been too
encouraging. During the period 1991-2006 industrial output has grown at a rate of 6
per cent per annum, which is lower than the growth rate seen during 1980-90.
11.5.2 Agricultural Development
Food grains productionin 1950-51 in the country was 51 million ton while population
was 1359million. At that time there was some scope for bringing in more area under
Preparatory Course exhausted due to scarcity of land. Moreover, in the absence of irrigation facilities,
in Social Sciences agriculture too much was dependent on monsoon, which was quite erratic by nature.
During the 1960s the situation got really worse when India suffered two successive
droughts (1965-66 and 1966-67) in many parts of the country. In spite of large-scale
imports of food grains the deficiency could not be met. Moreover, import of food
grains was a drain on precious foreign exchange reserve. In order to meet the situation
the option before the government was to increase agricultural production by increasing
the yield of crops. Luckily around that time there was a break through in agricultural
technology in developed countries in the form of high yielding varieties (HYV)seeds.
These seeds were capable of absorbing a lot of chemical fertilizers in irrigated condition
and gave very high yields. The governmentof India immediately adopted this technology.
In order to maximize output, the government focused in areas that had assured inigation,
electric power, good roads and a dynamic farming community.The governmentprovided
seeds and fertilizers at subsidized rates.
The new agricultural strategy really worked, particularly in the case of wheat in the
initial years. The euphoria was so strong that it was termed 'green revolution'. During
the period 1967-68 to 1981-82 wheat production increased on an average by 5.2 per
cent per annum largely due to increase in yield. Secondly, when the yield of wheat
increased compared to other crops, there was shift in cropping pattern in favour of
wheat. Area underjowar and bajra cultivationdeclined when more and more land was
devoted to wheat cultivation. In later years, particularlyduring the 1980s yield of rice
also increased substantially. During 1981-82 to 1991-92 rice production increased on
an average by nearly 4 per cent per annum, again largely due to productivity increase.
The impact of green revolution on differentsections of society and geographical regions
has not been uniform. Farmers in the wheat growing areas, particularly Punjab and
Haryana, got the benefits in the beginning. Traditionally these areas are not suitable for
rice cultivation. However, when HYV (high-yielding variety) seeds in rice were
developed, these two states switched over to rice cultivation. Ground water being the
major source of irrigation in these areas and rice cultivation being water-intensive, the
water table in these areas has gone down. This has resulted in the drying up of tube
wells and current cropping pattern has become unsustainable.
HYV seeds are sensitive to water and chemical fertilizer. It means, if we supply more
fertilizer in the fields (of course, up to a limit!) agricultural production will increase. The
cash-rich big farmers could exploit the situation and poor farmers could not. Due to
short duration of the crop and insensitivity to light (means you can cultivate these crops
any time of the year), the farmers could go for multiple cropping in a year and get
higher income. Agricultural labourers also got benefited as the demand for labour
increased. In spite of the fact that green revolution has spread to all parts of the country,
there are many farmers who have not been able to reap the benefits. We still find the
prevalence of obsolete technology in agriculture in many parts of the country.
Since 1991 the growth rate of food grains production has been quite low, about 1.8
per cent per annum. Recall that this growth rate is almost equal to the population
growth rate of the country. Thus, per capita availability of food grains has not seen any
improvement during the 1990s. Researchers find that there is a slow down in the rate
of capitalformation in agriculture(that is, building of irrigationcapacity,land improvement
of permanent nature, etc.). The amount earmarked for agriculture in Five year Plans is
being diverted towards subsidies to farmers and consumers.An example of agricultural
subsidy is procurement of wheat and rice by the government.You may have observed
that government purchases food grains at higher price from farmers during harvesting
season, stores it in godown, and sells it to consumers at cheaper rates through fair
piice shops (part of the 'public distribution system'). You can make out that if you buy Indian Devmpment
a commodity and sell it at alower price, you will incur loss. On the same logic, when Experience
the government buys food grains from farmers at a higher price and sells it at a lower
price, the government has to divert funds from other activities. Here the govemment
has two objectives: i) to pay remunerative prices to farmers for their produce, and ii) to
mike available food grains at cheaper prices to the consumers, particularly the lower
income groups. In this process, the government has to incur some amount of subsidy.
Subsidy can be given not only on output but also on inputs. For example, the government
purchases fertilizer from producers and sells it to farmers at lower price. The objective
of the government in this case is to encouragefarmers to use chemicalfertilizers so that
agmxltural production willincrease.
11.5.3 International Trade
India opted for an inward-looking policy prior to 1991. It means that production of
goods was mainly for domestic market. Also production of goods was undertaken
through inputs and technology available in the domestic market. Foreign trade (both
experts and imports) was not emphasized. lmports were made when it was absolutely
necessary, that is, if inputs or technology were not available locally. Indian exports
were limited to raw materials and primary products. Exportsof industrial goods were
not possible, as Indian goods could not compete in the world market. On the whole,
foreign exchangeearning was a real constraint.
Before 1991, the govemment determined foreign exchange rate. Most of the times,
this ra.te was determined not on the basis of demand and supply considerations. The
govenment had kept the exchange rate lower than what should have been. As you can
make out, in such a circumstancesdemand would always be higher than supply. In
order to check the demand for foreign exchange, there was strict bureaucratic control.
One hid to obtain permission from the govemment to issue foreign exchange from a
bank. Apartfrom the bureaucratichassleinvolved and the scope availablefor conuption,
such a lmlicy was discouraging exporten. When you export some product you receive
payme,rltsin foreign currency, say dollars. As per government rule you were required
to sold these currency to the government at a lower price and be a loser. Moreover,
when you need to buy foreign exchange towards payments for your imports, you have
to obtain license and (may be) pay bribes for the same'. This policy led to large-scale
black marketingin foreign currency. The exchange rate in the black market was higher
which uras beneficial for both the sellers and buyers.
In 1991 the govemment left the foreign exchange rate to be decided by the supply and
demand conditions in the market. The government did not intervene the exchange rate,
except through buying and selling of foreign currency just hke other buyers and sellers.
Permission from the government (except in certain cases) was not required. It
encouraged the exporters to increase their exports as they got true worth. of their
exports. tt also facilitated importers to buy foreign exchange from the market and
import foreign inputs and technology.
In-addition, the government allowed foreign investors to participate in Indian stock
market, which brought.in foreign exchange. The interest rate in India, for quite some
time, was higher than interest rate in developed countries such as the United States.
The Indian government was giving higher interest rates on foreign currency savings
deposits by non-resident Indians (NIUs). The restrictionson foreign direct investment
were also removed. The combined effect of all these put India in a ~ ~ m f o r t a b l e
position so far as foreiLmexchange is concerned.
149
Preparatory Course Check Your Progress 2
in Social Sciences
1j What was the logic behind the emphasis on heavy industries in India?

2) In Sub-section 9.4.2 we have given two examples on subsidies - food subsid

and fertilizer subsidy. On that basis, mention how subsidies can be given t
exporters.

3) What were the benefits of green revolution?

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SOCIAL ISSUES - -- - - - -- --

Despite the rapid growth in GDP in past years and a newly perceived optimistic
outlook, several problems remain to be taken care of. Many persons, who are able
to work and willing to do so, are unemployed as there is no demand for their labour.
Even educated youths'fmd it difficult to find a job suitable to their qualification. You
may have observed that poverty and unemployment are closely related. If a person
does not find a productive employment (that is, a job which gives himher remunerative
wage) hislher income will be low. If other family members are also not employed, and
if the family does not have other sources of income, then the family will remain poor.
Unemployment leads to wastage of resources- the person could have been engaged
in work and some output could have been produced. Thus, at the national level,
unemployment means a loss of output. At the personal level, however, a lot of social
stigma and psychological trauma are associated with unemployment apart from the
loss of income.

In India about 26 per cent of the total population (30 crore) people are below poverty
line -that means one in every three persons is poor. 'Poverty line' means a level of
income that is just enough to meet the food requirements of a person. The.above
definition of poverty line is criticized on the ground that it does not take into account
other requirements of a person such as clothing, housing, education and health. Thus
when we talk of the families who are below the poverty line, we mean the families in
abject poverty -the families who do not even get adequate food to eat. The spread
of poverty is not uniform throughout India There are some states where the percentage
of population below the poverty line is very high while in others it is comparatively IndianDevelopment
Experience
low. You can make out that in India poverty is lower in the developed states and higher
in backward states.
In India the level of development is not unifonn throughout. Some states have higher
per capita income compared to others. The developed states have better infrastructure
such as roads, hospitals and schools. Moreover, people in developed states have
better access to electricity, drinking water, health services, and telecommunication. On
the other hand, backward states suffer from many problems: lack of rural roads,
drinking water supply, electrification, schools and colleges, hospitals, and
telesommunication.Somehow, poorer states do not have adequate funds to invest in
infrastructure.Their production base is low. It means that industries and service activities
have not come up in these states. Agriculture still contributes a high share in state
doniestic product (SDP) in these states.
You may be aware that agricultural income in India is not taxed. Therefore, the
backward states do not have enough scope to generate tax revenue. It works as a
vicious cycle: the backward states do not have enough revenue to undertakegovernment
expenditure. As aresult, they do not have better roads, electrification,schools, hospitals,
watcr supply, etc. As majority of population are poor they do not have demand for
modern industrial goods. The lack of a market for these goods and the shortage of
skilled manpower discourage entrepreneurs to set up industries in these states. The
state governments do not generate enough revenue due to lack of industries.
If we examine the experience of the states during the past twenty years, we find that
the rich states are getting richer while the poor states are getting poorer. In other
words, the disparity between states is increasing. During economic liberalizationthe
richer states have been able to attract more investments, and grown faster. On the
contrary, the poorer states have not been able to reap much of the benefits. Their
growth rate is relatively low.
In addition to the growth in regional disparity, there is increase in inter-personal
disparity in recent years. The rich have become richer while the poor have not been
able to increase their income. There is a general feeling that the poor have been
excluded from the growth process. In order to tackle this problem the Eleventh Five
Year Plan (2007-12) focuses on 'inclusive growth'. It means that the growth process
should include the left-outs - the poor, the unemployed, the economically backward,
and the marginalized sections of society.
Check Your Progress 3
1) Curing the past 15 years the gap in per capita income between rich and poor
states has
--
a) increased
b) decreased
c) remained unchanged
d) none of the above
2) Which of the follawing statement is not correct?
a) Backward states have higher percentage of population below poverty line.
b) Rich states have better infrslstructural facilities.
c) There is close link between unemployment and poverty.
d) About 10 per cent population in India is below poverty line.
151
Preparatory Course
in Social Sciences 11.7 LET US SUM UP
After IndependenceIndia resorted to Planning with an objective of faster development.
For this purpose Five Year Plans became an important mechanism.The main objectives
of planning have been growth, equality and modernization. Of these objectives growth
and modernization have been pursued vigorously while equality has somewhat been
relegated to the background. The GDP of India is increasing at a rate of about 6 per
cent per annum. If India could sustain growth at this rate, its GDP will double every 12
years.

The strategy of developmenthas changed over time. From the very beginning,however,
Indian plannershave put emphasis on heavy industries(capital goods industries)rather
I,
than consumer goods industries. The logic was that heavy industries would help in
maximizinglong-term growth of the economy. During the 1980s when it was realized 1I

that the strategy of heavy industrializationwas not in a position to reduce poverty there
. was a shift in policy. It was thought that a direct attack on poverty was needed to
improve the living standardsof the poor people through poverty alleviationprogrammes.
In the meanwhile, during the 1980s,it was felt that restrictions imposed on Indian
industries have scuttled.industrialgrowth. In 1991 there was a shift in development
strategy. India followed a liberalizedeconomic policy - the restrictions on industries
and foreign trade were removed.

India has been able to modernize its economy to a great extent, at least certain segments.
It has a strong production base including modern machineriesand equipment. Information
technology h& spread in many rural areas also. Service sector is growing very fast and
it contributes about 53 per cent of India's GDP.

There are some problem areas also. The gap between the rich and the poor is
widening over time. Similarly, there is an increase in regional disparity, which is
evident from the fact that the gap between the rich and the poor states is
increasing over time. The problems of poverty and unemployment are persistent. About
30 per cent of Indian population is still below the poverty line. There is a close link
between poverty and unemployment on the one hand, and poverty and social
backwardness on h e other.

11.8 KEY WORDS

Financial year : A calendar year is from January 1 to December 31.
In contrast, financial year is fromApril1 to March
31 of the next year. For example, financialyear 2006-
07 is the period April 1,2006 to March 31,2007.
Financial yearis used mostly for accounting purposes.

Gross Domestic Product : It is the sum of final goods and services produced
(GDp) within the geographical boundary of the country.

Growth and Development : Growth is defined as the increase in GDP or national

income. Development is broader term than growth;
it includes qualitative improvements such as
education,health, nutrition and empowerment. The
distinctioncan be explainedthrougha simpleexample:
with age a child grows in height and weight.
Simultaneously, however, the child develops the
 ability to speak and recognize objects. Note that Indian Develop~nent
Experience
there can be growth in a child without development
of mental faculty, as in a mentally challenged case.

Investment : It means spending that results in an increase in assets.

Life expectancy : The number of years that an individual is expected

to remain alive. It is determined on the basis of
statisticaltheory by taking into account a large group
of population in a country or region.

Literacy rate : The percentage of population who can read and

write.

Pel-capita income : It is the average annual income of people. It is

obtained by dividing national income by total
population in the country.

Poverty Line : This reflects the minimum income required for a

person to be able to meet hisher food need. In the
year 1999-2000 the poverty line was defined as per
person expenditure of Rs 335 per month in nualareas
and Rs 451 in urban areas.

Primary Products : It means agricultural products and raw materials.

Public Sector : It refers to industries owned by the government

(central, state or local). It is different from private
sector where ownership remains with individuals.

: Savings means that part of your income which is not

consumed. Saving may result in investment by the
person who saves or by others who borrow.

Work force : It is the total of persons who can work and who are
willing to work. Thus the aged and children are not
included in the work force. The persons who are
sitting idle but not looking for work are also not
included in the work force.

1 11.9 ANSWERSMINTS TO CHECK YOUR

1 PROGRESS EXERCISES
/ Chwk Your Progress 1

2) c 3) b
1
Check Your Progress 2
I 1) The logic behind emphasis on heavy industries are: i) individuals may not be in
apposition to development these industries as these require huge investments, ii)it
will reduce concentration of wealth, and iii) it will increase growth rate of the
economy in the long run as they supply the basic inputs to other industries.
Preparatory Course 2) The Indian government was giving concessions to exporters (cheaper inputs, tax
in Social Sciences rebate, etc.) for quite some time. The objective was to encourage exports so that
foreign exchange is earned.

3) Green revolution helped in i) increase in production through higher yield, ii) scope
for multiplecropping, iii) employme& generation for agriculturallabourers, and
iv) solving food problem in the country.

Check Your Progress 3