Indian Economy

1950-1990

Notes
Poor Demographic
Stagnant Growth in
Indicators
Agricultural Sector

INDIA
Lack of Industrial
Decline of
Growth
Foreign Trade
 INDIA
It was necessary for the government to “PLAN”

To make economic planning effective, Planning Commission

was set up in 1950, with PM as the Chairperson

The planning commission fixed the planning period at five years,

and then begins the “Five Year Plans”.
Economic Planning can be defined as making major economic decisions (what, how and
to whom to produce) by the conscious decision of a determinate authority, on the
basis of comprehensive survey of the economy as a whole.
 Goals of Five Year Plans
1. Growth

Growth refers to increase in the country’s capacity to produce the output of goods and
services within the country.
Growth implies:
 Either a larger stock of productive capacity
 Or an increase in efficiency of productive capital and services.
 Or a larger supporting services (service sector)
GDP refers to the market value of all the final goods & services produced in the country
during a period of one year.
GDP growth should be derived from all three sectors (Primary, Secondary & Tertiary
Sector)
 Goals of Five Year Plans
2. Modernization

Modernization is needed to raise the standard of living.

Modernization includes:
 Adoption of New Technology: New technology should increase the production of goods
& services.
 Change in Social Outlook: Modernization also requires change in social outlook, such
as gender inequality etc.
 Goals of Five Year Plans
3. Self-Reliance

It means to have a development through domestic sources/ less dependency on external

sources. To promote economic growth and modernization, more stress should be on use
of own resources , so that dependency on foreign countries is reduced.
This policy of Self-Reliance was because of two reasons:
 To reduce Foreign Dependence: Specially to reduce food dependency from foreign
countries.
 To avoid Foreign Interference: India did not want any foreign country to interfere with
our policies.
 Goals of Five Year Plans
4. Equity

It means to raise the standard of living of all people and promote social justice.
Economic prosperity should be available to all sections(rich and poor) of the society.
Any Economy can develop when all objectives are fulfilled – Growth, Modernization, Self-
Reliance and Equity.
Agriculture Sector
Low Productivity

Outdated Disguised
Technolog Unemployment
y
PROBLEMS

High
Subsistence dependency
Farming on rainfall
 Agriculture Sector
GREEN
LAND REFORMS
REVOLUTIO
N
Change of ownership of
landholdings Increase in Production of
LAND REFORMS: Food grains (HYV seeds)
(a)Abolition of Zamindari System
 This would give incentives to the actual tillers to make improvements.
 Around 200 lakh tenants came direct contact with the government.
 This gave the farmers to increase output
 Drawback: Large Zamindars continued to own large areas of land , tenants were
evicted and zamindars claimed to be self – cultivators, even after getting the
ownership, the poorest farmers did not benefit from land reforms.
 Agriculture Sector
LAND REFORMS:
(b)LAND CEILING
It refers to fixing the specified limit of land which will be owned by an individual.
 Beyond specified limit, land will be taken over by the government and allotted to
landless or small farmers.
 The aim was to reduce the concentration of land ownership in a few hands.
 It helped to promote equity in agricultural sector.
 This was challenged by the large landlords. They delayed in implementation and the
delayed time was used to get land registered in the name of close relatives.
 Agriculture Sector
GREEN REVOLUTION:
The aim of this was to increase agricultural production and productivity of food grains
by the use of high yielding variety(HYV) seeds.
BENEFITS:
 These seeds can be used in
 Attainable Marketable Surplus: It refers to that part of
places with good irrigation
agricultural produce which is sold in the market by the
system
farmers after their meeting their own consumption.
 These seeds needs heavy
 Buffer Stock Of Food Grains: Enabled Govt to procure
dose
sufficient amount of food grains.
of chemical fertilizers
 Benefit to low-income groups: Due to increase in supply
 In order to seek benefit from
of grains, prices fell and this helped the low-income
HYV seeds, they needed good
groups as they spend large proportion of income
irrigation system and
on food.
financial
resources.
 Agriculture Sector
DRAWBACKS:
 Risk of Pest Attacks: There was risk that small farmers who adopted this technology could
lose everything in a pest attack.
 Risk of Increase in Income Inequalities: Risk that costly inputs required will increase the
disparity between small and large farmers. This is so because they can only afford the
required inputs.
 The Government provided loans at low interest rate to small farmers so that they can
purchase required inputs.

ECONOMISTS IN FAVOUR OF SUBSIDIES:

 Should continue as farming in India is still Subsistence Farming.
 Majority of people are poor and they cannot afford required inputs.
 Eliminating subsidies will lead to increase in Income Inequality.
 Agriculture Sector
ECONOMISTS AGAINST OF SUBSIDIES:
 After wide acceptance of technology, subsidies should be phased out as
purpose has been served.
Subsidies do not benefit the poor and small farmers(target group) as
benefits of substantial amount of subsidies benefit the prosperous farmers.

CRITICAL APPRAISAL OF AGRICULTURAL DEVELOPMENT (1950-1990)

(i) Agricultural production and productivity enhanced because of “Land Reforms” and “Green
Revolution”.
As
(ii) a result of Green Revolution, India became self-sufficient in food production. Land
reforms resulted in abolition of Zamindari System.
(iii) proportion of GDP between 1950 and 1990 contributed by agriculture declined.
The
(iv)
Around 65% of the country’s population continued to employ in agriculture, even in 1990.
This is so because industrial and service sector cannot absorb enough labours.
 Industrial Sector
At the time of Independence, the industries were limited. The cotton textile
and jute industries were mostly developed in India. There were two well-
managed iron and steel firms; one in Jamshedpur and other in Kolkata.
ROLE OF PUBLIC SECTOR IN INDUSTRIAL DEVELOPMENT
(i) 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. As a result, Govt had to undertake investments.
(ii) Lack of Incentive for 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 limited size of the market, there was low demand for the
industrial growth.
(iii) Objective of Social Welfare: The objective of equity and welfare of the
Government
could be achieved only through direct participation of the state.
 Industrial Sector
INDUSTRIAL POLICY RESOLUTION,1956
Industrial policy is a comprehensive package of the policy measures which
covers various issues connected with different industrial enterprises of the
country.

CLASSIFICATION OF INDUSTRIES
(i) SCHEDULE A : The first category comprises of industries exclusively owned by state.
17 industries were included (arms & ammunitions, atomic energy, heavy core
industries etc.)
(ii) SCHEDULE B: 12 industries were a part of this. The state would take the initiative of
setting up industries and private sector will supplement efforts of state. (aluminium,
mining industries, machine tools etc.)
(iii) SCHEDULE C: This included remaining industries which were to be in the private
sector. These industries were controlled by the system of licenses enforced under
Industries Act, 1951.
 Industrial Sector
INDUSTRIAL LICENSING
An industrial license in a written permission from the government, to an
industrial unit to manufacture goods.
 Setting up of new industries
 Expansion of existing ones
 Diversification of Products

According To Industrial Licensing

(i) No new industry was allowed unless a license is obtained from the
government.
(ii) It was easier to get license if industrial unit was set up in economically backward
area. Concessions were given to such units. The purpose of this policy was to
promote regional equally.
(iii) License was needed even if an existing industry wants to expand output or diversify
production. License was given if government was convinced that there is a need for
larger quantity of goods in the economy.
 Small Scale Industries
It is defined with reference to the maximum investment allowed on the assets of
a unit. The limit has changed from 5 lakh in 1950 to present one crore rupees.
In 1955, KARVE COMMITTEE recognized the possibility of using small scale
industries to promote rural development.

IMPORTANCE OF SMALL SCALE INDUSTRIES

(i) EMPLOYMENT GENERATION: They are more labour-intensive therefore generates
more employment. After agriculture, small scale industries provide employment to
most of the people in India.
(ii) NEED FOR PROTECTION FROM BIG FIRMS: Various steps taken by the government for
their growth:
 Reservation of Products: Govt reserved production of a number of products for the
small-scale industry. The criterion for reserving the products depended on the ability
of these units to manufacture the goods.
 Various Concessions: They were given concessions and bank loans at lower interest
rates.
 Foreign Trade
During 1950s, India’s major economic planning towards foreign trade was “IMPORT
SUBSTITUTION”. In order to be self- reliant , India followed the strategy of replacing
imports by domestic production.
IMPORT SUBSTITUTION
 Also known as Inward Looking Trade Strategy.
 It refers to policy of replacement or substitution of imports by domestic
production.
 The basic aim was to protect the domestic countries from foreign competition.
 This policy helped India in two main ways:
a) Saving of Foreign Exchange
b) Achieving Self- Reliance
GOVERNMENT PROTECTED IMPORTS IN TWO WAYS:
 TARIFFS: It refers to taxes on imported goods. Heavy tariffs made imported goods
expensive and discouraged their use.
 QUOTAS: Fixing the maximum limit on imports of a commodity by a domestic
producer. This helped the domestic producers to expand their production.
 Foreign Trade
REASONS FOR IMPORT SUBSTITUTION
 Indian industries were not in a condition to compete with developed economies.
 Restriction on imports was necessary as there was a risk of drain of foreign exchange
reserves on the import of luxury goods.
 Critical Appraisal of Industrial Development(1950-1990)
1) The proportion of GDP contributed by the industrial sector increased in the period
from 11.8% in 1950-51 to 24% in 1990-91. This was an important indicator of
industrial development.
2) Indian industries was no longer restricted to cotton textiles and jute. The industrial
sector became well diversified by 1990, largely due to the public sector.
3) The promotion of small scale industries gave opportunities to people with small
capital to start their own business. It helped in employment opportunities and
equity.
4) Import substitution was implemented to protect the indigenous industries. However,
this had two drawbacks:
 Inward Looking Strategy- This failed to develop a strong export sector
 Lack of Competition – Domestic industries made no sincere efforts to improve the
quality of their goods and services and it forced the Indian consumers to purchase
whatever was produced by them. The domestic industry failed to achieve
international standards of product quality.
 Critical Appraisal of Industrial Development(1950-1990)
5) Licensing Policy helped the govt to monitor and control the industrial production.
But had two major drawbacks:
 MISUSE: It was misused by big industrial houses. Big industrialists would get a
license,
not for starting a new firm, but to prevent competitors from starting new firms.
 TIME CONSUMING: The cumbersome and complex procedure for obtaining license
was very time consuming. A lot of time was spent in trying to obtain a license.

6) Public Sector made a remarkable contribution in developing industrial base,

infrastructure and promoting backward areas.
 Public sector continued to monopolise in non-essential areas which could
be well
handled by private sector. For example, telecommunication, hotel industry
etc.
 As a result, funds of public sector channelized into areas, where private sector could
have managed.
 Critical Appraisal of Industrial Development(1950-1990)
6) Public Sector made a remarkable contribution in developing industrial base,
infrastructure and promoting backward areas.
 The monopoly of public sector was criticized by many scholars. According to them,
The role of public sector should be limited to strategic areas like national defence and
private sector should be given the opportunity for non-essential areas.
AGRICULTURE SECTOR:
CONCLUSION
 Land reforms resulted in abolition of Zamindari System
 India became Self-sufficient in food production.

INDUSTRIAL SECTOR:
 The industries became more diversified as compared to the situation at
Independence. But excessive govt regulation prevented their growth.
 Many economists were not satisfied with the performance of public
sector
enterprises.

TRADE SECTOR:
 The policy of “Inward Looking Trade Strategy” failed to develop a
strong export
sector.
 Domestic producers did not have the incentive to improve the quality of goods that