Module 1

Development Policies and Experience (1947-

1990)
India – richer before independence
British invasion- early 17th century- 24 % GDP
At the time of independence GDP- 4%
Jawahar Lal Nehru- India under British rule -
poorer
Low Level of Economic Development under
colonial Rule
• Share of World trade- 24% & 27%- fell to 4%, 2%.
• Britain industrial revolution- made India de
industrialised.
• British rule started from Battle of Plassey – 1757 o 15
Aug 1947.
• Divided into 2 periods – Rule of East India Company-
1757- 1858
• Rule of British Crown – 1858 to 1947.
• British impoverished India – enriched their home
country – exploitation and stagnation.
 Features of India’s Low level of Economic
Development under Colonial Rule
• 1. Dismantling / destruction of Indian handicrafts
• destroyed handicrafts and cottage industries of India
– India became exporters of raw materials for British –
unemployment – weavers seriously affected.
• Decay of Indian handicrafts – reasons : disappearance
of princely courts, aggressive trade policy of Britain,
stiff competition from British machine made goods,
increasing demand for western commodities, railways
promoted British goods.
• 2. Progressive Ruralisation of Indian Economy
• Craftsmen and artisans unemployed shifted to
agriculture – increased the proportion
dependent on land – progressive ruralisation/
deindustrialisation.
• Middle of 19th century – 55% dependent on
agriculture- 1901 it increased to 68% and
about 72% in 1931.
• 3. Fall in per capita income
• Estimates of NI scientifically by Dadabhai Naoroji (1868),
William Digby (1899) and V. K.R.V. Rao 91931-32)- per capita
income declined .
• 4. Commercialisation of Agriculture
• It means production of food crops or cash crops for sale in the
market rather than for self consumption- underdevelopment of
the country – forced and artificial process for the majority of
Indian peasants
• Reduced area – under food crops – substitue non food crops/
cash crops – frequent occurrence of famines in India – Bengal
Famine in 1943.
• 5.Colonial rule created a new land system in
India
• 3 land systems – Zamindari ( first introduced
by Lord Cornwalls in Bengal in 1793, Ryotwari-
Thomas Munro in 1820, Mahalwari - Holt
Mackenzie 1822 – Rent high, no proper
revenue record – absentee landlords – leads
to concentration of economic ower in the
hands of few.
• 6. Series of famine under British Administration
• Poverty, malnourishment & hunger.
• Series of famines – 1770, 1783, 1866, 1873, 1892, 1897,
1943-44 ( Bengal famine) – deaths of millions of people.
• 7. Deteriorated India’s favourable trade pattern
• Mere supplier of Britain’s own goods- exporter of
Indian goods, eg: jute, cotton,wool & importer of
finished goods from Britain
• Indian goods- heavy import duties – structural changes
in India economy- weakened India’s base.
• 8. Backwardness of agriculture sector
• India- 85% - rural population
• Zamindari system- poor investment- high revenue
from peasants- no improvement in land.
• 9. Lack of invstmt in Indian industries/
deindustrialisation
• Only 10% - engaged in manufacturing/ industrial
sector.
• Lack of sufficient invstmt- unfavourable tariff
structure, Indian industries cut throat competition
• 10. Low eco. growth & std. of living
• Naoroji – NI Rs. 340 crore & Popn – 17 crores.
• PCI – Rs 20. poverty, unempyt, famines, malnourishment,
high birth rate & death rate.
• 11. Pathetic demographic profile
• Stagnant, underdeveloped & backward.
• BR & DR- 48 % 40 per thousand – popn growth stagnant
• IMR- 218/1000
• Life Expectancy Rate 32 years, literacy – less than 16 %.
• Low public exp on social infrastructure,health care &
awareness facilities.
• 12.Infrastructure Devt
• Ports, railways – Britain improved
infrastructure for the devt of their finished
pdts- posts and telegraps.
• British rule led to structural transformation-
colonial economy- inmpoverished India.
• Drain theory – Naoroji- 1901- Povrty &
Unbritish Rule in India.
• Devt & Structural Changes of Indian Economy
Since Independence
• Poverty, unempyt & inequality- transformed
India less developed to advanced economy.
• First PM- Nehru.
• Series of policy initiatives- New Industrial Policy
Resolution 1948, Planning Commission 1951,
FYP, National Devt Council 1952, welfare
programmes, green revolution, NEP etc.
 Structural changes in IE Since
Independence
• 1. Structural changes in sectoral contribution
towards India’s GDP
• 3 sectors – primary, secondary & tertiary
• When a country is undeveloped – more
dependence on agri. Sector, whwn developed
shift to industrial & service sectors gradually.
 Sector wise share in GDP ( %)
Sector 1950-51 1980-81 1990-91 2000-01 2012-13 2019-20

Primary 55.3 41.8 31.4 26.2 14.1 13.9

sector

Secondary 15.1 21.5 25.9 23.5 21.1 28.3

sector

Tertiary 29.6 36.7 42.7 50.3 64.8 57.8

sector

Source: Eco. Survey & CSO

• 2.Sectoral composition of Empyt & Devt since
Independence
• Decline in empyt in agriculture.
• Decline in workforce in agri & allied sectors by
over 36 million between 2004-5 & 2011-12.
• Primary sector – largest employer in India.
Share of various sectors in Employment (%)
Sector 1950-51 1990-91 1999- 2004-05 2011-12 2019-20
2000
Primary 72.1 66.91 59.9 58.5 48.9 43.21
sector

Secondary 10.6 12.7 16.4 18.2 24.2 24.89

sector
Tertiary 17.3 20.4 23.7 23.3 26.9 31.9
sector

Source: NSS Various Rounds

• 3. Growth Rate of GDP & PCI of India since Independence

• In 1947- 2.7 lakh crore- 3% of total world GDP

• 2019-20- GDP RS. 144.05 lakh crores- 7.4% of global GDP.
• 1947-48 PCI- Rs 230, 2019-20: 134226
• 2.84 trillion dollar economy
• India global economic powerhouse by 2024-25.
• Low savings & invstmt during colonial period
• Hindu rate of growth – low growth- before LPG – 1991- 3.5
% from 1950s to 80s- The term coined by Prof. Raj Krishna.
• First 50 years of 20th century- 1900 to 1950- GDP
growth rate 1%.
• 1950-80- 3.5%
• 1981-2000- 6%
• 2001 – 2020 – 8%
• Now- India 5th largest country by nominal GDP,
3rd largest by PPP.
• Acco. to IMF, on PCI basis India’s rank- 142 by
GDP (nominal) & 124 by GDP (PPP) in 2020.
• 4. Structural changes in Basic Industries
• Post independent India- imp to basic industrie-
fertilisers, steel, cement, coal, natural gas, electricity
• FYP- imp to 3 hydro electric projects- Bhakra Nangal
dam in Punjab, Hirakud- Mahanadi in Orissa,
NagarjunaSagar Dam- Krishna river in Andhra
Pradesh – These 3 called by Nehru as temples of
modern India.
• Second plan- Mahalanobis Growth Model- capital
goods industries.
• 5. Structural changes & Devt of Infrastructure
• Policy makers of India gave imp to –invstmt in
infrastructure- for rapid & inclusive eco. growth
– boost economy, empyt, competitiveness.
• British- devt of railway, road, telegraph- post
independent India – improvement.
• Pvt invstmt in infrastructure come from Public
private partnerships (PPP)
• 6. Structural Changes & Devt of Social
Infrastructure
• SI – imp- it improves human pdtivity, efficiency-
edn, health, training
• British time- pathetic social conditions.
• IMR- 200 in 1950, 47/1000- 2011 census
• Avg life expectancy at birth – 1951- 41.2 years
due to high IMR
• Literacy rate- 16.67% in 1951 & 74.04 in 2011.
• 7. Welfare programs & Devt
• Various empyt generating programs & poverty alleviating
programs
• Community Devt Program (CDP 2 october 1951
• TRYSEM- 1979
• JRY- 28 April 1989
• Rajiv Awas Yojana -2011
• MGNREGA – 2005
• Skill India – 15 July 2015
• Prime Minister Saubhagya Yojana – 2017
• Ujjawala Scheme ( 1 May 2016)
• 8. Devt in Banking sector
• Effective & efficient banking system – backbone of growing
economy.
• Significant changes in comm.banks, cooperative credit
societies.
• Imp to indigenous bankers & money lenders declined.
• Changed credit policy
• RBI nationalised in 1 Jan 1949
• 1 July 1955- Imperial bank nationalised- renamed as SBI
under SBI Act 1955
• 1959- 7 subsidiaries of SBI nationalised
• 19 July 1969- 14 comm. Banks nationalised.
• 15 April 1980- 6 pvt banks nationalised
• In early 1990s- LPG- govt issued license to pvt banks.
• Programs to boost manufacuring sector- Make in India,
Digital India, Start Up India, Connecting India, Skill
India.
• Imp to farming sector
• Growth of GDP, service sector, basic industries, devt of
social & physical infrastructure, banking sector.
• India- now emerging countries of the world.
 Eco. Policies Pursued – 1950 to 1980
• Main objectives of eco. Policies- to solve basic eco
problems of IE- Poverty, inequality & unempyt.
• Mixed economy- public & pvt sectors
• Role of public sector – areas like energy, infrastructure,
banking, basic & key industries
• Partial iberalization – during 1980s.
• 2 phases
• First – 1950-51 to 1979-80- phase of socialist
experimentation- Indian version of socialism- Import
substituting industrialisation- public sector played an imp
role.- expansion of state’s role- MRTP Act 1969.
• Second phase of eco devt - 1990s
• second Phase ( 1980-81 to 1990s)
• Beginning of 80s – partial liberalization & NEP
• Mkt experimentation – imp to pvt sector &
open economy- import substitution to export
promotion – import liberalisation.
• Socialistic pattern of society
• 1) Eco. Policies & IPR – 1950s & 80s
• Govt gave imp to IPR 1948, 1956, 1977 & 1980 &
reversed in 24 July 1991.
• Indusrtialisation – largely depends on industrial policy.
• Objectives of ind. Policies
• A) Increaing pdn & pdtivity
• B)Balanced ind. Devt
• C) Encouraging small scale industrie
• D)Preventing concentration of eco. Power by MRTP Act
• E) Limiting foreign invstmt in domestic
industry through FERA, 1973.
• F) Self reliance through import substitutio
oriented policies
• Industrial licensing & import licensing
• Protection to domestic industry- license raj
system.
• 2) Eco. Policies & FYPs
• Planning commission – 15 March 1950
• 1st FYP – imp to primary sector
• !950 to 80- 7 FYPs ( plan holisays, annual plans & rolling
plans).
• 1 FYP (1951-56)- agri.devt
• 2 FYP- (1956-61)- ind.devt – Mahalanobis model – socialistic
pattern of society.
• 3 FYP (1961-66) – balanced devt.
• 4 FYP (1969-74) – growth with stabilty, self reliance
• 5 FYP (1974-79) – poverty eradication
• Rolling plan (1978-80)
• 6 FYP (1980-85)- poverty eradication & self
reliance
• 7 FYP (1985-90) – growth, modernization, self
reliance & social justice- self sufficient economy.
• 12th FYP (2012-17)- last FYP in India.
• NITI Aayog transformed planning commission
on 1 Jan 2015.
• 3) Eco. Policies & agri. Sector
• Agri – backbone of IE – major source of livelihood
• Agri. Policy- for raising pdn & pdtivity, raising levels of income
& stds of living
• Objectives of eco. Policies in agri. Sector
• Increase agr. Pdn & pdtivity
• Increase empyt opportunities
• Reduce inequality of income in rural sector
• Eliminate role of non institutionnal lenders , ie. Money
lenders
• Adequate credit to agri.sector
• Improve infrastructure conditions
• Vibrant agri. Mkting system
• Crop insurance to farmers
• Agri. Oriented banks/ rural devt banks-
• LDBs
• NABARD 12 July 1982
• RRBs – Oct 2 1975
• Local Area Banks
• Intensive Agri. District Programme ( IADP 1960-61
• Green Revolution.
• 4) Eco. Policies & external sector
• Inward looking policies- not much progress in external
sector
• Imports – restricted – heavy import duties
• Fixed exchange rate regime – dual exchange rate, i.e. official
rate & black mkt rate.
• Rupee was devalued
• Import of foreign technology & capital controlled – FERA,
1973.
• Restricted flow of foreign K ( FDI & FII)
• Import substitution oriented policies
• 5) Foreign Trade
• 1950s – import substitution
• 1960s- export orientation & import substitution
• 1962- export subsidization policy
• Import controls, import licensing
• V FYP- export promotion & import substitution
• 1970s- deficit in trade balance
• 1973 oil crisis
• BOP crisis in 1980s
• After that NEP 1991- LPG
 Mixed Economic Framework
• 3 eco. Systems: Capitalist, socialist & Mixed – based on
the role of mkt forces & administered prices in eco.
activities.
• Mixed economy – pvt sector ( capitalism) & public
sector (socialism).
• ‘The General Theory of Empyt, Interest & Money’ in
1936 by J.M. Keynes- mixed eco became popular.
• India – mixed eco- after IPR 1948.
• In India some industries under public ownership, some
under pvt, some under PPP(Public Pvt Partnership).
• Role of public sector diminishing after NEP
• Role of pvt sector increasing – neo liberal policie of the govt.
• Pvt sector- engine of eco. Growth.

• Key Features of Mixed Economy

• 1. Govt as regulator & facilitator
• 2. Srategic sectors & monopoly of public sector
• 3. Balancing of eco. Welfare & profit motives
• 4. Role of eco. Planning
• 5. Free & controlled eco.devt
• 6. Role of administered price mechanism & mkt price mechanism
• Merits/ Advantages of ME
• 1. Adequate freedom to different eco. Units like
producers & consumers etc
• 2. pvt initiative- optimum utilization of available
resources
• 3. State- max. welfare to the public- protect interest of
marginalized sections of society.
• 4. Level of efficiency high (as competition between
public & pvt sector)
• 5. Devt of socio eco. infrastructures
• Demerits/ disadvantages of ME
• 1. Delay in decision making – make hindrance in the
smooth functioning of economy.
• 2. Stringent control by the govt against pvt sector-harm
the devt of pvt sector.
• 3. unstable in nature
• 4. pvt enterprises- not satisfied by govt policies
• 5. Chance of corruption & black marketing
• ME- rapid eco.devt, coordination of public & pvt
sectors.
 Mkt Intervention Policy & Import
Substitution
• MIP
• Regulatory actions by govt to affect or interfere with
decisions made by individuals, groups or organisations
regarding social and eco.affairs.
• It will correct mkt failures
• Main aim- maximise social profit & sustainable growth
• MIP- govt policy, eg: The Competition Act
2002replaced MRTP Act 1969
• MIP- eliminate monopolies & restrict negative
externalities.
• Aims of MIP
• 1. To minimize the bad effects of eco. Fluctuations
• 2. To provide producers/farmers with min. income, eg:
min. support price, buffer mkt operations, Agri.
Produce Mkt Regulations Act (APMC)3. To avoid
excessive prices for essential commodities- PDS, TPDS,
National Food Security Act 2013 – adequate supply of
essential commidities at affordable prices
• 3. Curtail csn of harmful commodities, alcohol, drugs
• 4. To promote general eco. Fairness.
 Import Substitution
• Vital measures of trade policy
• To change the eco structure of the country by replacing
foreign goods with domestic goods
• Inward oriented growth strategy
• Replacing imports from abroad with domestic pdn
• To reduce foreign dependency through domestic pdn
• Part of MIP of govt
• 2 objectives: save foreign exxchange for import of
essential goods
• Self sufficiency in pdn of goods
• Key features of IS
• 1. substituting imports with domestic pdn
• 2. protection of domestic industries
• 2 forms: quota, tariff
• Measures of promoting local industries, generate
empyt opportunities
• Save India’s foreign exchange reserves (forex)
• Protect domestic industries from foreig
competition.
 Objectives & strategy of planning
• Systematic technique for redressing all eco. Ills in the
country
• Developed, executed & monitored by planning commission
• Eco. Growth & human devt- broad objectives
• Planning – evolved from Directive Principles of State Policy
(DPSP).
• 1 FYP 1551-56
• 12 FYP 2012-17 – last one
• NITI Aayog – 1 Jan 2015
• 15 year vision document 2015-30
 Eco. Planning: Meaning & Definition

• Systematic & scientific utilization of available resources

to achieve nationalgoals
• Organized & coordinated effort to achieve certain self
defined objectiv
• Direction of pdtive activity by a central authority (Hayek)
• Objectives
• Long term goals: max. pdn, full empyt, eco. Equality &
social justice
• Planning & Poor- B.S. Minhas
• Broad & well defined objectives
• Basic goal – increase std. of living of the
people 4th FYP – garibi hatao & growth with
justice.
• Long Term Objectives
• 1. High growth rate