Indian Economic Development

PA-I Syllabus
Important Questions with Answer

Indian Economy on the Eve of Independence

01. For which industries was `India particularly." well-known during the British colonial rule and why?
(a) State any one positive contribution made by the British in India.
(b) Indicate the volume and direction of foreign trade of India at the time of independence.
Ans. (a) Construction of railways is a notable positive contribution by the British government. It
served as a critical infrastructural facility in the Indian economy.
(b) Owing to colonial exploitation of the Indian economy, India was net exporter of raw
materials and primary products such as raw silk, cotton, wool, jute, indigo, sugar, etc., and
importer of finished goods produced by the British industry such as cotton, silk and woollen
clothes, besides several types of capital goods produced in England. Thus, at the time of
independence, volume of India's foreign trade was fairly large (though any precise
quantitative information is lacking). Surprisingly, despite backwardness of the economy, our
exports exceeded our imports. It was due to large scale exports of raw material to Great
Britain to eater to the industrial needs of that country.
As. regards direction of trade, more than half of India's foreign trade was restricted to Britain while
the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia (Iran).
Opening of Suez Canal in 1869 significantly reduced the cost of transportation of goods between
Britain and India. A significant reduction- in transport cost promoted monopoly control of India's
foreign trade by the British government.
Briefly, both volume of trade and direction of trade were dictated by the British rulers
depending upon requirement of their domestic economy.
02. What was the two-fold motive behind the systematic de-industrialisation effected by the British in pre-
independent India?
Ans. Thee two-fold motive for the systematic destabilisation of indigenous Indian industries in the
British era is as under:
One, it was to exploit India's wealth of raw material for the then expanding process of
industrialisation in Britain. Supplies of raw material were diverted from indigenous industries to the
expanding industries in Great Britain. It was possible simply because India was treated as a colonial
territory of Great Britain.
Two, it was to exploit Indian economy as a potential market for the industrial products of Britain.
Great Britain was experiencing industrial revolution. Revolutionary expansion of industry in
Britain required an equally revolutionary expansion of the market for the British industrial
goods. The trade policy adopted by 'the British was such that the British products started
replacing Indian products in the Indian markets. This led to destruction of the Indian industry.

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03. (a) Name any one prominent economist who estimated India's national income during the Colonial
period.
(b) Discuss any two causes of India's agricultural stagnation during the colonial period:
Ans. (a) Dadabhai Naoroji.
(b) Following are the two principal causes of India's agricultural stagnation during the colonial
period
(i) Land Revenue System under the British Raj.
(ii) Forced commercialisation of agriculture.
Land Revenue System under the British Rule was largely dominated by the 'Zamindari System'.
According to this system, ownership of land was vested with the Absentee Landlords' who were free
to exploit the farmers as much as they could by way of high rentals of land. The Zamindars were
crop sharers and not cost sharers. This led to stagnation in India's agriculture.
Forced commercialisation compelled the farmers to grow crops against advance payments.
This led to uncertainty of income of the subsistence farmers. Implying stagnation of
agriculture.
04. Comment upon any two salient features of occupational structure of India on the eve of independence.
Ans. Two salient features of occupational structure of India on the eve of independence are as under:
(i) Agriculture-The Principal Source of Occupation: On the eve of independence, the
agricultural sector accounted for the largest share of workforce (70-75%). The manufacturing and
the services sectors accounted for only 10% and 15-20% share, respectively.
(ii) Lack of Opportunities Outside Agriculture: Owing to systematic destruction of the Indian
handicrafts, opportunities of employment outside agriculture only tended to shrink.
Destruction of handicrafts led to higher dependence on agriculture. Implying lower
productivity and higher degree of disguised unemployment.
05. Comment upon any two salient features of demographic conditions of India on the eve of
independence.
Ans. Two salient features of demographic conditions of India on the eve of independence are as under:
(i) High Birth Rate and Death Rate: On the eve of independence, both birth rate and death rate
were very high. High birth rate and high death rate suggest a state of massive poverty in the
country.
(ii) High Infant Mortality Rate: On the eve of independence, infant mortality rate was very high.
Infant mortality rate refers to the death rate of children below the age of one year per 1000
live births. High infant mortality is a sign of poor healthcare associated with extreme poverty.
06. Define life expectancy.
Ans. Life expectancy refer to average life of a person. Low life expectancy reflects lack of healthcare -
facilities, lack of awareness as well as lack of means to avail them, and vice versa.

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07. Comment upon any two salient features of foreign trade policy of India on the eve of independence.
Ans. Two salient features of foreign trade policy of India on the eve of independence are as under:
(i) Foreign Policy focussed on the Export of Primary Products and Import of Finished Goods It was
owing to colonial exploitation of the Indian economy, that India became net exporter of raw
materials and primary products like raw silk, cotton, wool, jute, indigo, sugar, etc. and net
importer of finished goods produced by the British industry like cotton, silk and woollen
clothes, besides several types of capital goods produced in England.
(ii) Monopoly Control of India's Foreign Trade: During the British rule, exports and imports of the
country came under monopoly control of the British government. As a consequence:
(a) More than 50 per cent of India's foreign trade was directed towards Great Britain.
(b) Exports of primary products (raw material) from India were directed to supply inputs to the
British industry and imports of finished goods from Britain were directed to exploit the
Indian market.

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 Five Year Plans in India
01. Discuss briefly the rationale behind choosing `Self-reliance' as a planning objective for the Indian
economy.
Ans. Self-reliance means reliance on the domestically available resources for the growth and
development of the economy. More specifically it means non-reliance on foreign investment and /or
foreign aid. It was considered essential to minimise our dependence on foreign aid
investment as it often leads to political interference by the donor countries. Aid is often tied to
the projects and policies as dictated by the donor countries. Example: Aid from US would
generally mean that we buy our defence equipment only from US even when we get a better deal
from other countries. Hence, the focus on self-reliance.
02. Discuss briefly the rationale behind choosing `Modernisation' as a planning objective for the
Indian economy.
Ans. Modernisation refers to updation and adoption of modern technology in the process of
growth. As we know output can be increased either by increasing the pool of resources or by
using innovative technology. Modern age is the age of science and innovations. Science has
offered us new ways of doing things, such that productivity in farms and factories has
shown an exponential rise over time. Green Revolution in Indian agriculture is a well known
example of how technology can bring about revolutionary changes in output. Recently, IT
revolution has redefined the concept of domestic production through BPO (Business Process
Outsourcing).
However, modernisation in the context of goals of plans in India, has a social angle as well.
Here, it refers to modernisation of social outlook. Conventional wisdom (wisdom without a valid
reason) must give way to modern outlook. It includes issues like empowerment of women
so that (like men) they also participate in the process of production and contribute to the
process of economic and social prosperity.
03. Define mixed economy.
Ans. Mixed economy refers to an economy in which there is private as well as public ownership of
the means of production. However, there are government controls as well as regulations with a
view to maximising social welfare.
04. Discuss briefly the rationale behind "equit y with growth" as planning objective for Indian
economy.
Ans. Economic growth (in terms of GDP growth) would become a meaningless- exercise if the benefits
of it accrue to only a handful of people in the society. Benefits of growth must spread
across larger sections of the society, so that the distribution of income becomes equitable.
`Equity' (in terms of equitable distribution of income) implies social justice, and economic
growth must be combined with social justice. That is why, planning i n India, focuses not
merely on economic growth, but on `growth with social justice'.

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05. "Modernisation as a planning objective shows a dichotomy with employment generation."
Justify the statement.
Ans. Modernisation as a planning objective was not expected to show a dichotomy with
employment generation. In fact both (modernisation and employment generation) as goals of
planning were taken as complementary, not contradictory to each other. The complementarity
between the two was expected to work as under:
 Modernisation leads to increase in productivity.
 Increase in productivity leads to higher level of production activity and higher level of
income in the economy. Implying, a rising demand for goods and services in the
economy.
 Expansion of demand leads to expansion of opportunities of employment.
However, of late the nature of growth process has taken a dramatic turn. Technology has
emerged as the principal driver of growth process. And, the nature of technology is such that it is
substituting labour rather than supplementing it. Consequently, 'jobless growth' is an
emerging challenge for the politicians and the planners.
Thus, even when `modernisation' and `employment generation' were taken as
complementary objectives (under Five Year Plans) the dichotomy between the two has
emerged as an undeniable reality.

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 Agriculture, Industry and Trade (1950-90)
01. State the meaning of import substitution. Explain how import substitution can protect the domestic
industries.
Ans. Import substitution is a strategy of encouraging domestic production of the goods and services
which we are importing from rest of the world.
The idea behind the strategy of import substitution is to become self-dependent or reduce the
degree of dependence upon rest of the world for the supply of goods and services. In other :
words, import substitution leads to protection of the domestic industry.
Import substitution and the protection of domestic industry is achieved in 2-ways, as under:
(i) Import tariffs are raised, so that the demand for imported goods is reduced. Consequently,
demand for the domestic goods tends to rise. It protects the domestic industry.
(ii) The, government restricts or bans FDI in those areas of production where domestic industry is
facing stiff competition on account of foreign supplies. Accordingly, domestic industry is
protected.
02. Import restrictions were imposed in India with the dual objective to save foreign exchange '
reserves and to be self-sufficient." Justify the given statement with valid arguments.
Ans. Yes, the given statement is true.
Import substitution is a strategy to save foreign exchange by encouraging domestic production
of such goods which the country has been importing from rest of the world. Domestic
industry is offered protection from foreign competition through import restrictions and
import duties.
Import substitution policy aims at replacing or substituting imports with domestic production. -
For example, instead of importing vehicles made in a foreign country, industries would be -
encouraged to produce them in the country itself. This policy restricts imports and, therefore,
protects the domestic firms from foreign competition.
03. Define Green Revolution.
Ans. Green Revolution refers to a spurt in farm output during mid 60's, consequent upon the use of
HYV seeds, chemical fertilizers and related inputs. It helped solve food problem in India
productivity, farm output and income from farming tended to rise significantly.
04. Discuss briefly the rationale behind implementation of land reforms in post independence era
Ans. Need for land reforms was felt because of widespread poverty of the farming population in
India. Most farmers were caught in the vicious circle of poverty because their holdings were
small and scattered and rents were extremely high. The government after independence was
committed to improving the plight of the farmers and hence took the following steps by way of
land reforms:
05. Define marketed surplus.
Ans. Marketed surplus refers to surplus of farmer's output (over and above his 'on-farm consumption)
which is taken to the market for sale.
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06. State the meaning of 'Subsidy'.
Ans. Subsidy is a financial help given to the producers by the government in order to increase the
production of a commodity.
07. Define `Quota'.
Ans. The term quota is often related to imports. It implies a physical limit (set by the government)
on the quantity of a good that can be imported into the country in a given period of time. It is a
kind of trade restriction, used to protect the domestic producers.
Reforms since 1991: New Economic Policy
01. State any one outcome of implementation of Economic Reforms in India in 1991.
Ans. Private foreign investment has taken a quantum jump after the adoption of economic reforms in
1991. Consequently, production activity has tended to increase in the domestic economy.
02. "India. is often called as outsourcing destination of the world." Discuss the prime reasons for this
name given to India.
Ans. India is called the `outsourcing destination' of the world. This means that the producing units in
rest of the world prefer to obtain supplies of certain goods and services from the producers in
India. `customer support service' is an important example of outsourcing from India. Western
,
nations prefer to set up `call centres' in India for customer support services. Two important reasons
explain why India is preferred as an outsourcing destination:
(i) Low Wage Rate : Wage rate in India is much lower compared to western countries.
(ii) High Service Level: Service level offered by the Indian workers is fairly high owing to their
proficiency in 'information-technology'.
Both these factors play a significant role in transforming- and raising the level of business acitivity
-
03. "Recently the Government of India has decided to merge MTNL and BSNL on account of rising
losses." Justify the step taken by the Government of India.
Ans. The decision taken by the Government of India to merge BSNL and MTNL is quite appropriate.
The Government of India has merged the two loss incurring businesses, with a aim to:
(i) achieve higher economic and functional efficiency.
(ii) minimise possible losses.
04. Distinguish between:
(a) Tariff and non-tariff barriers,
(b) Bilateral and multilateral trade.
Ans. (a) Tariff and Non-tariff Barriers: Tariff barriers refer to barriers on imports through high import
duty. Whereas, non-tariff barriers generally refer to quota-barriers, quantitative restrictions on
imports (or restrictions on the quantum of imports).
(b) Bilateral and Multilateral Trade: Bilateral trade agreements refer to trade agreements between
any two countries of the world. Multilateral trade agreements, on the other hand, refer to trade
agreements among many countries of the world.

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05. Discuss briefly any two major steps taken by the Government of India on `Financial sector' front
under the economic reforms of 1991.
Ans. Financial sector under the economic reforms includes: (i) banking and non-banking financial
institutions, and (ii) foreign exchange market.
`Liberalisation' is the first major step taken by the government on `Financial Sector' from
Liberalisation implied a substantial shift in the role of the RBI from `a regulator' to a facilitator' of
the financial sector. As a regulator, the RBI (prior to liberalisation) would itself define interest rate
structure for the commercial banks. But as a facilitator (after liberalisation), the RBI would only
facilitate the free play of the market forces and leave it to the commercial banks to decide their
interest rate structure. Now, competition (rather than control) rules the decision-making process.
Globalisation is the second major step. Financial sector in India has been linked with financial
sector in rest of the world. Accordingly, there is a free flow of investment in Indian financial
market by the FII (Foreign Institutional Investors). (Examples of FII Merchant bankers, mutual
funds and pension funds.)
Consequent upon these changes, financial sector in India has shown a multi-dimensional growth
and is playing a significant role in the growth and development of the economy.

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