Chapter 2 Indian economy 1950-1990

After studying this chapter, the learners will

• come to know the goals of India’s five-year plans
• know about the development policies in different sectors such as agriculture
and industry from 1950-1990
• learn to think about the merits and limitations of a regulated economy.

INTRODUCTION

On 15 August 1947, India woke to a new dawn of freedom.

 Finally, we were masters of our own destiny after some two hundred years of
British rule; the job of nation building was now in our own hands.
 It was necessary to rebuild the backward and stagnant Indian economy into a
developed economy
 The leaders of independent India had to decide, among other things, the type of
economic system most suitable for Work

Types of Economic Systems

1. Capitalist Economy: A capitalist economy is the one in which the means of
production are owned, controlled and operated by the private sector. Production is
done mainly for earning profits.
2. Socialist Economy: A social economy is the one in which the means of production
are owned, controlled and operated by the government.
3. Mixed Economy: A mixed economic system refers to a system in which he public
sector and the private sector are allotted their respective roles for solving the central
problems of the economy

Solution of Central problems are solved in the following manner

Economy What to produce How to produce For whom to

produce
Capitalistic goods are produced Using cheaper Basis of their
economy that can be sold techniques of consumer income or
profitably production purchasing power.
Socialistic The government Government Based on what
economy decides what to decides how the people need and
produce in accordance goods are to be not on what they can
with needs of the produced afford to purchase.
society.

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India adopted the Mixed Economy
After the freedom, leaders of independent India (like Jawaharlal Nehru) were confused
with regard to economic system, to be followed in India.
 Some leaders were in favor of Socialist Economy. However, in a democratic
country like India, complete dilution of private ownership was not possible
 Capitalist Economic System did not appeal to Jawaharlal Nehru, our first Prime
Minister, as under this system, there would be less chances for improvement in
quality of life of majority of people.
 As a result, Mixed Economy (with best features of both Socialist and Capitalist
Economy) was adopted by the Indian Economy. In this view, India would be a
socialist society, with a strong public sector, but also with private property and
democracy.

WHAT IS A PLAN?
A plan spells out how the resources of a nation should be put to use. It should
have some general goals as well as specific objectives which are to be achieved
within a specified period of time.
in India plans are of five years duration and are called five-year plans (we borrowed
this from the former Soviet Union, the pioneer in national planning). Our plan documents
not only specify the objectives to be attained in the five years of a plan but also what is
to be achieved over a period of twenty years. This long-term plan is called
‘perspective plan’. The five-year plans are supposed to provide the basis for the
perspective plan.

Economic Planning.
 Defined as making major economic decisions on the basis of a comprehensive
survey of the economy as a whole.
Implementation
 Government of India set up Planning Commission in 1950, with the Prime
Minister as the Chairman.

GOALS OF PLANNING IN INDIA

Due to limited resources a choice has to be made in each plan about which of the goals
Is to be given primary importance.
It will be unrealistic to expect all the goals of a plan to be given equal importance in all
the plans. In fact, the goals may actually be in conflict. For example, the goal of
introducing modern technology may conflict with the goal of increasing employment if
the technology reduces the need for labour. The planners must balance the goals, a
very difficult job indeed. We find different goals being emphasized in different plans in
India.

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(LONG TERM) (GEMS) FIVE YEAR PLAN GOALS

Growth (G) refers to increase in the country’s capacity to produce the output of goods
and services within the country.

GROWTH implies
 Larger stock of productive capital
 Larger size of supporting services like transporting and banking
 An increase in the efficiency of productive capital and services.
A good indicator of economic growth is its GDP.
It is the market value of all the goods and services produced in the country
during a year.
As a country develops, it undergoes ‘structural change’. In the case of India, the
structural change is peculiar. Usually, with development, the share of agriculture
declines and the share of industry becomes dominant. At higher levels of development,
the service sector contributes more to the GDP than the other two sectors. In India, the
share of agriculture in the GDP was more than 50 per cent—as we would expect for a
poor country. But by 1990 the share of the service sector was 40.59 per cent, more
than that of agriculture or industry, like what we find in developed nations

SECTORAL CONTRIBUTION
The contribution made by each of these sectors makes up the structural sectoral
composition of the economy.

SECTOR 1950- 1990-91

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Agriculture 59% 34.9

Industry 13% 24.6

Services 28% 40.5

Usually, with development, the share of agriculture declines and the share of industry
becomes dominant. At higher levels of development, the service sector contributes

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more to the GDP than the other two sectors. In India, the share of agriculture in the
GDP was more than 50 per cent—as we would expect for a poor country. But by 1990
the share of the service sector was 40.59 per cent, more than that of agriculture or
industry, like what we find in developed nations.

2. Equity (E)
 Benefits of economic prosperity reach the poor sections as well instead only
by the rich.
 This can be done by reducing inequality in the distribution of wealth.
 Every Indian should be able to meet his or her basic needs such as food,
housing, education and health care etc and inequality in distribution of wealth
be reduced.
3. Modernization. (M)
Indian planners have always recognized the need for modernization of society to raise
the standard of living of people. Modernization includes:
 Adoption of New Technology: Modernization aims to increase the production of
goods and services through use of new technology. For example, a farmer can
increase the output on the farm by using new seed varieties instead of using the
old ones. Similarly, a factory can increase output by using a new type of machine.
 Change in social outlook: Modernization also requires change in social
outlook, such as gender empowerment or providing equal rights to women. In a
traditional society, women are from the different sectors of the supposed to
remain at home while men work. A modern society makes use of the talents of
women in the work place. In Banks, factories, schools etc.
4. Self reliance (S) A nation can promote more to the GDP growth, while in
economic growth and modernization by using its own resources or using resources
imported from other nations.
The first seven five year plans gave importance to self-reliance which means avoiding
imports production of goods and services of those goods which could be produced in
India itself
This policy was considered a necessity in order to reduce our dependence on foreign
countries especially for food.
 The policy of self-reliance was considered a necessity because of two
reasons:
 To reduce foreign dependence: As India was recently freed from foreign
control, it is necessary to reduce our dependence on foreign countries,
especially for food. So, stress should be give to self-reliance.
 To avoid Foreign Interference: It was feared that dependence on imported
food supplies, foreign technology and foreign capital may increase foreign
interference in the policies of our country.

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 MAHALANOBIS: THE ARCHITECT OF INDIAN PLANNING

 Mahalanobis was born on 29th June, 1893 in Calcutta (now Kolkata).

 He was educated at the Presidency College in Calcutta and at Cambridge University in
England.
 In 1946, he was made a Fellow (member) of Britain’s Royal Society, one of the most
prestigious organisations of scientists.
 Mahalanobis established the Indian Statistical Institute (ISI) in Calcutta and started a
journal, Sankhya, which still serves as a respected forum for statistics to discuss their
ideas.
 He is best remembered for the Mahalanobis distance, a statistical measure. He made
pioneering studies in anthropometry in India. His contributions to the subject of statics

INTEXT QUESTIONS
1. When was the planning commission set up?
2. What is a mixed economy?
3. Define a plan
4. Give the meaning of five year plan
5. Give the meaning of perspective plan
6. Why did India opt for planning?
7. Why should plan have goals?
8. What are the goals of the five-year plans?
9. Why a choice has to be made in each five year plan about which of the goals is to be
given primary importance?
10. How is economic growth of a country measured?

MAJOR POLICY INTIATIVES IN THE AGRICULTURE SECTOR

During the colonial rule there was neither growth nor equity in the agricultural sector.
The policy makers of independent India had to address these issues which they did
through land reforms and promoting the use of ‘High Yielding Variety’ (HYV) seeds
which ushered in a revolution in Indian agriculture.

LAND REFORMS
At the time of independence, the land tenure system was characterized by
intermediaries (like zamindars) who merely collected rent (lagaan) from the actual tillers
of the soil without contributing towards improvements on the farm. The low productivity
of the agricultural sector forced India to import food from the United States of America.

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Land Reforms primarily refers to change in the ownership of landholdings.(i.e to
abolish intermediaries and to make the tillers the owners of the land and fixing
the maximum size of land which could be owned by an individual (land ceiling)
TYPES OF LAND REFORMS IMPLEMENTED IN THE AGRICULTURE
Indian Government took various steps to abolish intermediaries and to make
tillers, the owners of land.
1. The abolition of intermediaries
The idea behind this step was that ownership of land would give incentives to the
actual tillers to make improvements (provided sufficient capital was made
available to them).
The abolition of intermediaries brought 200 lakh tenants into direct contact with
the government.
2. The ownership of landholdings.
The ownership rights granted to tenants gave them the incentives to increase
output and this contributed to growth in agriculture.
3. Land ceiling fixing the maximum size of land which could be owned by an
individual . the purpose of this was to reduce the concentration of land ownership
in few hands

DRAWBACKS OF LAND REFORMS

1. However, the goal of equity was not fully served by abolition of intermediaries
because of following reasons;
a) In some areas, the former zamindars continued to own large areas of land
by making use of some loopholes in the legislation;
b) In some cases, tenants were evicted and zamindars claimed to be self-
cultivators;
c) Even after getting the ownership of land, the poorest of the agricultural
laborer’s did not benefit from land reformers
2. The land ceiling legislation faced hurdles.
a) The big landlords challenged the legislation in the courts, delaying its
implementation.
b) They used this delay to register their lands in the name of the close relatives
thereby escaping from the legislation.
c) The legislation also had lot of loopholes which were exploited by the big
landlords to retain their land.

Conclusion: Land reforms were successful in Kerala and West Bengal because
governments of these states were committed to the policy of land reforms.
Unfortunately, other states did not have the same level of commitment and vast
inequality in landholdings continued.

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INTEXT QUESTIONS

1.What do land reforms refer to?

2. What do you mean by land ceiling?
3What was the purpose of land ceiling?
4.In which states where the land reforms successful in India and why?
5.What were the drawbacks of land reforms?

GREEEN REVOLUTION.

Green Revolution refers to the large increase in production of food grains due to
use of high yielding variety (HYV) seeds especially for wheat and rice.
HYV seeds are seeds of better quality than normal quality seeds. The produce from
these seed is more compared to the normal seeds. However the use of HYV seeds
require the use of fertilizer and pesticide in the correct quantities as well as regular
supply of water. Also, the application of these inputs in correct proportion is vital. Green
Revolution is the spectacular advancement in the field of agriculture

WHY WAS GREEN REVOLUTION IMPLEMENTED?

 At the time of independence, about 75 per cent of the country’s population was
dependent on agriculture.
 India’s agriculture vitally depends on the monsoon and in case of shortage of
monsoon, the farmers had to face lot of troubles.
 Moreover, the productivity in the agricultural sector was very low due to use of
outdated technology and absence of required infrastructure.
 As a result of intensive and continued effort of many agricultural scientists, this
stagnation in agriculture was permanently broken by the “Green Revolution’
Growth in agricultural output was not enough and does not make much of difference to
the economy as a whole if a large proportion of this increase is consumed by the
farmers themselves instead of being sold in the market. On the other hand, if the
substantial output is sold in the market by the farmers, the higher output can make a
difference to the economy.
The portion of agricultural produce which is sold in the market by the farmers is called
marketed surplus/marketable surplus.
BENEFITS OF GREEN REVOLUTION
1.Attaining Marketable Surplus Green Revolution resulted in “Marketable Surplus
 Growth in agricultural output makes a difference to the economy only when
large proportion of this increase is sold in the market.
 Fortunately, a good proportion of rice and wheat produced during the green
revolution period was sold by the farmers in the market

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2 Buffer Stock of Food Grains The green revolution enabled the government to
procure sufficient amount of food grains to build a stock which could be used in times of
food shortage
3. Decrease in the price of food grains: As large proportion of food grains was sold
by the farmers in the market, their prices declined relative to other items of
consumption. The low-income groups, who spend a large percentage of their
income on food, benefited from this decline in relative prices.
4. Self reliance. Indian agricultural productivity increased sufficiently to enable the
country to be self sufficient in food grains. We no longer had to depend on other
nations for meeting our nation’s food requirement.

CRITICAL EVALUATION OF GREEN REVOLUTION

1. The farmers who could benefit from HYV seeds required reliable irrigation
facilities and financial resources to purchase fertilizer and pesticide, which small
farmers could not afford. Thus, Green revolution increased the inequalities
between small and rich farmers.
2. In the first phase (Mid 60s to Mid 70s), the use of HYV seeds was restricted to
more affluent states ( like Punjab, Andhra Pradesh, Tamil Nadu, etc.). Further,
the use of HYV seeds primarily benefitted the wheat growing regions only.
3. In the second phase (Mid 70s to Mid 80s), the HYV technology spread to a
larger number of states and benefitted more variety of crops.
4. The HYV crops were more prone to attack by pests. So, there was a risk that
small farmers who adopted technology could lose everything in a pest attack

Role of government in ensuring that the green revolution benefited small

farmers as well.

1. The government provided loans at a low interest rate to small farmers

2. The government provided subsidized fertilizers so that small farmers could also
have acces to the needed inputs.
3. The risk of small farmers being ruined when pests attack their crops was
reduced by the services rendered by research institutes established by the
government

DEBATE OVER SUBSIDIES

Arguments in favour of subsidies

1. The government should continue with agricultural subsidies as farming in India
continues to be a risky business
2. Majority of the farmers are very poor and they will not be able to afford the
required inputs without the subsidies.
3. Eliminating subsidies will increase the income inequality between rich and poor
farmers and will violate the ultimate goal of equity.

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In brief, subsidies in India are necessary for poor and small farmers, to enable
them to make use of modern agricultural techniques. Necessary steps should be
taken to ensure that only the poor farmers enjoy the benefits of subsidies and not
the fertilizer industry and big farmers.

Arguments against subsidies

1. According to some economists, subsidies were granted by the Government to

provide an incentive for adoption of the new HYV technology. So, after the wide
acceptance of technology, subsidies should be phased out as their purpose has
been served.
2. Subsidies do not benefit the poor and small farmers (target group) as benefits of
substantial amount of subsidy go to fertilizer industry and prosperous farmers.
3. Among farmers, it benefits the farmers in the more prosperous region. So there is
no need of continuing the fertilizer subsidy.
4. It is a huge burden on the government’s finances. It should withdraw as their
purpose has been served

PRICES ACT AS SIGNALS

It is important to understand that prices are signals about the availability of goods.
 Higher price indicates that demand for goods is more than the supply, i.e., there
is scarcity of resource, like in case of “Petrol”. Whenever there is further rise in
PRICES
price of petrol, it reflects ACT
greater AS SIGNALS
scarcity and need to use less petrol or look for
alternate fuels.
 Lower price indicates that supply of Goods is more than the demand.
So, it is rightly said that price act as signals with respect to availability of goods in the
economy.
However, granting of subsidies does not allow prices to indicate the supply of
a good. For example, when electricity and water are provided at a subsidized rate
or free to farmers, they may be used wastefully without any concern for their
scarcity. Similarly, fertilizer and pesticides subsidies may led to overuse of
resources by the farmers, which can be harmful to the environment. So, there is a
risk that subsidies may provide an incentive for wasteful use of resources

Despite the implementation of green revolution, more than 65% of the country’s
population continued to be employed in the agriculture sector till 1990-91 why?
The reason is that the industrial and service sector did not absorb the ppl working in the
agricultural sector.

Critical Appraisal of Agricultural Development (1950 – 1990)

 The ‘Land Reform’ measures and ‘Green Revolution’ were the greatest
achievements of the Indian Government, in enhancing the agricultural production
and productivity.

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  Between 1950 and 1990, there had been substantial increase in the agricultural
productivity. As a result of Green revolution, India became self-sufficient in food
production. Land Reforms resulted in abolition of zamindari system.
 The Proportion of GDP between 1950 and 1990 contributed by agriculture
declined significantly, but not the population depending on it.
 Around 65 per cent of the country’s population continued to be employed in
agriculture, even till 1990. The involvement of such a large proportion of the
population in agriculture was regarded as the important failure of policies
followed during 1950 -1990.

INTEXT QUESTIONS

1. What are High Yielding variety seeds?

2. What is marketable surplus?
3. Why despite the implementation of green revolution, 65 per cent of our
population contributed to be engaged in the agricultural sector till 1990?
4. Name the States in which Green revolution were introduced in the first phase?

INDUSTRY AND TRADE

At the time of independence, the variety of industries was very limited. The cotton textile
and jute industries were mostly developed in India. There was only two well-managed
iron and steel firms; one in Jamshedpur and the other in Kolkata. So, there was a
strong need to expand the industrial base with a variety of industries.

The five-year plans placed a lot of emphasis on industrial development because

of the following reasons.

1. The developing countries (like India) can progress only if they have a good
industrial sector.
2. Industry provides employment, which is more stable than the employment in
agriculture
3. Industrialization promotes modernization and overall prosperity.

PUBLIC SECTOR WAS GIVEN LEADING ROLE IN INDIAN INDUSTRIAL

DEVELOPMENT
1. 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. At the time of independence, Tatas and Birlas
were the only well- known Private entrepreneurs. As a result, Government had to
make industrial investment through Public Sector Undertakings (PSU’s)
2. Lack of Incentive for Private Sector : The Indian market was not big enough
to encourage private industrialists to undertake major projects, even if they

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 had capital to do so. Due to limited size of the market, there was low level of
demand for the industrial goods.
3. Objectives of Social Welfare: The objective of equity and social welfare of the
Government could be achieved only through direct participation of the state in the
process of industrialization.
As a result, state had complete control over those industries, that were vital for the
economy. The policies of the private sector had to be complementary to those of the
public sector, with public sector leading the way.

INDUSTRIAL POLICY RESOULTION 1956

Industrial Policy is a comprehensive package of policy measures which covers various

issues connected with different industrial enterprises of the country.

Classification of Industries
According to Industrial Policy Resolution 1956, the industries were reclassified into
three categories, viz, Schedule A, Schedule B and Schedule C.
1. Schedule A: This first category comprised industries which would be
exclusively owned by the state. In this schedule, 17 industries were
included, like arms and ammunitions; atomic energy; heavy and core industries;
aircraft; oil; railways; shipping; etc.
2. Schedule B: In this schedule, 12 industries were placed, which would be
progressively state-owned. The state would take the initiative of setting up
industries and private sector will supplement efforts of the state. This
schedule includes industries like aluminium, other mining industries, machine
tools, fertilizers, etc.
3. Schedule C: This schedule consists of the remaining industries which were
to be in the private sector. The state would facilitate and encourage the
development of all these industries. These industries were controlled by the state
through a system of licenses, enforced under Industries (Development and
Regulation) Act, 1951.

Why and how was private sector regulated under the IPR 1956?
An industrial license is a written permission from the government, to an industrial
unit to manufacture goods.
Although there was a category of industries left to the private sector , the sector was
kept under state control through system of licensing.
1. No new industry was allowed unless is obtained from the government.
2. It was easier to obtain a license if the industrial unit was established in an
economically backward area. In addition, such units were given certain
concessions, such a tax benefits and electricity at a lower tariff. The purpose of
this policy was to promote regional equality.
3. License was needed even if an existing industry wants to expand output or
diversify production. License to expand production was given only if the

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 government was convinced that there is a need for larger quantity of goods
in the economy

Small-Scale Industries (SSI)

In 1955, the village and small-scale Industries Committee (Karve Committee)
recognized the possibility of using small-scale industries to promote rural development.
In 1950 a small-scale industry unit was one which invested a maximum of rupees five
lakh. While at present the maximum investment allowed is Rs 1 crore.

Important Points about Small-scale Industries

1. Employment Generation: Small-scale industries are more labour intensive,

i.e., they use more labour than the large-scale industries and, therefore, they
generate more employment. After agriculture, small-scale industries provide
employment to the largest number of people in India.
2. Need for Protection from Big Firms: Small-scale industries cannot complete
with the big
industrial firms. They can flourish only then they are protected from the large
firms.

How did government promote and protect small scale industry?

 Reservation of Products: Government 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: Small-scale industries were also given concessions,
such as lower excise duty and bank loans at lower interest rates.

INTEXT QUESTIONS

1. At the time of independence, the variety of industries was very narrow.

Largely confined to ----------------
2. What was the big question facing the policymakers at the time of
independence?
3. Why was the industrial policy resolution of 1956 adopted?
4. How was the private sector kept under state control?
5. Define small scale industry?
6. In 1955 which committee noted the possibility of using small scale industry
for promoting rural development
7. The production of number of products was reserved for small scale
industry what was the criteria for such reservation?

FOREIGN TRADE POLICY ( IMPORT SUBSTITUTION)

In order to be self-reliant in vital sectors, India has followed the strategy of replacing
many imports by domestic production.

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  In the first seven plans, trade was characterized by an inward looking Trade
Strategy. Technically, this strategy is called “Import Substitution’.
 Import Substitution refers to a policy of replacement or substitution of
imports by domestic production.
 For example, instead of importing vehicles made in a foreign country, domestic
industries would be encouraged to produce them in India itself.
Reason for import substitution.
1. The policy of protection (in the form of Import Substitution) is based on the notion
that industries of developing countries, like India, are not in a position to compete
against the goods produced by more developed economies. With protection, they
will be able to compete in the due course of time.
2. Restriction on imports was necessary as there was a risk of drain of foreign
exchange reserves on the import of luxury goods
Protection from Imports through “Tariffs’ and ‘ Quotas’

Government made use of two ways to protect goods produced in India from Imports;
1. Tariffs: Tariffs refer to taxes levied on imported goods. The basic aim for
imposing heavy duty on imported goods was to make them more expensive and
discourage their use.
2. Quotas: Quotas refer to fixing the maximum limit on the imports of a commodity
by a domestic producer.
The tariff on imported goods and fixation of quotas helped in restricting the level of
imports. As a result, the domestic firms could expand without fear of competition from
the foreign market.

Critical evaluation of Industrial and trade policies.

Positive effects
1. The proportion of GDP contributed by the industrial sector increased in the period
from 11.8 per cent in 1950- 51 to 24.6 in 1990 – 91. This rise in industry’s share of
GDP is an important indicator of development. The 6 per cent annual growth rate of
the industrial sector during the period is also admirable.
2. Indian Industry was no longer restricted to cotton textiles and jute. It also included
engineering goods and a wide range of consumer goods. The industrial sector
became well diversified by 1990, largely due to public sector.
3. The promotion of small-scale industries gave opportunities to people with small
capital to get into business. New investment opportunities helped in generating more
employment. It promoted growth with equity.
4. Protection from foreign competition (through Import Substitution) enabled the
development of indigenous industries in the areas of electronics and automobile
sectors, which otherwise could not have developed.
However, this protection had some criticisms.
a) Inward Looking Trade Strategy: Our policies were ‘inward oriented’ and so
we failed to develop a strong export sector.

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 b) Lack of Competition: Due to restrictions on imports, some domestic
producers made no sincere efforts to improve the quality of their goods and it
forced the Indian consumers to purchase, whatever is produced by them. The
domestic industry failed to achieve international standards of product quality.

According to some economists, we should protect our producers from foreign

competition as long as the rich nations to do so.
5. Licensing Policy helped the government to monitor and control the industrial
production. However, excessive regulation by the government created two
difficulties:
(i) Misuse: it was misused by industrial houses. Some big industrialists would get a
license, not for starting a new firm, but to prevent competitors from starting new
firms.
(ii) Time Consuming: The cumbersome and complex procedure for obtaining license
was very time consuming. A lot of time was spent by industrialists in trying to obtain
a license.

Draw backs /criticism

1. Inefficient functioning of the public sector
 Many public sector firms also incurred huge losses but continued to function
because of difficulty in closing a government undertaking even if it is a drain on
nation’s limited resources.
 However, the public sector continued to monopolise in certain non-essential
areas, which could be well handled by the private sector. For example,
telecommunications, hotel industry, production of goods (like Modern Bread).
 As a result, precious funds of public sector channelized into areas, where private
sector could have been easily engaged.
 The monopoly of public sector in such non-essential areas 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 other non-essential areas.
According to some economists, public sector is not meant for earning profits but
to promote the welfare of nation. So, they should be evaluated on the basis of
their contribution to welfare of the people and not on the profits they earn.
2. Excessive regulation of industries
The excessive regulation of what came to be called the permit license raj
prevented certain firms from becoming more efficient. More time was spent by
industrialists in trying to obtain a license. Moreover, the need to obtain a license
to start an industry was misused by industrial houses, big industrialist would get
license not for starting firm but to prevent competitors from starting new firms.

3. No incentive for producers to improve the quality in the absence of

foreign competition.
Due to restriction on imports Indians had to purchase whatever products were
produced within the country. There was no incentive to improve the quality of the
product. Competition from imports forces our producers to be more efficient.

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 However, some economists feel that we should protect our producers from
foreign competition as long as rich nations continue to do so.

Conclusion
The progress of the Indian economy in the three sectors can be summarized as under:
In Agriculture Sector:
 India became self-sufficient in food production due to the green revolution.
 Land reforms resulted in abolition of zamindari system.
In Industrial Sector:
 The industries became far more diversified compared to the situation at
independence. However, excessive government regulation prevented their
growth.
 Many economists were dissatisfied with the performance of public sector
enterprises.
In Trade Sector:
 Our policies were ‘inward oriented’ and so we failed to develop a strong export
sector.
 The domestic producers were protected against foreign competition in order to
gain self-reliance. However, this did not give them the incentive to improve the
quality of goods that they produced.

INTEXT QUESTIONS
1.In the first seven plans, foreign trade was characterized by what is commonly called
an ------. Technically this strategy is called --------------
2.what was the aim of import substitution?
3. Name any 2 industries which were reserved for the public sector during 1950-1990.

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 NCERT QUESTION AND ANSWERS
1.what is a plan?
A plan spells out how the resources of a nation should be put to use. It should have
some general goals as well as specific objectives which are to be achieved within a
specified period of time.
2 Why did India opt for planning?
Ans. After gaining independence, the next important step for the Indian Government
was to revive the poor, backward and stagnant economy, inherited from the
British rule. So, for the systematic and overall development of Indian economy,
India opted for planning.
Q.3. Why should plans have goals?
Ans. Planning is done to achieve some predetermined goals within a specified time
period. Without goals, the planners won’t be able to know which sector of the
economy needs to be developed on the priority basis. So, plans should have
goals.
Q.4. What are miracle seeds?
Ans. Miracle seeds refer to high yielding varieties (HYV) of seeds, which raised
agricultural yield per acre to incredible heights.
Q.5. What is marketable surplus?
Ans. The portion of agricultural produce, which is sold in the market by the farmers,
after meeting their own consumption requirement, is known as marketable surplus
Q6. Explain the need and type of land reforms implemented in the agriculture sector.
Ans. Need for land Reforms: The land reforms were needed in a country like India
because: (i) majority of its population depends on agriculture; and (ii) To achieve
the objective of equity in agriculture.
Types of land Reforms: The major measures taken under land reforms includes:
(a) Abolition of Intermediaries: Indian Government took various steps to abolish
intermediaries and to make tillers, the owners of land. The ownership rights
granted to tenants gave them the incentive to increase output and this
contributed to growth in agriculture.
(b) Land Ceiling: Land Ceiling refers to fixing the specified limit of land, which
could be owned by an individual. The purpose of land ceiling was to reduce
the concentration of land ownership in few hands. It helped to promote equity
in the agricultural sector.
Q.7. What is Green Revolution? Why was it implemented and how did it benefit the
farmers? Explain in brief.

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Ans. Green Revolution refers to the large increase in production of food grains due to
use of high yielding variety (HYV) seeds.
It was implemented because:
 The agricultural sector accounted for the largest share of workforce with
approximately 70-75 per cent.
 The productivity in the agricultural sector was very low due to use of outdated
technology and absence of required infrastructure and India was forced to
import food from the United States of America.

Benefits of Green Revolution

The spread of Green Revolution benefited the farmers.
1. Attaining Marketable Surplus: Green Revolution resulted in “Marketable
Surplus”. Marketable Surplus refers to that part of agricultural produce which
is sold in the market by the farmers after meeting their own consumption
requirement.
2. Buffer Stock of Food Grains: The green revolution enabled the government to
procure sufficient amount of food grains to build a stock which could be used
in times of food shortage.
3. Benefit to low-income groups: As large proportion of food grains was sold by
the farmers in the market, their prices declined relative to other items of
consumption. The low-income groups, who spend a large percentage of their
income on food, benefited from this decline in relative price
Q.8. Explain ‘growth with equity’ as a planning objective.
Ans. 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 capital;
 Or a larger size of supporting services like transport and banking;
 Or an increase in the efficiency of productive capital and services.
A good indicator of economic growth is steady increase in the Gross Domestic
product (GDP). Increase in GDP or availability of goods and services enables
people to enjoy a more rich and varied life.
According to Equity, every Indian should be able to meet his or her basic (food,
house, education and health care) and inequality in the distribution of wealth
should be reduced. Equity aims to raise the standard of living of all people.
So, ‘growth with equity’ helps to achieve planning objective of development with
social justice.
Q9. Does modernization as a planning objective create contradiction in the light of
employment generation? Explain.
Yes, the goal of modernization is in conflict with the goal of employment generation if
the technology reduces the need for labor. In the short run, it will definitely create
unemployment as machines will replace manpower. In the long run it will enable
the economy to increase production
Modernization refers to updation and adoption of new technology in the field of
production. Modernization aims to increase the production of goods and services
through use of new technology. For example, a farmer can increase the output on the
farm by using new seed varieties instead of using the old ones. Similarly, a factory can

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increase output by using a new type of machine. However, modernization does not refer
only to the use of modern technology but also to change in social outlook such as
recognition that women should have the same rights as men. A modern society makes
use of the talents of women I the work place – in banks factories schools etc.
The planners have to balance the goals, they have to ensure that as far as possible the
policies of the plans do not contradict the four goals

Q10. Why was it necessary for a developing country like India to follow self-reliance as
a planning objective?
Ans. The policy of self-reliance was considered a necessity because of two reasons:
 To reduce foreign dependence: As India was recently freed from foreign
control, it is necessary to reduce our dependence on foreign countries,
especially for food. So, stress should be give to self-reliance.
 To avoid Foreign Interference: It was feared that dependence on imported food
supplies, foreign technology and foreign capital may increase foreign
interference in the policies of our country.
Q11. What is sectoral composition of an economy? Is it necessary that the service
sector should contribute maximum to GDP of an economy? Comment.
Ans. Structural composition refers to contribution made by agricultural, industrial and
service sector in the gross domestic product of the country.
No, it is not necessary that the service sector contributes maximum to GDP of an
economy. However, by 1990, the share of the service sector was the maximum at
40.59 per cent. This phenomenon of growing share of the service sector marked
the beginning of globalization in the country.
Q.12 Why was public sector given a leading role in industrial development during the
planning period?
Ans. The public sector was given a leading role in industrial development during the
planning period because of following reasons:
1. 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. At the time of independence, Tatas and
Birlas were the only well- known Private entrepreneurs. As a result,
Government had to make industrial investment through Public Sector
Undertakings (PSU’s)
2. 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
capital to do so. Due to limited size of the market, there was low level of
demand for the industrial goods.
3. Objectives of Social Welfare: The objective of equity and social welfare of the
Government could be achieved only through direct participation of the state in
the process of industrialization.

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Q.13. Explain the statement that green revolution enabled the government to procure
sufficient food grains to build its stocks that could be used during times of
shortage.
Ans. The Green Revolution resulted in the manifold increase in the agricultural
production and productivity. As a result, India was able to achieve self-sufficiency
in food grains. Green revolution helped in building buffer stocks, which could be
used in case of shortage of production.

Q.14. While subsidies encourage farmers to use new technology, they are a huge
burden on government finances. Discuss the usefulness of subsidies in the light
of this fact.
Ans. In India, subsidies are necessary because;
 Majority of the farmers are very poor and they will not be able to afford the
required inputs without the subsidies.
 To reduce the income inequality between rich and poor farmers and to
achieve the ultimate goal of equity.
So, the government should continue with agricultural subsidies as farming in
India continues to be a risky business. However, necessary steps should be
taken to ensure that only the poor farmers enjoy the benefits of the subsidies
and not the fertilizer industry and big farmers.
Q.15. Why, despite the implementation of green revolution, 65 per cent of our
population continued to be engaged in the agriculture sector till 1990?
Ans. 65 per cent of our population continued to be engaged in the agriculture sector till
1990 because industrial and service sectors were unable to absorb the extra
people involved in agriculture.
Q.16. Though public sector is very essential for industries, many public sector
undertakings incur huge losses and are a drain on the economy’s resources.
Discuss the usefulness of public sector undertakings in the light of this fact.
Ans. It is true that many public sector undertakings are incurring huge losses.
However, they are still very useful and crucial for the economy. They are
needed:
 To create a strong industrial base. Public sector plays an important role in
development of those industries which require heavy investment and have
long gestation period.
 To develop infrastructure.
 To promote development of backward areas.
 To generate employment opportunities.
 To control and manage industries of strategic areas (like national defence,
atomic energy, etc.)
Moreover, public sector is not meant for earning profits but to promote the
welfare of the nation. So, they should be evaluated on the basis of their
contribution to welfare of the people and not on the profits they earn.
Q.17. Explain how import substitution can protect domestic industry.

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Ans. The domestic industries of India were not in a position to compete against the
goods produced by more developed economics. So, the policy of import
substitution helped in protecting them in two ways:
(a) Tariffs: Tariffs refer to taxes levied on imported goods. The basic aim for
imposing heavy duty on imported goods was to make them more expensive and
discourage their use.
(b) Quotas: Quotas refer to fixing the maximum limit on the imports of a commodity
by a domestic producer.
The tariff on imported goods and fixation of quotas helped in restricting the level of
imports. As a result, the domestic firms could expand without fear of competition
from the foreign market

Q.18. Why and how was private sector regulated under the IPR 1956?
Ans. Out of these categories, the third category (Schedule C) consisted of the
industries which were to be in the private sector. These industries were
controlled by the state through a system of licenses, enforced under Industries
(Development and Regulation) Act, 1951.
According to industrial Licensing;
1. No new industry was allowed unless is obtained from the government.
2. It was easier to obtain a license if the industrial unit was established in an
economically backward area. In addition, such units were given certain
concessions, such a tax benefits and electricity at a lower tariff. The purpose of
this policy was to promote regional equality.
3. License was needed even if an existing industry wants to expand output or
diversify production.
Q.19. Match the following
1. Prime Minister A. Seeds that give large proportion of output.
2. Gross Domestic Product B. Quantity of goods that can be imported.
3. Quota C. Chairperson of the Planning Commission.
4. Land Reforms D. The money value of all the final goods
and services
produced within the economy in one
year.
5. HYV Seeds E. Improvements in the field of agriculture to
increase
its productivity.
6. Subsidy F. The monetary assistances given by
government
for production activities.
Ans. 1.(C); 2. (D); 3. (B); 4. (E); 5 (A); 6 (F)

EXTRA QUESTIONS.
1.During the colonial rule there was neither growth nor equity in the agricultural sector.
How did the policy makers of independent India address these issues?
During the colonial rule there was neither growth nor equity in the agricultural sector.
The policy makers of independent India addressed these issues through land reforms

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and promoting the use of HYV seeds which ushered in a revolution in Indian agriculture
(Green revolution). These initiatives helped India to become self sufficient in food grains
production.
2.Why was the ownership of landholding considered necessary under land reforms in
the agriculture sector?
The ownership of landholding considered necessary under land reforms in the
agriculture sector because ownership of land would enable the tiller to make profit from
the increased output. Secondly it would given incentives to the tillers to invest in making
improvements.

3.Explain the drawback of the land reforms in India

However, the goal of equity was not fully served by abolition of intermediaries
because of following reasons;
d) In some areas, the former zamindars continued to own large areas of land
by making use of some loopholes in the legislation;
e) In some cases, tenants were evicted and zamindars claimed to be self-
cultivators;
f) Even after getting the ownership of land, the poorest of the agricultural
laborer’s did not benefit from land reformers
The land ceiling legislation faced hurdles.
d) The big landlords challenged the legislation in the courts, delaying its
implementation.
e) They used this delay to register their lands in the name of the close relatives
thereby escaping from the legislation.
f) The legislation also had lot of loopholes which were exploited by the big
landlords to retain their land.

Extra questions answers will be found in the notes.

1. Give the criticism against the Green revolution
2. The five-year plans place a lot of emphasis on industrial development explain
why.
3. the classification of industries under the IPR 1956.
4. Under what notion/assumption is the policy of protection of domestic industries
from foreign competition based? Or why was the import substitution policy
adopted.
5. Explain the positive effects of Industrial and Trade policies on Industrial
development.
6. Give drawbacks of Industrial and Trade policies.
7. Recently the Government of India has decided to merge MTNL and BSNL

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on account of rising losses. Justify the steps taken by the government of
India

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