Ch-2 Indian Economy (1950-1990)

Content of the chapter

1.Planning commission
2. Agriculture sector
3.industrial Policy
4. Foreign Trade
After independence there is need to Reconstruct the Indian economy, the
most important Task before the government of India was to decide the Type
of “Economy system” which would be most suitable for India.

Economic system refers to an arrangement by which central problems of

an economy are solved.
There are three central problems of an economy:
(i) What to produce? It is the problem related to selection of goods and
what quantity
(ii) How to poduce? It is the problem related to selection of technique of
poduction. In labour intensive used of labour is more whereas in capital
intensive more capital is used.
(iii) For whom to produce?Distribution of goods and services. Poducer
should offer high quality products at high price to rich sectors and low
quality products at reasonable price to poor sector.
ECONOMICS PLANNING

Economics Planning in india was started in 1950 is

necessary for economics development and economic
growth
It is a term used to describe the long term plans of
government to coordinate & develop the economy

DEFINE :Economic planning means utilistion of country’s

resources in different development activities in all over the
country.

● Planning commission Established in 1950

● Copied from the sovient union - Russian
● Prime Minister is the Chairman of Planning
Commission.
● Total no.of 5 year plan -12

Note :National development council set up in 1952

GOAL OF ECONOMICS PLANNING

Short Term Goals:To be achieved over a period of five yr
Long Term Goals:To be achieved over a period of
15 to 25 yr ( Perspective Planning)
First five year plan launched in 1951.
Whereas Planning Commission formed in March 1950.
1st five year plan 1st April 1951 to 31st March,1956.
12th five year plan (2012-17) was India’s last five year
plan.Plan Holiday : 1966- 67 ; 1967- 68 ; 1968- 69
Due to miserable Failure of Third Five Year Plan.
NITI AYOG

NATIONAL INSTITUTION FOR TRANSFORMING INDIA

AYOG

● It replaced Planning commission

● It was formed on 1st January 2015
● Planning commission is now discontinued in india
after its 12th five year plan completed in 2017
● From 2017 onwards 15 year vision is followed in India
instead of 5 year planning system

NOTE: Plan which is to be achieved over a period of

Fifteen -Twenty five years is called ‘Perspective Plan’.

1st Plan 1951- 156 — Horrod - Domar model

2nd Plan 1956-1961 -P.C. MAHALANOBIS
(Vice chairman of Planning commission)
a)He is known as the architect of Indian planning
b)He started the journal sankhya
c)He established the Indian statistical institute - (Father)
d)Born in 1893 in Calcutta
e)Second five year plan Consider. P.C. MahalNobis Model
(1956-57 to 1960-61)
LONG TERM GOALS I OBJECTIVES OF PLANNING
( FEES M)
A. Modernisation - Adoption of new technology and changes in social
outlook
B. Self reliance - Reducing dependence on imports.
C. Economic Growth - Increase in the aggregate output of Goods &
services.
↑ GDP ↑ Level of out ↑Flow of goods and services over a Long period of
time .
D. Equity - Reduction in inequality of income and wealth
E. Full employment - Refers to a situation when all the people in the
working age group is actually engaged in some gainful employment.

ACHIEVEMENT OF THE GOALS

1 Increase in national income per capita income
2.Progress in Agriculture
3.Per capital Availability of Consumer goals
4.Development of economics infrastructure
5.Increase in savings & capital formation

AGRICULTURE SECTOR
1.Problems in Agriculture sector
2.Reforms -Improvement
3.Agriculture Policy -1961
4.Green Revolution -Imp

Problems in Agricultural sector

A.Low level of Productivity -stagnant
B.Land revenue settlement
C.Low level of Technology

Types of Reforms
1.Land reforms or Institutional reforms
2.Green Revolution or Technical Reforms
3.Subsidies
 Land Reforms
Land reforms involves the changing of laws, regulations or customs
regarding land ownership by following ways:
1.Abolition of Intermediaries :The abolition of the Zamindari system was
a crucial step, removing intermediaries from land settlement .This leads to
increase in output and growth in agriculture.

2.Land ceiling: The maximum size of landholding that an agricultural

household could own was limited. The surplus land was acquired after
paying compensation and was re - distributed among poor farmers.

3 consolidation of Landholding:. To increase productivity,Farmers were

given a big piece of land in place of small and fragmented fields

4.Co-operative farming: Co-operative farming is encouraged to further

consolidate the gains of consolidation of holdings. This would help small
holders.

5.Regulation of rent: Condition of farmers was very bad due to excessive

and illegal extortions from them in form of rent. So in land reforms rent
have been fixed generally, there is a rule that rent can not be exceed
1/3rd of the value of crop.
NOTE : Land reforms were successful in Kerala and West bengal
because governments of these states were committed to the policy of
land reforms Where as other states did not have the same level of
commitment.

Green Revolution (Technical Reforms)

The Green Revolution was a period that began in the 1960's during which
agriculture in India was converted into a modern industrial system by the
adoption of technology, such as the use of high yielding variety (HYV)
seeds, mechanised farm tools, irrigation facilities, pesticides, and fertilizers
Define :Green Revolution refers to the production of food grains specially
in wheat and rice due to the use of High yield variety (HYV) seeds fertilizer
,Pesticides and irrigation facilities

● It was launched in 1965-1966

● It is also known as New Agricultural Strategy (NAS) and
seed fertilizer water technology
● MS Swaminathan, known as the ‘Father of Green Revolution
● HYV seed also known as miracle seed
● Crop yield was required to make India self-sufficient in foodgrains.
● It was a Part of New Agricultural Policy started in 1961

Green Revolution in 2 phases:

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 benefited the
wheat growing regions only

In the second phase (mid 70s to mid 80s), the HYV technology spread to
a larger number of states and benefited more variety of crops

Importance of Green Revolution

(i) Attaining marketable surplus: Now farmers can sell their excess
agriculture produce in market after meeting their own consumption
requirement.

(ii) Buffer stock of food grains: The green revolution enables the
government to procure sufficient amount of food grains to build a stock
which could be used in times of food shortage.
(iii) Benefit to low-income groups: Due to large scale selling of food
grain in market its pricing goes down. Now low income group people can
easily buy food grain for their family consumption. Who earlier spend large
portion of their income on food grains.

(iv) Rise in productivity: A substantial rise in foodgrain production due to

green revolution reforms and use of technology in agriculture.

Challenges of Green Revolution

1.Risk of Pest Attack :HYV Seeds were more prone to attack by pest so
this was a risk that small farmers who adopt this technology could lose
everything in pest attack

2.increase in the income Inequality:There was risk that expensive price

of HYV Seeds , fertilizer, Pesticides etc could have increase the inequality
of income as only big farmers can afford it

Debate over subsidies

Arguments in favour of Arguments in Against of
subsidies: subsidies:
Government should continue to Huge burden on government
provide subside because farming is finance
a risky business in India.
Majority of farmers are very poor Subsides do not benefit Poor
without subsidies they will unable to farmers as benefits of amount of
Purchase necessary inputs subsidy go to the fertilizer industry
and wealthy farmers
If subsidies are eliminated, it will
increase the gap between rich and
poor farmers, and violate the —-----------------
purpose of equity
 INDUSTRY POLICY

Industrial Policy Resolution (IPR)

1.Problems of industrial sector
2.Measure taken for industrial development
2.Features of IPR 1956
3 Role of Public sector in industrial development

Problems of industrial sector at the time of

independence

● Slow growth of modern industries

● Lack of capital goods industries
● Limited role of public sector

Measures taken for industrial development

A.IPR 1948
B.Industrial licensing Policy 1951
C.karve committee was formed for the development of
SSI and villages industries in 1955
D.IPR 1956 - imp
E. New industrial Policy 199
Main Features of IPR 1956
1.According to IPR 1956, Industries were classified into following three 3
categories

Category 1 -17 Industries were listed in this category and all were
established and owned exclusively by the public sector like aviation,
electricity atomic energy etc.

Category 2- 12 industries were listed in this category for which Public

sector will perform main role while Private play the secondary role .It
means,the Private sector supplement the Public sector in these industries
like cotton , textile,jute , aluminium etc

Category 3 - Industries not included in category I and category II are given

to the Private sector.Those industries could be established through a
license from the government.
2. Private sector Industries could be established through a license from
the government

3. Tax rebates and other concession were offered to those Private

enterprises whose industry was established in backward regions of the
country

4.More important was given on the development of SSI through Subsidies

and tax concession
SMALL SCALE INDUSTRIES (SSI)
A small scale industries presently define as a unit having a fixed
investment of maximum of ₹ 10 crores with the turnover of a Maximum of ₹
50 crores.At the beginning of the Planning (1951).It was define as apne
whose investment did ot exceeds ₹ 5 lakhs
Role of the small industries in achieving the goals of Planning was
underline by the karve committee ( also called village the small scale
industries committee)in 1955.

Role of Small Scale Industry in Indian Economy

(i) Employment Generation: These small scale industries are a major

source of employment in the country. These industries are more labour
intensive due to lack of capital. Hence it generate employment to a large
portion of the workforce after agricutlure.

(ii) Contribution to export: Nearly half of the goods (45-55%) of the

goods that are exported from India are produced by these small
enterprises. So India’s export industry majority relies on these small
industries for their growth and development.

(iii) Welfare of the public: Other than economic reasons, these industies
are also important for the social growth and development of our country.
These industries are usually started by the lower or middle class people.
They have an opportunity to earn wealth and employee other people.
It helps in income distribution.

Replace MSME - Micro Small Medium and Enterprise

NOTE : Need for protection of big firm
[Small scale industries must be protected from large and medium scale
industries then only they can survive. So government has taken various
steps to protect them like Tax concessions and reserving few products only
to small scale industries
Role of Public Sector in Industrial Development

(i) Lack of Capital in Private Sector: Except Tatas & Birla most of private
sector
companies have lack of capital. Lack of investment in industrial sector
leads to unemployment and low GDP of the economy.

(ii) Employment Creation: Public sector is playing an important role in

generating employment in the country public sector employment are of two
categories.
(a) employment in government administration, defence and other
government services.
(b) employment in public sector economic enterprises of both centre,
state and local bodies.

(iii) Strong Infrastucture: Without the development of infrastrctural

facilities, economic development is impossible. Public sector investment on
infrastructure sector like power, transportation, communication, basic, and
heavy industries, irrigation, education and technical training etc. These all
are necessary for economic development and these all
are contributed by public sector. Private sector investments are also
depending on these infrastructural facilities developed by public sector of
the country.

(iv) Generation of Income: Public sector in India has been playing a

definite positive role in generation of income in the economy.

(v) Obective 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 Industrialisation.
FOREIGN TRADE
Indian foreign Trade Policy followed these
objectives
A.Protection of domestic Industries from
Foreign Industries
B.Saving Foreign exchange by restricting
expenditure on imports

Measures were taken to achieve above objectives

● Import substitution
● Tariff
● Quota

Import Substitution
● It refers to the replacement of imports by Domestic
production
● It is also called the Inward looking Policy
● Reason for import Substitution were :
A.The risk of falling foreign exchange reserve in India
B.Indian goods were unable to complete with foreign
foreign goods
 Tariffs: These are the Taxes levied on imported goods.
The main aim is to discourage the use of foregin goods.
Due to imposing heavy duty on imported goods. These
goods become more expensive and import will
reduce.

Quotas: It refers to fixing maximum limit on the imports

of a commodity by a domestic producer. It restricts the
amount of imports. These results less imports in our
economy and now domestic firms or producers could
expand without the fear of competition from the foreign
market
All Important Dates, Data & Events

His model Adopted in 2nd five year

plan/ Architect of Indian planning/ . P. C Mahalanobis
found journal sankhya / established
the Indian statistical institute
First Industrial policy resolution 1948
Setting of planning commission in 1950
India with Prime minister as its
chairperson
First five-year plan launch. 1 april 1951- 31 march 1956
Industries (development and regulation
act) 1951
Karve committee or village and
small-scale industries committee 1955
constituted
Before Green Revolution India majorly USA
depend on
Second industrial policy resolution 30th April, 1956
(schedule A 17 industries, schedule B
12 and Rest in schedule C)
First phase of green revolution 1966
(adopted HYV
programme)
Plan holidays due to miserable failure 1966-1969
by 3rd five-year plan

Last Five-Year Plan (it was 12th plan) 2012- 2017

Planning commission replaced by NITI 1st January,2015
Aayog (National institution for
Transforming india)

Regulation of Rent 1/3rd of total value of crop

Green Revolution in India by M.S. Swaminathan

(Father of Green revolution in india)
High Yielding Variety Seeds / Green 1965
revolution (1960’s)
Investment of Small-Scale Industry in Not exceeds 5 lakh
1951
Investment of Small-Scale Industry (in Less than 10 Crore with the
2016 limit was 1 crore) turnover of less than 50 Crore.