[CHAPTER-2]

[INDIAN ECONOMY (1950-1990)]

INTRODUCTION
In previous chapter, we have learnt that on the eve of independence, Indian economy was
completely undeveloped.

After two hundred years of British rule and their exploitative policies, India finally got
freedom on 15th august, 1947.

Now it is necessary to reconstruct the backward and stagnant Indian economy into a
developed economy.

Therefore, the most important task before the Government of Independent India was to
decide the type of ‘Economic system’, which would be most suitable for India.

Economic system refers to an arrangement by which central problems of an economy are

solved.

CENTRAL PROBLEMS OF AN ECONOMY

The three major central problems of an economy are:

What to produce:
It involves deciding the final combination of goods and services to be produced, i.e., it
involves selection of goods and services and the quantity of each that the economy should
produce.

How to produce:
It involves deciding the technique of production, i.e. whether selected goods be produced

with more labour and less capital (known as labour intensive technique) or with more capital
and less labour (known as capital intensive technique).

For whom to produce:

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It involves deciding the distribution of output among people, i.e. it involves selection of the
category of people who will ultimately consume the goods.

TYPES OF ECONOMIC SYSTEMS

Capitalist Socialist Mixed

economy economy economy

Capitalist economy:
A capitalist economy is he one in which the means of production are owned, controlled and
operated by the private sector.

Production is done mainly for earning profits. So, the central problems (what, how and for
whom to produce) are solved through the market forces of demand and supply.

Under capitalist economy, the three central problems are solved in the following manner:

What to produce: Under this system, only those goods are produced that can be sold
profitably either in the domestic or in the foreign market.

How to produce: goods are produced using cheaper techniques of production.

In case of cheap labour, labour-intensive methods of production are used and in case of
costly labour, capital-intensive methods of production are used.

For whom to produce: In a capitalist society, goods produced are distributed among people
not on the basis of their needs but on the basis of their income or purchasing power.

This means that a sick person will be able to get medicine only when he can afford to buy it
otherwise not, even if there is urgency.

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 Socialist economy:
A socialist economy is the one in which the means of production are owned, controlled and
operated by the Government.

Under socialist economy, the three central problems are solved in the following manner:

What to produce: In a socialist society, the Government decides what to produce in advance
with needs of the society.

How to produce: The Government decides how the goods are to be produced.

For whom to produce: Distribution under socialism is supposed to be based on what people
need and not on what they can afford to purchase.

A socialist nation provides free health care to the citizens, who need it.

Mixed economy:
A mixed economy system refers to a system in which the public sector and the private sector
are allotted their respective roles for solving the central problem of the economy.

In mixed economy, the Government and the market together solve the 3 central problems:
what to produce, how to produce and for whom to produce.

The private sector provides whatever goods and services, it can produce well, and the
Government provides essential goods and services, which the market fails to do.

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 favour of Socialist economy. However, in a democratic country like
India, complete dilution of private ownership was not possible (as was possible in case of the
former Soviet Union)
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.
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 As a result, Mixed economy (with best features of both Socialist and Capitalist economy)
wasadopted by the Indian economy.

In this view, India would be socialist society, with a strong public sector, but also with private
property and democracy.

ECONOMIC PLANNING
After adopting the ‘Mixed economic system’, the next important step for the Government
was to revive the poor, backward and stagnant economy, inherited from the British rule.

For the development of Indian economy, it was necessary for the Government to ‘Plan’ for
the economy, known as economic planning.

Economic planning can be defined as making major economic decisions (what, how and for
whom to produce)

By the conscious decision of a determinate authority, on the basis of a comprehensive survey

of the economy as a whole

The Industrial policy Resolution of 1948 and the Directive principles of the Indian constitution
assigned a leading role to the public sector.

Private sector was also encouraged to be a part of the plan efforts.

To make economic planning effective, the Government of India set up Planning Commission
in 1950, with the Prime Minister as the Chairman.

The purpose of the Commission was to carefully asses the human and physical resources of
the country and to prepare the plans for the effective use of resources.

The planning commission fixed the planning period at five years, which began the era of ‘Five
Year Plans’.

GOALS OF FIVE YEAR PLANS

The five-year plans have been concerned with the removal of economic backwardness of the
country and to make India a developed economy.

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The five-year plans have also taken care to ensure that the weaker sections of the population
benefit from the economic progress of the country.

The first five-year plan was launched for a period starting from 1st April, 1951 and ending on
31st March, 1956.

Each Five year plan listed the basic Goals of India’s development, which served as the guiding
principles of Indian planning.

These basic Goals are:

 GROWTH
 MODERNISATION
 SELF-RELIANCE
 EQUITY

Growth:
The stagnation during the British rule forced the planners to make economic growth as the
first and foremost objective of Indian plans.

It refers to increase in the country’s capacity to produce the output of goods and services
within the country

It 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, in the language of economics, is steady increase in the
Gross Domestic Product (GDP).

GDP refers to market value of all the goods and services produced in the country during a
period of one year.

Increase in GDP or availability of goods and services enables people to enjoy a more rich and
varied life.

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 The GDP of a country is derived from the different sectors (Agricultural sector, Industrial
sector and service sector) of the economy.

In some countries, growth in agriculture contributes more to the GDP growth, while in some
countries, growth in service sector contributes more to GDP growth.

The contribution of each sector makes up the structural composition of the economy.

Share of service sector in GDP increased: By 1990, the share of the service sector was
40.59%, more than that of agriculture or industry.

This phenomenon of growing share of the service sector was accelerated in the post 1991
period, which marked the beginning of globalisation in the country.

Modernisation:
Indian planners have always recognized the need for modernization of society to raise the
standard of living of people.

It includes:

Adoption of New technology: It 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: It also requires change in social outlook, such as gender
empowerment or providing equal rights to women. A society will be more civilized a
prosperous if it makes use of the talents of women in the work place.

Self-reliance:
The third major objective is to make the economy self-reliant

Self-reliance under Indian conditions means overcoming the need of external assistance. In
other words, it means to have development through domestic resources.

To promote economic growth and modernization, the five-year plan stressed on the use of
own resources, in order to reduce our dependence on foreign countries
The policy of self-reliance was considered a necessity because of two reasons:
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To reduce foreign dependence: As India was recently free from foreign control, it is necessary
to reduce our dependence on foreign countries, especially for food. So, stress should be given
to attain 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.

Equity:
The objective of growth, modernization and self-reliance, by themselves, may not improve
the kind of life, which people are living.

So, it is important to ensure that benefits of economic prosperity are availed by all sections
(rich as well as poor) of the economy.

In addition to the objectives of growth, modernization and self-reliance, equity is also

important.

According to equity, every Indian should be able to meet his or her basic needs (food, house,
education and health care) and inequality in the distribution of wealth should be reduced.

In short, Equity aims to raise the standard of living of all people and promote social justice.

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 AGRICULTURE
In the previous chapter, we have learnt that there was neither growth nor equity in the
agricultural sector, during the colonial rule.

At the time of independence, the land tenure system was charactersied by intermediaries
(like zamindars) who merely collected rent (lagaan) from the actual tillers of the soil.

The low productivity of the agricultural sector forced India to import food from the United
States of America.

The agricultural sector accounted for the largest share of workforce with approximately 70-75
per cent. So, agricultural development was focused right from the First Five Year Plan.

Features (or problems) of Agriculture

Following were some of the main features (or problems) of Indian Agriculture sector between
1950 and 1990:
Low productivity: Indian agricultural sector was known for its low productivity. Lack of
knowledge was responsible for stagnation in this sector.

Disguised Unemployment: It refers to a state in which more people are engaged in work than
are really needed. There was very high incident of disguised unemployment in the sector
during 1950 and 1990.

High dependency on Rainfall: Due to poor agricultural techniques, farmers depended largely
on rainfall. There was minimum growth of this sector in the year that receives the least
rainfall.

Subsistence farming: It is the practice of growing crops only for one’s own use without any
surplus for trade. There was also very high incident of subsistence farming.

Outdated technology: There were many obsolete technologies and harvesting machines.
Harvesting was generally done manually and was very tedious.

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Conflicts between tenant and landlords: Farmers were often a part of a critical contract that
bound them to their landlords. Landlords used to extract huge amount of interest from
farmers and deprived them of their necessities.

Policies for Growth of Agriculture

The measures undertaken to promote the growth in the agricultural sector can be broadly
categorized as “Land reforms” and “Green revolution”.

Measures to promote growth in Agricultural sector

Land reforms Green revolution

LAND REFORMS:
Land reforms primarily refer to change in the ownership of landholdings.

Land reform measures have been introduced by various underdeveloped and developing
countries, for attaining a rational land distribution pattern and viable farming structure.

There was a great need for land reforms in a country like India, where majority of its
population still depends on agriculture

Land reforms were needed to achieve the objective of equity in agriculture.

Abolition of Intermediaries:
Indian Government took various steps to abolish intermediaries and to make tillers, the
owners of land.

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 The idea behind this step was that ownership of land would give incentives to the actual
tillers to improvements (provided sufficient capital was made available to them).

The abolition of intermediaries brought 200 lakh tenants into direct contact with the
Government.

The ownership rights granted to tenants gave them the incentive to increase output and this
contributed to growth in agriculture.

However, the goal of equity was not fully served by abolition of intermediaries because of
following reasons:

In some areas, the former zamindars continued to own areas of land by making use of some
loopholes in the legislation;

In some cases, tenants were evicted and zamindars claimed to be self-cultivators;

Even after getting the ownership of land, the poorest of the agricultural labourers did not
benefit from land reforms.

Land ceiling:
It refers to fixing the specified limit of land, which could be owned by an individual.

Beyond the specified limit, all lands belonging to a particular person would be taken over by
the Government and will be allotted to the landless cultivators and small farmers.

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.

However, the land ceiling legislation was challenged by the big landlords. They delayed its
implementation.

This delay time was used by them to get the land registered in the name of close relatives,
thereby escaping from the legislation.

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 NEW AGRICULTURE STRATEGY: GREEN REVOLUTION IN INDIA
The new agricultural strategy was adopted in India during the Third plan, i.e., during 1960s.
The traditional agriculture practices followed in India were gradually being replaced by
modern technology and agricultural practices.

The aim of this strategy was to raise agricultural production and productivity in selected
regions of the country through the introduction of modern inputs like fertilizers, credits,
marketing facilities, etc.

GREEN REVOLUTION:
At the time of independence, about 75% 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 a lot of problems.

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 efforts of many agricultural scientists, this stagnation in
agriculture was permanently broken by the “Green revolution”.

Green revolution refers to the large increase in production of food grains due to use of high
yielding variety (HYV) seeds. It is the spectacular advancement in the field of agriculture.

EXPLORE MORE: ORIGIN OF GREEN REVOLUTION

In the kharif season (1966), India adopted High yielding varieties

programme for the first time. The programme was successful due to:

 High Yielding Varieties (HYV) seeds;

 Adequate irrigation facilities;
 Application of fertilizers, pesticides, insecticides, etc.

In this way, a new technology was gradually adopted in Indian

agriculture. This new strategy is also popularly known as modern
agricultural technology or Green revolution.

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 HYV Seeds: Main reason for agricultural revolution
Agricultural revolution occurred primarily due to the miracle of new wonder seeds {high
yielding varieties (HYV) of seeds}, which raised agricultural yield per acre to incredible
heights.

These seeds can be used in those places where there are adequate facilities for drainage and
water supply.

As compared to other ordinary seeds, these seeds need heavy doses of chemical fertilizers (4
to 10times more fertilizers) to get the largest possible production.

So, to derive benefit from HYV seeds, Indian farmers need to have:

Reliable irrigation facilities; and

Financial resources (to purchase fertilizers and pesticides).

Indian economy experienced the success of Green revolution in 2 phases:

In the first phase (Mid60s to Mid70s), 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 only.
In the second phase (Mid70s to Mid80s), the HYV technology spread to a larger number of
states and benefited more variety of crops.

Important effects of Green revolution:

The spread of Green Revolution technology enabled India to achieve self-sufficiency in food
grains.
India was no longer at the mercy of America, or any other nation, for the food requirements.

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 own
consumption requirement.
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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.

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.

Benefit to low income groups:

As larger 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 declined in relative prices.

Risk involved under green revolution:

While the nation had immensely benefited from the green revolution, the technology was not
free from risks.

Risk of pest attack:

The HYV crops were more prone to attack by pests. So there was risk that small farmers who
adopted this technology could lose everything in a pest attack.

However, this risk was considerably reduced by the services rendered by research institutes
establish by the Government.

Risk of increase in income inequalities:

There was a risk that costly inputs (HYV seeds, fertilizers, etc.) required under green revolution
will increase the disparities between small and big farmers since only the big farmers could
afford the required inputs.

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However, due to favourable steps taken by the Government, these fears did not come true.
The Government provided loans at a low interest rate to small farmers so that they could
also have access to the needed inputs.

Since the small farmers could obtain the required inputs, the output on small farms equaled
the output on large farms in the course of time.
As a result, the green revolution benefited the small as well as rich farmers.

Debate over subsidies to agriculture:

Subsidy, in context of agriculture, means that the farmers get inputs at prices lower than the
market prices.
During the initial phases of Green revolution, new technology was looked upon as being risky
by the farmers.
So, it was necessary for the Government to grant subsidies to provide an incentive for
adoption of the new HYV technology.
However, with the passage of time, there has been debate over the huge amount of subsidies
granted by the Government.

Economists in favour of subsidies:

The Government should continue with agricultural subsidies as farming in India continues to
be a risky business
Majority of the farmers are very poor and they will not be able to afford the required inputs
without the subsidies.

Eliminating subsidies will increase the income inequality between rich and poor farmers and
will violate the ultimate goal of equity.
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 fertilizers industry and big farmers.

Economists against the subsidies:

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 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.
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.

Therefore, there is no case for continuing with subsidies as it does benefit the target group
and it is a huge burden on the Government’s finances.

Critical appraisal of agricultural development (1950-1990)

Indian economy inherited stagnant and backward agricultural sector from the British rule.
So, immediately after the independence, Indian Government undertook various measures to
improve the condition of agriculture.
The ‘Land reforms’ measures and ‘Green revolution’ were the greatest achievements of the
Indian Government, in enhancing the agricultural production and productivity.
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% of the country’s population continued to be employed in agriculture, even till
1990.

Agricultural output could have been grown with much less people working in the sector, but
industrial and service sector were unable to absorb the extra people involved in agriculture.
The involvement of such a large proportion of the population in agriculture was regarded as
the important failure of policies followed during 1950-1990.

INDUSTRIAL DEVELOPMENT

The developing countries (like India) can progress only if they have a good industrial sector.

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 Industry provides employment, which is more stable than the employment in agriculture.
Industrialization promotes modernization and overall prosperity. Due to this reason, Five
year plans stressed a lot on the industrial development.
At the time of independence, the variety of industries was very limited. The cotton textile and
jute industries were mostly developed in India.
There were 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.

Role of public sector in Industrial development

At the time of independence, the big question facing the policy makers was to decide the role
of Government (public sector) and the private sector in industrial development.

There was a leading role of public sector due to the following reasons:

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).

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.

Objective 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
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 public sector leading the way.

INDUSTRIAL POLICY RESOLUTION 1956

It is a comprehensive package of policy measures which covers various issues connected with
different industrial enterprises of the country.
After Industrial policy, 1948, Indian economy had to face a series of economic and political
changes, which necessitated the need for a fresh industrial policy for the country.
So, on 30th April, 1956, a second Industrial Policy Resolution was adopted in India.

CLASSIFICATION OF INDUSTRIES

Schedule A Schedule B Schedule C

According to Industrial Policy Resolution 1956, the industries were reclassified into three
categories, viz. Schedule A, Schedule B, Schedule C.

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.

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 Aluminum, other
mining industries, machine tools, fertilizers, etc.

Schedule C: This schedule consisted 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.

INDUSTRIAL LICENSING

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 An industrial license is a written permission from the Government, to an industrial unit to
manufacture goods. The industries (Development and regulation) Act, 1951, empowered the
Government, to issue licenses for:

 Setting up new industries

 Expansion of existing ones
 Diversification of products

According to Industrial licensing:

No new industry was allowed unless a license is obtained from the Government
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 as tax benefits and electricity at a
lower tariff.
The purpose of this policy was to promote regional equality.
License was needed even if an existing industry wants to expand output or diversify
production.

License to expand production was given only if the Government was convinced that there is a
need for larger quantity of goods in the economy.

SMALL SCALE INDUSTRY (SSI)

In 1955, the village and small-scale industries committee (Karve committee) recognized the
possibility of using small-scale industries to promote rural development.
A ‘small-scale industry’ is defined with reference to the maximum investment allowed on the
assets of a unit.
This limit has changed from rupees five lakh in 1950 to present limit of rupees one crore.

Important points about small-scale industries

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 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 number of people in India.

Need for protection from big firms:

Small-scale industries cannot complete with the big industrial firms. They can flourish only
when they are protected from the large firms.
So various steps were taken by the Government for their growth
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 manufacture the goods.
Various concessions: Small-scale industries were also given concessions, such as lower excise
duty and bank loans at lower interest rates.
z

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 FOREIGN TRADE
Foreign trade in India includes all imports and exports to and from India. India entered in
planned development era in 1950’s and at that time ‘Import substitution’ was a major
element of India’s Trade and Industrial Policy. In 1950, India’s share in the total world trade
was 1.78%.

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.
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”.
The basic aim of the policy was to protect domestic industries from foreign competition

The policy of import substitution can serve 2 definite objectives:

Savings of precious foreign exchange
Achieving self-reliance

Protection from Imports through “Tariffs” and “Quotas”

Government made use of two ways to protect goods produced in India from imports:

Tariffs: It refers 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.

Quotas: It refers 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.

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 As a result, the domestic firms could expand without fear of competition from the foreign
market.

Reason for import substitution:

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 complete against the
goods produced by more developed economies.
With protection, they will be able to compete in the due course of time.
Restriction on imports was necessary as there was a risk of drain of foreign exchange
reserves on the import of luxury goods.

CRITICAL APPRAISAL OF INDUSTRIAL DEVELOPMENT (1950-1990)

The achievements of India’s industrial sector during the first seven plans are impressive
indeed.

The proportion of GDP contributed by the industrial sector increased in the period from
11.8% in 1950-51 to 24.6% in 1990-91.

This rise in the industry’s share of GDP is an important indicator of development. The 6%
annual growth rate of the industrial sector during the period is also admirable.

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 the public sector.

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.
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Protection from foreign competition enabled the development of indigenous industries in the
areas of electronics and automobiles sectors, which otherwise could not have developed.

However, this protection had two drawbacks:

Inward looking trade strategy: Our policies were ‘inward oriented’ and so we failed to
develop a strong export sector.

Lack of competition: Due to restriction on imports, some domestic producers made no

sincere efforts to improve the quality of their good.

It forced the Indian consumers to purchase, whatever is produced by them.

The domestic industry failed to achieve international standards of product quality.
Licensing policy helped the Government to monitor and control the industrial production.

However, excessive regulation by the Government created two difficulties:

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.

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.

Public sector made a remarkable contribution by creating a strong industrial base developing
infrastructure and promoting development of backward areas.

However, the public sector continued to monopolise (that too ineffectively) in certain non-
essential areas, which could be well handled by the private sector.
For example, telecommunication, 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
Many public sector firms also incurred huge losses but continued to function because of
difficulty in closing a Government Undertaking.
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 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
defense) 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 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.

CONCLUSION

The progress of the India economy in the three sectors can be summarized as under:

AGRICULTURE
SECTOR
INDUSTRIAL
SECTOR

TRADE
SECTOR

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 strong export sector
 The domestic producers were protected against foreign competitions in order to gain self-
reliance.

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 However, this did not give them the incentive to improve the quality of goods that they
produced.
 The need for reform of economic policy was widely felt in the context of changing global
scenario.
 So, the New Economic Policy (NEP) was initiated in 1991, to make our economy more
efficient.

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