CLASS 12 INDIAN ECONOMIC DEVELOPMENT CHAPTER 2 INDIAN ECONOMY: 1950-1990 REVISION NOTES

Economy:- An economy is an organization of economic activities which provide people with the means to work and earn a living.

Economy (Types):

➤Capitalist Economy

➤Socialist Economy

➤Mixed Economy

 Capitalist economy:

In which major economic decisions (what to produce, how to produce and for whom to produce) are left to the free play of the market forces.
 Socialist economy: In which major economic decisions are taken by the Govt. keeping in view the collective interest of the society as a whole.
 Mixed Economy: In which major economic decisions are taken by the central Govt. authority as well as are left to the free play of the market forces.

Economic Planning:

Economic Planning means utilization of country‘s resources in different development activities in accordance with national priorities.

Economic Planning is a system under which a set of targets is defined by the Govt. and these targets are to be achieved within a specified period of time, taking resources of the country in consideration.

*Goals of Planning in India: (GEMS)

GROWTH, EQUITY, MODERNIZATION & SELF SUFFICIENCY

Short-term and Long-term Objectives/Goals:

Short- term goals are plan specific and are to be achieved over a period of 5 years. Long-term objectives are common to all plans and are to be achieved over a period of 20 years.

*Long-term Goals of Planning in India:

 Modernization: Adoption of new technology.

 Self-reliance: Reducing dependence on imports.

 Growth (Economic): Increase in the aggregate output of Goods & services.

 Equity: Reduction inequality of income or wealth.

 Full employment: Refers to a situation when all the people in the working

age group are actually engaged in some gainful employment.

*Short-term Goals of Planning in India:

Short term objectives vary from plan to plan depending on current needs of the country.

For example first plan (1951-56) focused on higher agricultural production while in second plan (1956-61) shifted the focus from agriculture to Industry. In India growth and equity are the objectives of all the five year plans. The goal of current five year plan (11th, 2007-2012) is faster, broad-based and inclusive growth.

Conditions of Agriculture (1950-1990):

*Main Features of Indian Agriculture:

1. Low productivity

2. Disguised unemployment.

3. Dependence on rainfall

4. Subsistence farming - objective of farmer is to secure subsistence for his family not to earn profit.

5. Traditional inputs

6. Small holdings

7. Backward technology.

8. Landlord tenant conflict.

*Problems of Indian Agriculture:

Institutional Problems:

1. Small and scattered holdings.

2. Poor implementation of land reforms.

3. Lack of credit and marketing facilities.

Technical Problems:

1. Lack of irrigation facilities.

2. Wrong cropping pattern.

3. Outdated technique of production.

General Problems :

1. Pressure of population on land.

2. Land degradation.

3. Subsistence farming

4. Social environment.

5. Crop losses- by pest, insect, flood, drought etc.

*Reforms in Indian Agriculture:

Institutional Reforms/ Land reforms:

i. Abolition of intermediaries.

ii. Ceiling on land holdings.

iii. Regulation of rent.

iv. Consolidation of holdings.

General reforms:

i. Expansion of irrigation facilities.

ii. Provision of credit.

iii. Regulated markets and co-operative marketing societies.

iv. Price support policy.

Technical Reforms/ Green Revolution:

i. Use of HYV seeds.

ii. Use of domical fertilizers.

iii. Use of insecticides and pesticides for crop protection.

iv. Scientific rotation of crops.

v. Modernized means of cultivation.

Achievements of Green revolution:

1. Rise in production and productivity.

2. Increase in income.

3. Rise in commercial farming.

4. Impact on social revolution - use of new technology HYV seeds,

fertilizers etc.

5. Increase in employment.

*Failures of green revolution:

1. Restricted to limited crops and areas such as two crops wheat & rice

growing states like Punjab, Haryana, U.P and Andhra Pradesh.

2. Partial removal of poverty.

3. Neglected land reforms.

4. Rise in un employment.

5. Ecological degradation.

Industry(1950-90):

*Role of Industrial sector in India:

Industrialization is important for an overall growth of a country. Following points highlight the importance of Industry is an economy:

1. Provides employment.

2. Raising people income

3. Promotes regional balance.

4. Leads to modernization.

5. Helps to modernize agriculture.

6. Leads to self-sustainable development

7. High potential for growth.

8. Key to high volume of exports.

9. Growth of civilization.

* Industrialization is a pre-condition for the final take-off of an economy.

*Industrial Development since Independence:

Share of industrial sector in the GDP has increased up to 8.3% in the 10th plan. It is expected to be 10.5% in the 11th plan.

The following important changes have taken place:

(i) Development of infrastructure like power transport, communication, banking & finance, qualified and skilled human resource.

(ii) Much progress in the field of research and development.

(iii) Expansion of public sector

(iv) Building up of capital goods industry

(v) Growth of non-essential consumer goods industries.

*Problems of Industrial Development in India:

1. Sectoral imbalances - agriculture and infrastructure have failed to provide the support to the industrial sector.

2. Regional imbalance - restricted to few states.

3. Industrial sickness- which raised the problem of unemployment.

4. Higher cost of industrial product due to lack of healthy competition.

5. Dependence on the Government - for reduction in tax or duty to make import easier.

6. Poor performance of the public sector

7. Underutilization of capacity.

8. Increasing capital - output ratio

*Role of Public Sector / Govt. in Industrial Development:

Direct intervention of the state was considered essential in view of the following factors.

1. Lack of capital with the private entrepreneurs.

2. Lack of incentive among the Pvt. entrepreneurs - low demand due to limited size of the market.

3. Socialistic pattern of society - main aim of Govt. is to generate employment rather than profits.

4. Development of infrastructure.

5. Development of backward areas.

6. To prevent concentration of economic power.

7. To promote import substitution.

*Industrial Policy Resolution (IPR) 1956:

Industrial policy is an important instrument through which the govt.Regulates the industrial activities in an economy. The 1956 resolution laid down the following objectives of industrial policy:

(a) To accelerate the growth of industrialization.

(b) To develop heavy industries.

(d) To reduce disparities in income and wealth.

(e) To prevent monopolies and concentration of wealth and income in the hand of a small member of individuals.

*Features of IPR 1956:

Features of Industrial Policy Resolution of 1956 were:

1. New Classification of Industries: Industries were classified into three schedules depending upon role of state.

(a) Schedule-A - 17 industries listed in schedule-A whose development would be

the responsibility of state.

(b) Schedule-B - 12 industries were included in schedule-B, which could be

established both as the private and public sector enterprises.

2. Stress on the role of cottage and small scale industries.

3. Industrial licensing: Industries in the Pvt. Sector could be established only through a license from the government.

4. Industrial concessions - were offered of Pvt. Entrepreneurs for establishing industry in the backward regions of the country. Such as tax rebate and concessional rates for power supply.

*Small scale Industries (SSI):

A small scale industry is presently defined as the one whose investment does not exceed Rs. 5 crore.

*Characteristics of SSI:

1. Labour intensive - employment oriente

2. Self - employment.

3. Less capital intensive.

4. Export promotion.

5. Seed beds for large scale industries.

6. Shows locational flexibility.

*Problems of SSI:

1. Difficulty of finance.

2. Shortage of raw material.

3. Difficulty of marketing.

4. Out dated machines & equipment‘s

5. Competition from large scale industries.

Foreign Trade:

At the time of independence raw material was exported from India to Britain in abundance on the other hand finished goods from Britain were imported into India. Notably our balance of trade was favourable (exports > imports).

After independence India‘s foreign trade recorded a noticeable change such as.

(i) Decline in percentage share of agricultural exports.

(ii) Increase in percentage share of manufactured goods in total exports.

(iii) Change in direction of export trade and import trade.

* Trade Policy:

In the first seven five year plans of India, the trade was commonly called an ‗inward looking‘ trade strategy. This strategy is technically known as ‗import substitution‘. Import substitution means substituting imports with domestic production. Imports were protected by the imposition of tariff and quotas which protect the domestic firms from foreign competition.

*Impact of Inward looking Trade strategy on the domestic industry.

1. It helped to save foreign exchange by reducing import of goods.

2. Created a protected market and large demand for domestically produced goods.

3. Helped to build a strong industrial base in our country which directly lead to economic growth.

*Criticism of import substituting strategy

1. It did not led to growth.

2. Lack of competition implied lack of modernization.

3. Growth of inefficient public monopolies

4. It did not lead to efficiency.

Industrial Licensing:

Licensing is a tool for channelizing scare resources in predetermined priority sector of an economy. The Industries Development and Resolution Act (IDRA) was enacted in 1951.

*Criticism against Industrial Licensing:

1. There was an ad hoc system for accepting or rejecting an application for licence.

2. The quality of techno economic examination conducted by Director General of technical development was generally poor.

3. Licensing policy resulted in underutilization of capacity in many industries.

4. In reality the policy helped large business houses in accumulating economic power.