CLASS 12 CH-2 INDIAN ECONOMY 1950 to 1990 NOTES

SUMMARY OF THE CHAPTER – INDIAN ECONOMY 1950 – 1990 CLASS 12

• What is economy and its types.
• Economic planning.
• What is plan and why FYPs.
• Goals of FYPs.
• Agriculture = Land reforms, Land ceiling, Green Revolution, Debates over subsidy.
• Industrial development = IPR 1956 , Classification of Industries.
• Foreign Trade = Concept of Tariffs and Quotas.
• Critical analysis of Industrial and Agricultural development.

WHAT IS ECONOMY ??

1. Economy / Economic system refers to an arrangement by which Central problems of any economy are solved and this system provides people with means to work and ways to earn livelihood.
2. Central Problems of economy :

• • What to produce , How to produce and For whom to produce are called central problems.
  • They are called central problems because all other problems of economy revolve around these problems.

TYPES OF ECONOMIC SYSTEM / ECONOMY

• There are 3 types of economy – Capitalist , Socialist and Mixed economy.

• Capitalist economy

1. 1. Means of production are owned and operated by Private sector.
   2. Government has least role to play and it only manages the law and order.
   3. Prices and output are determined by market forces of demand and supply.
   4. Answer to all central problems are decided by Private sector.

• Socialist Economy

1. 1. Means of production are owned and operated by Government.
   2. Government takes decision w.r.t the central problems of economy.
   3. Prices and output are determined by Government.

• Mixed Economy

1. 1. Both government sector and private sector are allotted their respective roles and they jointly solve the central problems of economy.

ECONOMIC PLANNING

• Independent India also had a question – Which model to be adopted?? – Whether to go for Socialist or Capitalist or Mixed economic model.
• India went for Mixed economic system, inclined towards socialist system.
• Why this model? – Top leaders like Nehru had a profound influence of Fabian Socialism.
• Once India adopted the model , it went to follow the planned way of development. In other words, India went for Five Year Plans model and to make plans for the economy an statutory body called Planning Commission was established as on 15^th March 1950. However, it no more exists now and at its place NITI Aayog (National institution for transforming India) is a new body and it was established as on 1^st January 2015.

CLASS 12 CH-2 INDIAN ECONOMY 1950 to 1990 NOTES

WHAT IS A PLAN / WHY FIVE YEAR PLANs ??

• Plan is a document showing detailed scheme, programme and strategy which is prepared in advance in order to achieve an objective.
• India went for FYPs model, in which it used to make a plan for upcoming 5 years and the governments role was to help implement those plans by implementing pre-determined policies and programmes.
• The concept of FYPs was borrowed from the former Soviet Union( It was a socialist economy).

GOALS OF FIVE YEAR PLANs

• Target / Objective of FYPs was to remove economic backwardness of the economy and to make India a developed economy.
• 1^st FYP was launched by first Prime minister Mr. J.L. Nehru and its duration was from 1^st April 1951 to 31^st March 1956.
• Each FYPs have individual goals and these goals were the guiding principle of Indian planning.
• Goals of FYPs were Growth, Equity, Modernisation, Self-reliance (GEMS – just to remember easily)

GROWTH:

1. 1. Growth refers to increasing country’s capacity to produce goods and services.
   2. Growth implies –
   3. To increase country’s productive capital.
   4. To increase efficiency of productive capital and services.
   5. To increase supporting services like transport and banking.

• A good indicator of economic growth is steady increase in GDP.

MODERNISATION :

1. 1. Modernisation dealt with 2 aspects – Social modernization and Economic modernization.
   2. Accordingly, modernization included-
   3. Adoption of New technology (Economic modernization) – Under it, Indian economy aimed to increase production of goods and services by adopting newer technology.
   4. Change in social outlook (Social modernization) – Under it, social aspects such as gender empowerment, equal rights to women etc. were dealt with.

• Aim / objective of modernization was to transform feudal and colonial economy into a modern and independent economy.

SELF – RELIANCE :

1. 1. Self reliance refers to develop the domestic resources and Indian economy in such a way such that foreign dependence of Indian economy gets reduced.
   2. So, the FYPs stressed on use and development of domestic resources.

• WHY SELF-RELIANCE ??

1. 1. To reduce foreign dependence.
   2. To reduce foreign interference.

EQUITY :

1. Why Equity?

The objectives of Growth, Modernization and Self-reliance were not sufficient to ensure that every Indian is enjoying good quality of life. It may happen that the fruits of economic growth are being enjoyed by few Indians and majority of Indians are poor. So, to ensure that every Indian is able to meet his/her basic requirements like food, house, education, health etc., Equity was also incorporated as a goal under FYPs.

2.  Equity aims to promote social justice.

AGRICULTURE

• Main features of Indian agricultural sector between 1950 – 1990 :

1. 1. Low productivity – Large area and less output.
   2. Disguised unemployment – More people engaged in work than required.

• High dependency on rainfall

1. 1. Subsistence farming – Growing crop for ones’ own use and not for trade.
   2. Outdated technology – Mostly dependent upon manual work, less use of mahine.
   3. Small land holdings – Most of the farmers had smaller land holdings.

• Policies of agricultural growth –

1. 1. Land reforms.
   2. Land ceiling
   3. Green revolution.

LAND REFORMS

1. It refers to change in ownership of landholdings.
2. Why LR was needed ? – Because majority of Indians (70 to 75 percent) were dependent on agriculture. Also, it was needed to ensure EQUITY in agriculture.
3. Colonial legacy – When Britishers left India, they left behind their legacy as well and accordingly those who were zamindars under British regime were owning lots of land in independent India as well. So, there was a need to redistribute land.
4. What was done under Land reforms ?

Under Land reforms, government tried to redistribute the land by abolishing the intermediaries (zamindars) and transferring the ownership of land to Tiller of the land (Peasants or small farmers).This was done by government by amending the constitution and making laws.

5. Impact of Land reforms –

1. 1. Some 200 lakh tenants were given land ownership by abolishing intermediaries.
   2. Title of land gave the incentive to peasants/small farmers to invest into land and adopt latest technology for better output by investing into land.

6. But in some cases zamindars used loopholes of law and claimed themselves to be tiller of the land.

LAND CEILING

• Land ceiling refers to fixing the specified limit of land, which could be owned by an individual. Beyond specified limit, land will be taken and distributed to landless labourers.
• LC helped to promote EQUITY in agriculture.

Conclusion – Land reforms were successful in Kerala and West Bengal because state government were also committed but in other states land reforms were not that much successful.

GREEN REVOLUTION

• Green Revolution refers to large scale increase in production of food grains by using HYV (High yield variety seeds) or miracle seeds especially of wheat and rice.
• Norman E. Borlaug, an American agricultural scientist is called Father of Green revolution and got Noble prize in 1970 for inventing HYV seeds.
• S. Swaminathan is considered as propounder of GR in India.
• GR increased agricultural productivity.
• Under GR, HYV seeds are used. So, to derive benefit from HYV seeds, reliable irrigation facilities and good quality and quantum of fertilisers and pesticides are also needed.
• India experienced GR in two phases –

1. First phase (mid 60s – mid 70s) –

• • Use of HYV seeds restricted to affluent states like Punjab, Andhra Pradesh, Tamil Nadu etc.
  • 1^st phase benefited WHEAT growing regions only.

2.  Second phase (mid70s – mid 80s) –

• • Number of states increased.
  • Number and variety of crops also increased.
• IMPORTANT EFFECTS OF GREEN REVOLUTION :
  1. India achieved self-sufficiency in food grains.
  2. Attaining marketed surplus – Marketed surplus refers to that part of agricultural produce which is sold in the market by farmers after meeting their own consumption requirement.
  3. Buffer stock of food grains – It enabled government to procure sufficient food grains to be used at the time of shortage.
  4. Benefited low income groups – As output increased, prices declined and hence benefited low income groups.
• Risks involved under Green Revolution :
  1. Risk of pest attack – HYV crops are more prone to pest attacks. However, government in collaboration with research institutes provided services to reduce the risk involved.
  2. Risk of increase in income inequalities – There was a risk that income disparity will increase between big farmers and small farmers. But, government provided loans to small farmers at low interest so that they can access HYV seeds.

DEBATE OVER SUBSIDY TO AGRICULTURE

Ques – What does subsidy in agriculture means ?

Ans – Subsidy , in context of agriculture, means that farmers get inputs at prices lower than the market prices.

Ques – Why does government provides subsidy to farmers ?

Ans – Government provides subsidy/financial assistance to farmers to fulfill its social welfare objectives.

Ques – Why there is debate over agricultural subsidy?

Ans – During initial phases of Green revolution, new technology (HYV seeds) were seen as risky by farmers. So, it was necessary for the government to provide subsidy. But, it is still continuing , hence there is debate over subsidy.

• Economists in FAVOUR of Subsidy argues :
  1. As farming in India is still a risky business, so subsidy should be continued.
  2. Majority of farmers are small and marginal. So, difficult for them to buy input, hence it should be continued.
  3. If subsidy removed, it will increase income disparity/inequality between rich and poor farmers.
• Economists AGAINST subsidy argues :
  1. As subsidies were provided to adopt new technology (HYV seeds) and now it has been widely accepted by farmers. So it should be phased out as its purpose has been served.
  2. Subsidies do not benefit the poor and small farmers (targeted group) as the benefit mostly goes to prosperous farmers and fertilizer industry.
• Conclusion of debate to be written in exam = Subsidies in India are necessary for poor and small farmers, to enable them to make use of modern technology. However, necessary steps should be taken to ensure that only poor and small farmers enjoy the benefit and not fertilizer industry and big farmers.
• Question – Subsidies provide an incentive for wasteful use of resources. Comment ( Attempt this question, we will discuss in Q & A session ).

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INDUSTRIAL DEVELOPMENT

• To develop the economy, sound industrial base was required.
• Industrial sector provides employment which is more stable w.r.t. agricultural sector.
• So, FYPs stressed a lot on industrial development.
• After independence Public sector played a leading role in industrial development due to following reasons –
• Shortage of Capital with private sector – Private entrepreneurs did not have the capital to invest in industrial sector. At independence, TATAs and Birlas were few private industrialists. So, government had to make industrial development through PSUs.
• Lack of incentive for private sector – Due to low size of market and low level of demand , no incentive was there for private sector for industrial sector investment.
• Objective of Social welfare – To achieve the objective of equity and social welfare, GOI had to directly participate in the process of industrialisation.

INDUSTRIAL POLICY RESOLUTION 1956

• On 30^th April1956, India adopted 2^nd IPR (1^st was adopted in 1948).
• 2^nd IPR of 1956 classified industries into 3 categories – Schedule A, Schedule B and Schedule C.
• Schedule A :

1. 1. It included industries which were exclusively owned by state.
   2. Total 17 industries were placed under this category.

• Eg- Arms and ammunitions, atomic energy, heavy core industries, aircraft, oil, railways, shipping etc.
• Schedule B :

1. 1. 12 industries were included.
   2. State will take initiative of setting up these industries and private sector will supplement the efforts of state.
   3. Eg- Aluminium, other mining industries, machine tools, fertilizers etc.

• Schedule C :

1. 1. It consisted of remaining industries.
   2. State will encourage and facilitate development of these industries.

• These industries were controlled by the state through a system of licences, under Industries (Development and Regulation) act, 1951.

INDUSTRIAL LISCENSING

• What is industrial licence ? = It is a written permission from the government to manufacture goods.
• Licences were issued as per Industries (Development and Regulation) act 1951.
• Licences were issued for –

1. 1. Setting up new industry.
   2. Expansion of existing ones.

• Diversification of products.
• It was easier to obtain licence in an economically backward area.
• Purpose of licencing was to promote regional equality.

SMALL SCALE INDUSTRIES (SSIs)

• 1955 – The village and small scale industries committee (KARVE Committee) recognised the importance of setting up SSIs to promote rural development.
• Define SSI ? = A SSI is defined w.r.t. maximum investment allowed on the assets of a unit. This limit has changed form Rs. 5 lakh in 1950 to Rs. 1 crore at present.
• Few important points about SSIs :

1. Employment generation: –
   1. SSIs are labour intensive units. Hence, generate more employment.
   2. After agriculture, SSIs provide largest number of employment to people in India.
2. Need for protection from big firms : –
   1. SSIs can’t compete with big industrial units. So need protection from big firms.
   2. To protect them Government of India in initial stage of independence took few steps:
      1. Reservation of certain products for SSIs only.
      2. SSIs were given concessions like, lower excise duty, bank loan at lower rates etc.

FOREIGN TRADE

• Here we will study exports and imports to ard from India.
• Independent India went for the policy of IMPORT SUBSTITUTION.
• IMPORT SUBSTITUTION = It is policy of replacement or substitution of imports by domestic production.
• Why Policy of import substitution? = To protect domestic industries from foreign competition.
• Import substitution had 2 objectives :

1. 1. To save forex.
   2. To achieve self-reliance.

• It is now understood that Government of India ( newly independent) wants to go for Import substitution. But, how it will abstain/restrict Foreign competitors from entering into India?
• For this, Government went for TARIFFs and QUOTAs system.
• TARIFFs = Heavy tax duty were imposed on import of foreign goods. This will make imported goods costlier in India and hence will protect domestic industries.
• QUOTAs = It basically means QUANTITATIVE Under it, restrictions were imposed in import quantity.

CRITICAL APPRAISAL OF AGRICULTURAL SECTOR (1950 – 1990)

• Land reforms were one the greatest achievement of Indian government. Between 1950 to 1990 agricultural productivity increased (Output per hectare of land).
• Share of Agricultural sector in GDP declined in this time period, but the population dependent on it not declined.
• 65% population continued to be in agriculture, evein till 1990s.
• Same agricultural output could have been grown with less population, but industrial sector and service sector was unable to absorb the extra population in agricultural sector.

CRITICAL APPRAISAL OF INDUSTRIAL DEVELOPMENT(1950 – 1990)

• Share of industrial sector in GDP increased.

1. 1. 1950 – 51 = 11.8% share in GDP
   2. 1990 – 91 = 24.6% share in GDP.

• Industrial sector became well diversified due by 1990 and was not restricted to cotton textiles and jute.
• SSIs gave opportunity to people with less money aslo, to enter into business.
• Indigenous industries developed due to protection from foreign competition.
• But this protection had 2 drawbacks –

1. 1. Inward looking trade strategy limited our export sector development.
   2. Due to Lack of competition , domestic producers made no sincere effort to improve quality of goods. Domestic industry failed to achieve international standard.

• Excessive control over private sector (through Licensing policy) developed 2 problems-

1. 1. Misuse – Few big industrialists took licences, not to start a new industry, rather to restrict others from entering into business.
   2. Time consuming process: Obtaining Licence was time consuming process.

• Public sector , no doubt created a sound industrial base. But its engagement in non-essential areas unnecessarily drained its funds.

CONCLUSION ( Use this in your answers):

1. In Agriculture sector: In this sector, India became self sufficient in food production due to green revolution. Also, Land reforms helped in abolishing Zamindari system and Zamindars as well.
2. In Industrial Sector: Industries became more diversified . However, excessive government regulation prevented their growth.

IMPORATNT DATES TO BE REMEMBERED:

1. 1948 = First Industrial policy resolution (IPR).
2. 1950 = Planning commission established.
3. 1951 = 1^st FYP launched.
4. 1951 = Industries ( Development and Regulation) act enacted.
5. 1955 = Karve committee.
6. 1956 = 2^nd
7. 1966 = 1^st phase of Green Revolution.
8. 1991 = New Economic Policy.
9. 2015 = Planning commission replaced by NITI Aayog.

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