NCERT Solutions for Class 11

Economics
Chapter 2- Indian Economy 1950-1990

1. Define a plan.
Ans: A plan is a proposed list of objectives for an economy to fulfil over a set period of
time. It provides the best strategies to use the limited resources available to achieve the
enumerated objectives. In India, planning is done for a five-year period, referred to as a
five-year plan. Plans have both specific and broad objectives. Economic progress,
modernization, self-reliance, and equity are some of the unifying aims. Plans establish
the basic framework within which policies are developed.

2. Why did India opt for planning?

Ans: India had to choose between capitalism and socialism soon after independence.
Finally, India chose socialism after being impressed by the Soviet Union's tremendous
success with planning. Despite the fact that Indian political and economic conditions
were not as favourable as they were for Soviet Unions to accept socialism, India did so,
but with a twist. India was founded on the socialist concept, with a strong emphasis on
the public sector and active private sector participation within a democratic framework.

3. Why should plans have goals?

Ans: Every strategy should have a set of objectives. A plan without a goal is akin to
living a life without a soul. While a plan should help to describe the means and methods
for allocating the scarce resources in order to meet stated aims, goals are the ultimate
targets, and achieving them guarantees that plans succeed. As a result, goals must be
included in plans. It would be impractical to expect all of the plan's goals to be given
equal weight in all of the plans. In fact, goals may contradict, therefore planners must
find a way to reconcile them. In India, several aims are stressed in various five-year
plans.

4. What are High Yielding Variety (HYV) seeds?

Ans: Dr. Narman Barlauf, a Nobel Laureate, produced the High Yielding Variety of
seeds in Mexico. These seeds are more productive and require more fertilisers and
insecticides, as well as regular and proper irrigation. In 1966, the Indian agricultural
sector saw a Green Revolution as a result of the introduction of HYV seeds, particularly

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in rice and wheat harvests. Because HYV seeds grow quicker than regular seeds, crops
can be harvested in a much shorter amount of time.

5. What is marketable surplus?

Ans: The difference between a farmer's entire output and his on-farm consumption is
referred to as marketable surplus. To put it in simple words, it's the percentage of total
amount of produce that the farmer sells in the market. Total farm output produced by
farmers minus own use of farm output = marketable surplus.

6. Explain the need and type of land reforms implemented in the agriculture sector.
Ans: Land reforms in India were urgently required for the following reasons:
1. Land Tenure System: At the time of independence, the Indian agricultural sector
had three types of land tenure systems: the Zamindari System, the Mahalwari System,
and the Ryotwari System. The land was largely cultivated by the tenants, and the land
income was paid to their landlords, which was a common aspect of these three systems.
Exorbitant rents resulted as a result of this abuse of tenants.

2. Lack of initiative: Because the majority of the land was controlled by the landlords,
the farmers lacked initiative and lacked the financial wherewithal to use mechanised
farming methods.

3. Traditional Approach and Low Production: Traditionally, Indian farmers relied

on conventional and traditional inputs and methods, as well as meteorological
conditions, which limited agricultural productivity.

4. Size of Land Holdings: The farmers' land holdings were quite tiny. Furthermore, the
land holdings were dispersed. This made it difficult to employ current procedures.

5. Lack of a well-developed marketing system: Farmers used to rely on middlemen to

sell their products in the market due to a lack of a well-developed marketing system.
These middlemen used to buy farm items for a low price and then sell them at a higher
price at market. As a result, the farmer did not receive the correct profit share, resulting
in a shortage of financing and investment on the farm.

6. Nature of Farming: Subsistence farming was the primary motivation for farmers.
That is, farming was done primarily to earn a living, rather than to sell for profit.

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Land reforms were essential to address the aforementioned issues in Indian agriculture.
The following are the steps involved in land reform: -

1. Eliminating Intermediaries: One of the main goals of land reform was to eliminate
intermediaries such as Zamindars and Jagirdars. There were numerous initiatives taken
to make the tillers the landowners.

2. Rent Control: The growers were exploited by paying high rents. Except in Punjab
and Haryana, where it was third, the maximum rent imposed in the first five-year plan
was one-fourth or one-fifth of total farm produce. Rent restrictions not only relieved
tenants of their financial burdens, but also provided them with more funds to invest in
their farms.

3. Consolidation of Holdings: Because the land holdings were tiny and dispersed, it
was critical to consolidate them so that contemporary and advanced technologies could
be used. Farmers were awarded consolidated holdings that were equal to the total
amount of land in their different scatter plots. They were able to reap the benefits of
large-scale production as a result of this.

4. Cooperative Farming: This action was taken to address issues caused by holdings
being subdivided. Because small-scale farming by a single landowner is neither
profitable nor productive, these measures encouraged farmers to pool their lands and
farm together. Individual farmers shared more revenues as a result of increased output.

7. What is the Green Revolution? Why was it implemented and how did it benefit
the farmers? Explain in brief.
Ans: In the latter half of the second five-year plan, a team was formed to suggest
alternative approaches to address low productivity, recurrent famines, and low levels of
agricultural products. According to the team's suggestions, the government began using
HYV seeds, contemporary techniques, and inputs such as fertilisers, irrigation, and
subsidised financing. The Intensive Area Development Programme is the name given to
all of these stages taken together (IADP). As a result, food grain production grew by
about 25% in the years 1967-68. The result is known as the 'Green Revolution' because
of the significant increase in food grain output.
The term Green Revolution is made up of two words: 'Green,' which refers to crops, and
'Revolution,' which refers to a significant growth.

Following are the needs for the Green Revolution:

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1. Limited Irrigation: In 1951, just 17% of the land was well-irrigated or permanently
irrigated. The majority of the area was reliant on rainfall, and as a result, agriculture
suffered from low output.

2. Conventional and Traditional Approach: Agricultural productivity was further

impeded by the use of traditional inputs and the lack of contemporary procedures.

3. Famines Are Frequently Occurring: Famines were highly common in India from
the 1940s through the 1970s. Furthermore, due to the faster rate of population expansion,
agriculture has lagged behind.

4. Self-sufficiency: Food grains were frequently imported due to conventional

agricultural practises, low yield, and the need to feed a burgeoning population, draining
scarce foreign reserves.

5. Lack of Finance (Credit): Small and marginal farmers found it difficult to obtain
low-cost financing and credit from the government and banks, and hence became easy
prey for money lenders.

Green Revolution benefits:

1. Increased Income: The adoption of HYV seeds resulted in an increase in wheat and
rice production during the Green Revolution. Wheat and rice-growing states such as
Punjab, Andhra Pradesh, and Tamil Nadu benefited from it. The income of these states'
farmers increased, alleviating rural poverty.

2. Increased Employment: As a result of the Green Revolution, seasonal

unemployment in agriculture has greatly decreased.

3. Social Revolution: Traditional farming practises were replaced with modern farming
methods that included the use of high yielding seeds, better irrigation facilities,
fertilisers, and pesticides. People were willing to embrace improvements in technology
since old societal ideas and conventions had been abolished.

8. Explain 'growth with equity' as a planning objective.

Ans: The two most significant features of India's five-year plans are growth and equity.
While growth refers to a rise in GDP over time, equity refers to an equitable distribution
of GDP so that the benefits of increased economic growth are shared equally by all

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segments of the population. Social justice involves equity. Growth is desirable in and of
itself, but it does not guarantee people's well-being. The market value of goods and
services (GDP) is used to measure growth, and it is likely that the commodities and
services created will not benefit the majority of the population. In other words, only a
select few with a high standard of life and financial resources may be eligible for a share
of GDP.
As a result, growth with equity is a sensible and desirable planning goal. This goal
ensures that everyone benefits equally from strong development, which not only reduces
economic disparity, promotes poverty reduction, and promotes an equitable society, but
also allows everyone to be self-sufficient. To sum up, the most important goal of
economic planning is to achieve growth while maintaining equity.

9. Does modernisation as a planning objective create contradiction in the light of

employment generation? Explain.
Ans: No, modernisation as a planning goal does not conflict with employment creation.
Both modernisation and the creation of jobs are, in reality, positively associated.
Modernisation, on the other hand, refers to the application of new and modern
technologies in the manufacturing process, which may result in the loss of some
employment in the early phases. But, over time, the use of modern technologies and
inputs will increase productivity and, as a result, people's income, increasing demand
for goods and services. More job possibilities will be created to meet this growing
demand, resulting in more individuals being hired and, as a result, more employment
opportunities. As a result, modernisation and job creation are not mutually exclusive,
but rather complementary.

10. Why was it necessary for a developing country like India to follow self-reliance
as a planning objective?
Ans: Imports of commodities that could be produced domestically are discouraged as
part of self-reliance. Self-sufficiency is critical for a developing country like India, since
it would otherwise increase the country's dependency on imported goods. India's
economic growth could be aided by reliance on foreign goods and services, but this
would not contribute to the development of native productive resources. Dependence on
foreign goods and services boosts the industries of foreign countries at the expense of
indigenous startups.

11. What is sectoral composition of an economy? Is it necessary that the service

sector should contribute maximum to GDP of an economy? Comment.

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Ans: The contribution of different sectors to an economy's overall GDP over the course
of a year is known as its sectoral composition. That is, the GDP proportion of the
agriculture, industrial, and service sectors. Yes, it is vital for the service sector to
contribute the most to overall GDP in later phases of development. Structural
Transformation is the name given to this phenomena. This means that the country's
reliance on agriculture will progressively decline from its peak to its lowest point, while
the share of the industrial and service sectors in total GDP would rise. Economic
development refers to the combination of structural change and economic growth.

12. Why was public sector given a leading role in industrial development during
the planning period?
Ans. Indian economic conditions were extremely low and weak at the time of
independence. India lacked sufficient foreign reserves and lacked international
investment credibility. Only the public sector could take the initiative in the face of such
dire economic conditions.

The following are some of the reasons for the public sector's pivotal role in industrial
development:

1. Low Demand: The bulk of the population was impoverished and had a low level of
income at the time of independence. As a result, demand was minimal, and there was no
incentive for the private sector to develop in order to meet these desires. As a result,
India was caught in a vicious cycle of low demand. The only option to stimulate demand
was for the government to invest.

2. Infrastructure development, such as roads, trains, and communication systems.

3. To make use of savings and earn foreign currency.

4. To prevent economic power consolidation.

5. Rural villages and other backward places are being developed.

6. Heavy Investment: Heavy investment was required for industrial development.

The private sector found it extremely difficult to invest such a large sum. Furthermore,
the risks associated with these initiatives were extremely high, and they had a protracted
gestation time. As a result, the government took the lead in establishing the basic
framework for heavy industry.

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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 a rise in food grain output. There was a huge rise
in agricultural production and product per farmland due to the adoption of contemporary
technologies, extensive use of fertilisers, herbicides, and HYV seeds. Furthermore, the
widespread use of marketing systems, the elimination of intermediaries, and the
widespread availability of finance have provided farmers with a larger share of
marketable surplus. All of these considerations allowed the government to obtain
enough food grains to develop a buffer stock and give protection against famines and
shortages.

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: Subsidy refers to providing farmers with critical inputs at a discounted rate that is
significantly lower than the market pricing. Farmers were given subsidised HYV seeds,
modern fertilisers, pesticides, and other inputs in the 1960s to encourage them to adopt
new technology. As a result, the role of the public sector was required to invest
extensively in order to increase people's income, which in turn would increase demand,
and so on.

The following are some arguments in favour of subsidies:

1. Subsidies in the 1960s were primarily intended to encourage farmers to embrace new
farming techniques and essential inputs such as fertilisers and HYV seeds. The subsidy
was mostly of a persuasion and financial character, so farmers would not hesitate to
utilise these sophisticated techniques.

2. Subsidies are critical for marginal land owners and poor farmers who cannot afford
agriculture supplies at current market prices.

3. It is suggested that adopting new technology and procedures is risky, and that only
courageous farmers are ready to do so.

4. Subsidies are often given to poor farmers in order to reduce income disparities
between rich and poor farmers and to promote an equitable distribution of income.

The following are some counter-arguments to subsidies.

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1. Subsidies are also available to potential farmers who do not require them. This
frequently results in resource misallocation and squandering.

2. It is widely assumed that fertiliser industries profit from subsidies more than farmers.
Subsidies act as a buffer against market conditions, allowing these industries to focus
on their core competencies rather than market share and competition.

3. There is widespread agreement that subsidies should be offered to test the benefit and
viability of a certain technique, but that once the performance has been determined,
subsidies should be discontinued.

4. Subsidies that are supplied at a considerably lower rate than the market rate may result
in resource waste. Subsidized electricity, for example, results in energy waste.

As a result, based on the above benefits and drawbacks, we may infer that, while
subsidies are beneficial and necessary for impoverished farmers to overcome the risks
of farming, they place an undue load on the government's limited resources. As a result,
good planning, appropriate reforms, and the allocation of subsidies to only the most
vulnerable farmers are required.

15. Why, despite the implementation of green revolution, 65 percent of our

population continued to be engaged in the agriculture sector till 1990?
Ans: Although India's agricultural production increased significantly, allowing the
country to achieve food grain self-sufficiency, this rise is significant only when
compared to previous food grain production. Furthermore, India failed to achieve the
structural changes associated with agricultural development and revolution. To put it
another way, the industrial and service sectors failed to create enough job opportunities
to attract and absorb extra agricultural labour.

Agriculture's contribution to GDP fell from 51% in 1960-61 to 44% in 1970-71, while
the percentage of industry and service sector in India's GDP climbed only from 19% to
23% and from 30% to 33% during the same period. Meanwhile, the proportion of the
population depending on agriculture fell from 67.50 percent in 1950 to 64.9 percent now
(in 1990). As a result, the industrial and service sectors grew slowly, failing to hire and
attract surplus labour from the agricultural sector. This could be due to inadequacies in
economic policies that have stifled the expansion of the secondary and tertiary sectors.

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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: Despite the fact that mismanagement and poor planning in PSUs can lead to
resource misallocation and, as a result, waste of scarce resources and funds, PSUs can
have certain positive and helpful aspects.

1. Improving Nation’s Welfare: The PSU's primary goal was to provide commodities
and services that improved the country's overall welfare. For instance, schools, hospitals,
and power, to name a few. These services not only improve the wellbeing of the
country's citizens, but they also improve the country's economic growth and
development prospects.

2. Basic Framework: An important philosophy inherited from the early five-year plans
was that the public sector should establish the basic framework for industrialization,
which would then encourage the private sector to participate in the latter stages of
industrialization.

3. Socialist Track: Indian planners and philosophers were more oriented toward a
socialist pattern in the early years after independence. It was justified on the rationale
that if the government controls productive resources and production, the country's
economic progress will be skewed. This was the primary motivation for installing PSUs.
These PSUs manufacture goods not in response to price signals, but in response to the
country's social requirements and economic growth.

4. Projects with Long Gestation: It was neither practicable or economically viable for
the private sector to invest in large-scale projects such as fundamental industries and
energy, railways, highways, and so on. This is due to the fact that major initiatives
require a large initial expenditure and a long gestation time. As a result, PSU is the best
option for investing in these projects.

17. Explain how import substitution can protect domestic industry.

Ans: India chose an import substitution policy in its first seven five-year plans, which
means it discouraged imports of commodities that could be produced domestically.
Import substitution strategy not only minimises an economy's reliance on foreign
commodities, but it also gives home businesses a boost. The government offers domestic
producers numerous financial incentives, incentives, and licences to produce imported
replaced items domestically. Domestic producers would not only be able to survive, but

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also thrive as they benefit from the protected environment. They have no need to be
concerned about competition or market share because their licence grants them
monopoly status in the home market. They generate higher profits as monopolists, invest
consistently in R&D, and are always on the lookout for new and innovative tactics. As
a result, their competitiveness improves over time, and when they are exposed to
worldwide marketplaces, they are able to survive and compete with their foreign
competitors.

18. Why and how was private sector regulated under the IPR 1956?
Ans: The Industrial Policy Resolution (IPR) of 1956 was passed with the goal of
creating a socialist state with the government controlling the economy's most strategic
industries.

The industries were divided into three categories as a result of this decision.

Category 1: Industries that were created and are solely held by the government.
Category 2: Industries where the public sector will play the key role and the private
sector will play a secondary role. In these industries, the private sector supplements the
public sector.
Category 3: The private sector is responsible for all industries that are not included in
Categories 1 and 2.

Through its programme of industrial licencing, the government maintained an indirect

influence on private-sector industries. Private entrepreneurs were required to get a
government licence in order to start a new industry or expand existing capacity. Apart
from licencing and taxation, the government employed tax exemptions and subsidies to
regulate private companies and reduce regional imbalances in economic development,
as well as to keep a lid on the production of socially unacceptable items. As a result of
the IPR 1956, the government had complete control over the private sector, either
directly or indirectly.

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

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 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 assistance given
by government for production activities.

Ans:

1. Prime Minister C. Chairperson of the

planning commission
2. Gross Domestic Product D. The money value of all the final goods
and services produced within the economy in
one year
3. Quota B. Quantity of goods that can be imported
4. Land Reforms E. Improvements in the field of agriculture
to increase its productivity
5. HYV Seeds A. Seeds that give large proportion of output
6. Subsidy F. The monetary assistance given
by government for production activities.

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