Plans

2.1 The Goals of Five Year

What is a Plan? Think as you read
of a nation should
how the resources
A plan splls out
1. When was the Planning Commission set ug?
be put to use.
2. What is a mixed economy?
It
A plan should have some clearly specified goals. 3. Define a plan. (NCERT
should have some general goals as well as specific Give the meaning of "five year plans'
5. Give the meaning of 'perspective plan
objectives which are to be achieved within a specified 6. Why did India opt for planning? (NCERT
period of time. 7. Why should plans have goals? (NCEPT
In India plans are of five years duration and are called 8. What are the goals of the five year plans in Inda
five year plans (uwe borrowed this from the former Soviet 9. Why a choice has to be made in each five ye
plan about which of the goals is to be given primar
Union. the pioneer in national planning). importance?
Our plan documents not only specify the objectives to 10. How is economic growth of a country measure
be attained in the five years of a plan but also what is to State.
11. Match the following and choose the core
be achieved over a period of twenty years. This long-term alternative:
plan is called perspective plan'. The five year plans are 1. Prime Minister A. The money value of al
supposed to provide the basis for the perspective plan. the final goods and
services produced
within the economyy
Goals of planning in India in one year
The 2. Gross Domestic B. Adoption of new
common goals of the five year plans are:
growth, Product
modernisation, self-reliance and equity. technology
3. Modernisation C. Chairperson of the
This does not mean that all the
plans have given equal 4.
planning commission
importance to all these goals. It will be unrealistic to Self-sufficiency D. Avoiding imports of those
goods which could be
expect all the goals ofa plan to be given equal importance produced in India itself.
in all the plans. Due to limited (a) 1-D, 2-A, 3-B, 4-C
resources, a choice has to
be made in each (b) 1-C, 2- A, 3- B, 4-D
plan about which of the goals is to be (c) 1-D, 2-A, 3- C, 4-B
given primary importance. In tact, the goals may actually (d) 1-C, 2-B, 3-A, 4- D
be in conflict. For 12. What is meant by structural
example, the goal of modernisation economy?
composition of the
(i.e., introducing modern
with the goal of
technology) may be in conflict 13. Define modernisation.
increasing employment if the
reduces the need for labour. Therefore, the technology Types of Economic Systems
to balance the
planners have Every society has to answer three
goals, a very difficult job indeed. They questions:
have to ensure that, as far as What to produce
possible, the What goods and services
plans do not contradict these four goals. policies
of the
-

should be produced in the

How to
country?
produce How should the goods and
1. Growth services be produced?
Should producers use
more human labour
Growth refers to increase in the or more
capital (machines)
countrys capacity to for producing things?
the output of
goods and services within the countryproduce For whom to
produce How should the goods
Growth implies:
-

and services be
distributed among
O a
larger stock of productive capital, or One answer to
these questions is to people ?on the
O market forces of depend
a
larger size of supporting services like supply and demand. In a market
economy, also called capitalism,
and banking, or transport
goods will be produced that are inonly those consum
o an increase in the that can be demand, i.e., good>
and services.
efficiency of productive capital In the
sold profitably either in
domestic
the
foreign markets. If cars are in demand,
Will be
produced and if motorcycles are in
ca
motorcycles will be produced. If labour is demanu
30 cheap
1990)
Chapter 2 Indian Economy (1950-19
 labour-intensive
methods of
A good indicator ot economic growth is steady increase than capital, m o r e
and vice-versa.
in the Gross Domestic Product (GDP). production will be used are
In a capitalist society
the goods produced
The GDP is the market value offinal goods and services basis of what
distributed among peoplenot on the
Power
produced in the domestic territory of the country during basis of Purchasing
people need but on the has
services. That is, one
an accounting year the ability to buy goods and
to buy it. Low cost
to have the money in the pocket
It is necessary to produce more goods and services if the needed but will not count
poor is much
housing for the
people of India are to enjoy a more rich and varied life. sense because the poor
do
as demand in the market
back the demand.
The GDP of a country is derived from the different not have the purchasing power to
and
sectors of the economy, namely the agricultural sector, As result this commodity will not be produced
a
did not
the industrial sector and the service sector. supplied as per market forces. Such society
a

appeal to Jawaharlal Nehru, our first prime minister,

The contribution made by each of these sectors makes up for it meant that the great majority of people of the
chance to
the structurallsectoral composition of the economy. country would be left behind without the
improve their quality of life.
As a country develops, it undergoes 'structural change.
A socialist society answers the three questions in
Usually, with development, the share of agriculrure a totally different manner. In a socialist society the
declines and the share of industry becomes dominant. government decides what goods are to be produced
At higher levels of development, the service sector in accordance with the needs of society. It is assumed
that the government knows what is good for the
contributes more to the GDP than the other two sectors.
people of the country and so the desires of individual
In India, the share of agriculture in the GDP was more consumers are not given much importance. The
than 50 per cent-as we would expect for a poor country. government decides how goods are to be produced
But by 1990 the share of the service sector was 40.59 and how they should be distributed. In principle,
distribution under socialism is supposed to be based
per cent, more than that of agriculture or industry. like on what people need and not on what they can afford
what we find in developed nations. to purchase. Unlike under capitalism, for example,
a socialist nation provides free health care to all its
ectoral contribution to GDP (in %),1950-91 citizens. Strictly, a socialist society has no private
property since everything is owned by the state. In
Cuba and China, for example, most of the economic
Sector 1950-51 1990-91
activities are governed by the socialistic principles
Most economies are mixed economies, i.e. the
Agriculture 59.0 34.9 government and the market together answer the three
questions of what to produce, how to produce and for
whom to produce. In a mixed economy, the market will
24.6
Industry 13.0
provide whatever goods and services it can produce
well, and the government will provide essential
Services 28.0 40.5 goods and services which the market fails to do.

1950-51 1990-91

13%
28%
40.5% 34.9%

59% Agriculture Agriculture

Industry 24.6% Industry

Services Services

31
Conomic Development XII -by Subhash Dey
 2. Modernisation
technology in the production
of goods
Adoption of new called
modernisation.
Typ
and services to
increase the output is agric
increase output by using
a
For example, a factory can
new type of
machine.
the use
However, modernisation
does not refer only to
to changes in social
outlook
of new technology but also
should have the
such as the recognition that women
are
same rights as men. In a traditional society, women
work. A modern
supposed to remain at home while
men
in the work
society makes use of the talents of
women
in banks, factories, schools etc. -
and such a
place Modernisation: a goal ot five year plans
society is more prosperous.
3. Self-reliance
A nation can promote economic growth and modernisation by using its own resources or by usin
resources imported from other nations. The first seven five year plans gave importance to selt-relianc
Self-reliance means avoiding imports of those goods which ould be produced in ndia itself
o This policy was considered a necessiry in order to reduce our dependence on foreign countie
especially for food. It is understandable that people who were recently freed from toreij
domination should give importance to self-reliance.
oFurther, it was feared that dependence on imported food supplies, foreign technology and foreign
capital may make India's sovereignty vulnerable to foreign interference in our policies.
4. Equity Dr
Growth, modernisation and self-reliance may not improve the people's standard of living if majorit
of people in the country are living in poverry. So, in addition to growth, modernisation and sel
reliance, equiry is also important.
Equity means to ensure that the benefis of economic prosperity reach the poor sections as well instead
being enjoyed only by the rich
Inequality in the distribution of wealth should be reduced. Every Indian should be able to meer hi
or her basic needs such as food, a decent house, education and health care.
2.2 Major Policy Initiatives in Agriculture Sector
Land Reforms
Need for land reforms in the
agricultural sector
At the time of
independence, the land tenure system was characterised by intermediaries (various
called zamindars, jagirdars etc.) who
merely collected rent from the actual tillers of the soil withou
contributing towards improvements on the farm. The low
productivity of the agricultural sector fore
India to import food from the United States of
America (U.S.A..
Equity in agricultural sector called for land reforms.
Land reforms refer to change in the ownership of landholdings ( i... to abolish intermediaries and t
the tillers the owners
of land) and fixing the maximum size of land which could be ouned by an wnduatl
(i.e., land ceiling). m
3 32 90
Indian Economy (1950-1
Chapter 2
Types ofof land reforms
agriculture implemented in
1. The abolition of intermediaries:
The abolition of

the
2Think as you read
intermediaries meant that some 200 lakh 1.
1. What
What de
do land reforms refer to?
came into direct tenants 2. What do
contact with the you mean by land ceiling?
they were thus treed trom government 3. What was the purpose of land
ceiling?
zamindars. being exploited by the 4. What are
High Yielding Variety (HYV) seeds?
2. The ownership of landholdings: 5. What is
marketable surplus?
(NCERT)
land to the tiller is based on The policy of 6. Match the
following and (NCERT)
choose the correct
cultivators will take more the idea that the alternative
1. Quota
more incentive-in interest-they will have
A. Quantity of goods that can
be imported
increasing output it 2. Land Reforms
This is because they
che owners of the land. are B. Seeds that give large
proportion of output
of land enables the tiller
to make
ownership 3. HYV Seeds C.
Improvements in the field
the increased
output. Tenants
profit from
do not
of agriculture to increase
incentive to make
have the 4. Subsidy
its productivity
is the improvements
landowner who would benefit
on land since it
D. The monetary assistance
given by government for
more from production activities.
higher output. (a) 1-D, 2-C, 3-B, 4-A
3. Land ceiling: Land (6) 1-A,2-D, 3- B, 4-C
to
ceiling was another policy (c) 1-A, 2- C, 3-B, 4-D
promote equity in the agricultural sector. (d) 1-A, 2-B, 3-C, 4-D
Land ceiling means 7. In which states were
land reforms
fixing
land which could be owned
the maximum size of and why?
successful in India
by an individual. Why, despite the implementation of green revolution,
The purpose of land 65 per cent of our
population
ceiling was to reduce the in the agriculture sector till
continued to be engaged
1990?
concentration of land ownership in a few hands. (NCERT)
Drawbacks of the land reforms
1. The goal of equity
fully served by
was not 'abolition of intermediaries' and the
to the tiller policy of "land
O In some areas, the former zamindars continued to own
of some loopholes in the legislation.
large areas of land by making use
O There were cases where tenants were
evicted and the land owners claimed to be selfcultivators
(the actual tillers), claiming ownership of the land.
Even when the rillers got ownership of land, the poorest of the agricultural labourers
(such
as sharecroppers and andless labourers) did not benefit from land reforms.
The land ceiling legislation also faced hurdles.
The big landlords challenged the legislation in the courts, delaying its implementation.
They used this delay to register their lands in the name of close relatives, thereby escaping
from the legislation.
The legislation also had a lot of loopholes which were exploited by the big landholders to
retain their land.
5. Land reforms were successful in Kerala and West Bengal because these states governments were
tiller. Unfortunately, other states did have the
to the policy of land to the
not same
committed
Cvel of commitment and vast inequality in landholding continues till today.
33
Indian Eoconomic Development XII
-
by Subhash Dey
The Green Revolution
Meaning of Green Revolution
he green revolution efers to the large increase in
production of food gratns rsulting fronm the use of high
yielding tariey (HYT sceds especially for wheat and riee.
High Yielding Variety seeds (HYV seeds) are seeds of
better quality than normal
from these seed is more
quality seeds. The produce
compared
However. the use of HYV seeds
to the normal seeds.
fertiliser and pesticide in the correctrequire
the use of
quantities as well Ro
as
regular supply of water. Also, the
inputs in correct proportions is vital.application
of these Green Revolution benefited
farmers
Why was the Green Revolution
At
independence, about 75 per cent implemented?
of the country' s
productiviry in the agricultural sector population was
dependent on
agriculture. Howe Thu
absence of was
very low because of the use of
required infrastructure for the vast
old technology and an
on the
monsoon and if the majority of farmers. India's t
monsoon fell agriculture vitally
trouble unless they haddepen:
to
irrigation facilities which short, the farmers were in Tre
few had. The
permanentdy broken by the very revolution.
green
stagnation in
agriculture during the colonial rule byEco
ate
However, growth in w.
economy as whole ifagricultural
a
a
output is not
large proportion of this enough and does not make
COn
of much of difference to y
being sold in the market. On the other hand, if
increase is consumed by the farmers t
in the market
by the farmers, the substantial
a
amount of
themselves instei
The portion
of agricultural produce whichhigher output can make a difference agricultural output is solSe
is sold in the to the
STplus. market by the farmers is calledeconomy.
Benefits of Green Revolution marketedlmarke Ag Inc
1. Increase in marketed surplus: A Ser
revolution good
period (available as marketed proportion the rice and wheat of
income of the farmers
increased. surplus) was sold by the farmers
produced during
in the market.
the gre
2. Decrease in As a
price of food
grains: The resu
consumption. The low
from this decline in income
groups,
price
who spend a
of food grains declined relative to
relative prices. large percentage of their income on
other items o
3. Buffer stock:
The spread of food, benefited
sufficient green revolution
build buffer stocktechnology enabled the
amount of food
4.
Self-reliance: grains to
Indian
agricultural productiviry which could be
used government to
procu
self-sufficientin food increased in times of
food shortage
meeting our nation'sgrains. sufficiently
for We
food
no
longer had to be at the
to enable the country
requirements. mercy of America,
to
b
Critical Evaluation
1. The
of Green Revolution Devnay2
or
anyother natiot
farmers who could benefit from HYV
the financial seeds Des
Thus, green revolution purchase fertiliser and required reliable irrigation facilities as
resources to
con
big farmers who increased the pesticide, which small farmers could not we
could afford the inequalities berween small and a
The
required inputs reaped the benefits big farmers-since on the
195C
of the
34 green revolu Indiar
Ghanto g0-1990
 2. In the first
phase of the green revolution
(approximately mid 1960s upto mid 1970s), the use
of HYV seeds was
restricted to the more affluent states such as
Tamil Nadu. Further, the
use of HYV seeds
Punjab, Andhra Pradesh and
primarily benefited the wheat growing regions
only.
(However, in the second
phase of the green revolution (mid-1970s to mid-1980s), the HYV technology
spread to a
larger number of states and bencfited more
3. The HYV crops were also
more prone to attack
variety of crops.)
this technology could lose by pests and the small farmers who
adopted
everything in a pest attack.
Role of
government in ensuring that the green revolution benefited
1. The government small farmers as well
provided loans at a low interest rate to small farmers.
2. The government also
to the needed
provided subsidised fertilisers so that small farmers could also have access
inputs.
3. The risk of the small farmers
being ruined when pests attack their crops was
reduced by the services rendered
by research institutes established by the considerably
Thus, the green revolution would have
favoured the rich farmers only if the
government.
did not play
small farmer also gains from the new government
an extensive role in
ensuring that the
technology.
Trends in the
occupationalstructure of the Indian economy
during 1950-1990
Economists have found that as a nation becomes more
prosperous, the proportion of GDP contributed
by agriculture as well as the proportion of
population working in the agriculture sector declines
considerably. However, in India, between 1950-51 and 1990-91, the proportion of GDP contributed
by agriculrure declined significantly but not the population
depending on it (as shown in pie-charts).
Occupational structure of the Indian economny
Sector Workforce (in 6), 1950-51 Workforce (in 6), 1990-91
Agriculture 72.1 66.8
Industryy 10.7 12.7
Services 17.2 20.5

1950-51 1990-91

17.2% 20.5%
66.8%
10.7%
12.7%
72.1%
Agriculture Agriculture
Industry Industry
Services Services

Despite the implementation of green revolution, more than 65% of the country's population
continued to be employed in the agriculture sector till 1990-91. Why?
The reason is that the industrial sector and the service sector did not absorb the people working in
the agriculrural sector. (Many economists call this an important failure of our policies followed during
1950-1990).
35
ndian Economic Development XII -by Subhash Dey
 The Debate Over Subsidies
Arguments against subsidies
1. Once the technolog is found protitable and is
Prices a Signais and Subrides
widey adopted. subsidies should be eliminated nd Subses z ice
Wastefu Use of Resoures
n
since their purpose has been served. s amotant dersancto
rce
Subsidies are meant to benetit the farmers but about e avaiaity pos a
a substantial amount of fertiliser subsidy also
benefits the fertiliser industry
about use basec e rEz
e re
5. Among tarmers. the subsidv largely benefits the
tarmers in the more prosperous regions. So. there the incerive to u5E t wt
er are, ior eree
is no case tor continuing with tertiliser subsidies. they m2y so wateTng te zrde coerw
Ve comoan weneer e prce
it does nort benefit the target group.
and Dame ton
the gvernment B e rc
4. It is a huge burden on the govern.ments tinances. petroi orice Efects Erezter sczroty arc e
re
sa siEral that less petro s aaiabie - i s v O
Arguments in favour of subsidies
incentve to use less pecroi or lock for ateae
1. Any new
technology is considered as being risk Some economists poit out t suosce
by tarmers. Subsidies were. therefore. needed to prices to indicate the supply a gooc e
encourage tarmers to test the new technologg electricty and water are provided a a sucsdse
In other words, it was or free, they
necessary to use subsidies w be used wasteruly o
any concem for their scarcity Simlarty, farme
to
provide an incentive for adoption of the new Cutvate water intensive crops ater s s-cce
HY technology by farmers. especially the small free, although the water resources in that
regior-a
tarmers. Thus, the
green revolution benefited the
be scarce. On the other hand, f water is orid
small as well as rich farmers. reflect scarcity, farmers w cutivate crops su
to the reEOn Fertser and pesticide subs
2. The should continue with
government
subsidies because
agricultural in overuse of resources which can be ham
farming in India continues to the environment. Subsidies
provide an incentve ir
be risk
business as it vitally
a wasteful use of resources.
monsoon.
depends on the
3. Most farmers are very poor and they will not be able to afford the required inputs witho
subsidies.
4. Eliminating subsidies will increase the inequality between rich and poor farmers and violate
goal of equiry
5. If subsidies are largely benefiting the fertiliser industry and big farmers, the correct
to abolish subsidies but to take steps to ensure that policy is rc
only the
poor tarmers enjoy the benetit
2.3 Industry and Trade
Fiveyear plans place a lot of
Ar the time
emphasis on industrial development.
of independence, the variery of industries was very narrow
textiles and jute. There largely confined cottom to
other in Kolkata but.
were two
well-managed iron and steel firms one in
Jamshedpur and th=
-
if the economy
obviously,
-
we needed to
expand the industrial base with variery of a
was to
grow. industrie
Subsidy in
agncuiture means providing some important inputs
market rate
to farmers at a concessional rate that is much lower than
36
Chapter 2-Indian Economy (1950-199
 uput

The Debate Over Subsidies

fo.
Incentive

Arguments against subsidies Subsidies

as
and
1. Once the is and
prices
technology found potitable is Wasteful Use
Prices esources that
are signals
widely adopted. subsidies should be eliminatcd understand
goodd becomes
If a
to goods.
since their purpose has been served. It is importan of who use
this gn.
ood
a v a i l a b i l i t y
those
the and deciei
2. Subsidies are meant to benefit the farmers but about rise efficient Sions
will make
its price to
Scarce, i n c e n t i v e price of wata.
If the er
a substantial amount of fertiliser subsidy also the the
price.
will have on will ha
based people have
use supply,
about its lower
exam-
benefits the fertiliser industry. of
because care,; for
example
greater
3. Among farmers. the subsidy largely benefits the goes up with
use it
incentive
to to conserve water
the the garden
farmers in the more prosperous regions. So, there watering
stop of petrol incres
eases
they may whenever
the price
is no case for continuing with fertiliser subsidies. We complain government.
But the increase ase in
the
it o n the price rce
It does not benefit the target group. and blame scarcity and se
reflects greater
petrol price available -
-this rovides an
4. It is a the petrol is
that less
huge burden on government's finances isa signal to use less petrol or look for alternate fuels
Arguments in favour of subsidies incentive
out that subsidies do nor
Some economists
point
1. Any new is considered as the supply of a good.
technology being risky allow prices to indicate Whe
were. therefore, needed to
by farmers. Subsidies water are provided at a subsidisec
electricity and
encourage farmers to test the new technology used wastefully withou:
rate or free, they will be
In other words. it was necessary to use subsidies concern for their scarcity. Similarly,
farmers will
any
to provide an incentive for adoption of the new cultivate water intensive crops if water is supplied
HYV technology by farmers, especially the small free, although the water resources in that region may
be scarce. On the other hand, if water is priced to
farmers. Thus. the green revolution benefited che
reflect scarcity, farmers will cultivate crops suitabe
small as well as rich farmers. to the region. Fertiliser and pesticide subsidies resuit
2. The government should continue with agricultural in overuse of resources which can be harmful
t
subsidies because farming in India continues to the environment. Subsidies provide an incentive fer
be a risky business as it vitally depends on the wasteful use of resources.
monsoon.

3. Most farmers are very poor and will not

they be able to afford the
subsidies. required inputs Witho
4. Eliminating subsidies will increase the
goal of equity. inequality berween rich and poor farmers and violate
Ifsubsidies are largely benetiting the
to
fertiliser
abolish subsidies but to
industry and big farmers, the correct
take steps to ensure that only the po
poor farmers enjoy the
De
2.3 Industry and Trade
Five year a
plans place lot of
At the time emphasis on industrial
textiles and
of independence, the
jute. There were two
variety of industries development.
was to co
other in Kolkata -
verv narrow
but, largely con
we -
it the
economy was to
obviously, well-managed
needed to
iron and steel
firms in Jamshedpur d
and
e t v o findustra
grow. expand the industrial baseonewithin aJa.
Subsidy in
market rate. agriculture means providing some
36
to lower
important inputs
farmers at a
rate is much
Tas that
concessiona
The five year plans place a lot of emphasis on
industrial development because of the following Think as you read

reasons:
of industries
At the time of independence. the variety
was very narrow largely confined to
1. Economists have found that poor nations can the policy makers
2. What was the big question facing
progress only if they have a good industrial sector. at the time of independence?
3. Why was the Industrial Policy Resolution of 1956
2. Industry provides employment which is more
adopted?
stable than the employment in agriculture. 4. private sector kept under state control?
How was the
3. It promotes modernisation and overall prosperity. 5. Define a 'small scale industry'?
6. In 1955, which Committee noted the possibility of
using small-scale industries for promoting rural
was given a leading role in development?
Public sector The production of a number of products was
Indian Industrial Development the
reserved for the small-scale industry. What was
criterion of such reservation?
The big question facing the policy makersS was- what
should be the role of the government and the private
sector in industrial development? The public sector was given a leading role in industrial development.
with
The policiesof the private sector would have to be complimentary to those of the public sector,
the public sector leading the way.

sector was a role in industrial development in India because of

The public given leading
the following reasons:
did not have the capital to undertake
1. At the time of independence, Indian industrialists
investment in industrial ventures required for the development of our economy.
to undertake even
2. The market was not big enough to encourage industrialists major projects
if they had the capital to do so.
led to the policy of
3. In addition, the decision todevelop the Indian economy on socialist lines
meant that the government
the state controlling the commanding heights of the economy. This
industries that were vital for the economy.
would have complete control of those

Industrial Policy Resolution 1956 (IPR 1956)

the commanding heights of the economy, the
In accordance with the goal of the state controlling
This resolution formed the basis of the Second Five
Industrial Policy Resolution of 1956 was adopted.
the basis for a socialist pattern of society.
Year Plan, the plan which tried to build

Classification of industries under

the Industrial Policy Resolution, 1956
classified industries into three categories:
The Industrial Policy Resolution, 1956 owned by the state.
industries which would be exclusively
The first category comprised
the private sector could supplement the
O The second category
consisted of industries in which
units.
the sole responsibility for starting new
efforts of the state sector, with the state taking
which were to be in the private sector.
O The third category
consisted of the remaining industries

s e c t o r regulated under
the IPR 1956?
Why and how was private sector, the private sector was kept
under
of industries left to the private
Although there was a category licenses.
State control through a system of
license was obtained from the government.
a
O No new industry was allowed unless obtain a
was easier to
in backward regions. It
This was used for promoting industry
policy

37
Indian Economic Development XII - by Subhash Dey
 license if the industrial unit was established in an
economically back..
such units were given certain concessions such as tax benefits Kward area. In.
and elecr:
T hus, the
purpose ot this policy was to promote regional
o Even an existing industry had to obtain a license for
equality electriciy at a
ower
expanding outDiur
ut or Protection from impor-
production. for
This was meant to ensure that the
the economy required. License to
quantity of goods produced was no iverstr o Tariffs are a tax o
their use.
convinced that the economy
expand production was given only if hore than Quotas specify t-
required a larger quantity ot goods.
Promotion of Small-Scale
Industry (SSI) by the Government
governmen The effect of tariffs and
from foreign competiti-
In 1955, the
the
Village and Small-Scale Industries Committee, also called the Critical Evaluatio
possibility of using small-scale industries for promoting rural arve Cm
Karve Committee, n
A 'small-scale
industry' is defined with reference to the
development. Positive Effects
assets of a unit. This
limit has maximum investment The achievements of In=
unit was one which changed over a
period of time. In 1950, allowed
allowed is R1 crore.
invested a maximum of 5 lakh while at
a
small-scale o proportion of GDP cor
present the maximum inves in 1950-51 to 24.6 pe=
Why did the indicator of developmer
government promote small-scale 1. Diversification o-
The reason is that the
small-scale industries
industry? textiles and jute.
the are more
large-scale industries and, therefore,
'labour intensive i.e., they use the public sector.
How did the generate more employment. more labor thr
2. Promotion of sm-
government promote and protect small-scale
Small-scale industries
compete with the big industrial firms.industry?
to those people v-
cannot
For this 3. Development of
purpose, the
industry. The criterion production of a
of reservation was
number of
products was reserved for the small-s development of i
They were also the ability of these otherwise could
given concessions such units to
nmanufacture the goed
lower excise duty and
as
Drawbacks/Criticism
bank loans at lower interest rate
2.4 Foreign Trade 1. Inefficient funct
Policy: Import Substitution sector was the in
huge losses but ce
Import Substitution Policy even if it is a dra
In the first Initially public se
seven
plans, foreign trade was
by what is
substitution,
commonly
strategy. Technically, called
this
which aimed at
an inward
strategy is
characterised
looking trade
called
? Think as you read
continued to proe
no longer require
Forexample, the
imports with domestic replacing import 1. In the first seven
plans, foreign
rade
or
substituting characterised by what Is commoy 2 for the Public Se
For
example, instead ofproduction.
importing vehicles
an
Technically, this strategy is ca Due to the absen
a
foreign country, industries would be made in vwnat was the aim of the policy of importimportsubstitute
to get a telephon.
produce them in India itself. encouraged to 3wame any two industries which were re
rved Similarly, even ne
private sector can
Protection of domestic industries
the public
sector during 1950-90
T h eg o v e r n m e n t s
In import from
substitution policy the foreign competition may concentratc I
from government protected
Reason for However, this do-
The policy ofprotection is foreign competition the domestic industries from the public sector
DOsition to compete protection based on the notion that tore to losses; they wer
rhe against the goods industries of Countries are not private firm
will n
domestic
protected they will by more developeddeveloping
industries are produced coun med On the other
hand.
also feared the
possibility of toreign exchange learn to compete in
economies. It time. O u r plannen
but to promote the
the course of
were placed on
imports. being spent on ti ofthe to
u
extent
import of luxury goods
Economic Development X
Indian
producing a new vaniety of goods
38
Protection from imports took forms: tariffs and quotas.
two
Taritts are a tax on imported goods; they make imported goods more expensive and discourage
their use.
o Quotas specify the quantity of goods which can be imported.
The effect of tarifts and quotas is that they restrict imports and, therefore, protect the domestic firms
from foreign competition.
Critical Evaluation of the Industrial and Trade Policies
Positive Effects
The achievements of Indias 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 per cent
in 1950-51 to 24.6 per cent in 1990-91. The rise in the industry's share of GDP is an important
indicator of development.
1. Diversification of industrial sector: No longer was Indian industry restricted largely
textiles and jute. In fact, the industrial sector became well diversified by 1990, largely due to
the public sector.
2. Promotion of small-scale industries: The promotion of small-scale industries gave oPportunities
to those people who did not have the capital to start large
firms to get into business.
enabled the
3. Development of indigenous industries: Protection from foreign competition
automobile sectors which
development of indigenous industries in the areas of electronics and
otherwise could not have developed.

Drawbacks/Criticisms
1. Inefficient functioning of the public sector: One of the major drawbacks in the industrial
sector. Many public sector firms
incurred
sector was the inefficient functioning of the public
it is difficult to close a government undertaking
huge losses but continued to function because
limited r e s o u r c e s .
even if it is a drain on the nation's
way. It is widely held that state enterprises
Initially public sector was required in a big now
this
certain goods and services (often monopolising them) although wa
continued to produce
no longer required. be reserved
of telecommunication service. This industry continued to
For example, the provision firms could also provide it.
after it was realised that private sector
for the Public Sector even for a long time
even till the late 1990s, one had to wait
Due to the absence of competition,
was sold to the private
sector.
connection. In 2001 this firm
to get a telephone
defense. And even though the
even n o w only
the public sector supplies national
Similarly, also runs hotels.
sector can manage
hotels well, yet, the government
private sector can manage and
the government
should out of areas which the private
The government get c a n n o t provide.
services which the private sector
r e s o u r c e s on important
c o n c e n t r a t e its a few of
may firms are always profitable (indeed, quite
m e a n that private
However, this does n o t firms which were on the verge
of closure due
firms were originally private
the public sector
nationalised to protect the jobs of
the workers). But, a loss-making
were then
to losses; they losses.
will not waste r e s o u r c e s by being kept
running despite the
private firm
economists point out that the public
sector is not meant for earning profits
on the basts
On the other hand, few
a
should be evaluated
the nation. The public sector firms
the welfare of they e a n .
but to promote the profits
to which they contribute to the welfare of people and not on

of the extent
39

XII -

by Subhash Dey
Indian Economic Development
 of called th.
what came to be
2. Excessive regulation of industries: The excessive regulation
. the
permit license raj prevented certain firms from becoming
more
efticient. i o r e time was spen
spent
the concerned ministries rather tha
by industrialists in trying to obtain a license or lobby with
on thinking about how to improve their products. Moreover, the need to obtain a license t o
start an industry was misused by industrial houses; a big industrialist would get a license not
not
for starting a new firm but to prevent competitors from starting new firms
3. No incentive for producers to improve the quality of products in the absence of foreien
competition: Due to restrictions on imports, the Indian consumers had to purchase whatever
the Indian producers produced. The
producers were aware that they had a captive market;
so
they had no incentive to improve the quality of their goods. Why should they think of
improving quality when they could sell low quality items at a high price? Competition from
imports torces our producers to be more efficient.
Houever some economists hold that we should protect
asthe rich nations
continue to do so.
our producers from foreign competition as long
Owing to all these conflicts, economists called for a
problems, led the change in our policy. This,
along with other
government introduce a new economic
to
policy in l991.
CONCLUSION
The
progress of the Indian
industries became far economy during the first seven
plans
self- sufficient in food
more diversified compared
situation at to the
was
impressive indeed. Our
production revolution.independence.
abolition of the hated zamindari thanks the green to India became
Land reforms
resulted in
performance of many public sectorsystem. However, many economists became dissatisfied
of
entrepreneurship. In the enterprises. Excessive government with the
competition and this
name
did not give them the
of seltreliance, our
producers were
regulation prevented growth
produced. Our policies were 'inward incentive to
improve the
protected
against foreign
No serious oriented
and so we failed quality
of goods that
they
thought
was
given to promote exports until the to develop a strong export sector.
economic policy mid-1980s.
new economic
was
widely
felt in the context of The need for
reform of
policy was initiated in 1991 changing global economic
make our to
scenario, and
economy more the
efficient.
Sequence of Events
Sequence
Event
I
Planning Commission was set up in India Year
with Prime Minister as its
Village and Small-Scale Industries Chairperson.
constituted for the development of committee (also called Karve
small-scale industries. Committee) was
III Industrial Policy Resolution (1PR) was
controlling the commanding heights of adopted
the
in
accordance with the goal of the state
economy.
40
Chapter 2-Indian Economy (1950-19901