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CHAPTER 2 (INDIAN ECONOMY 1950-1990)

Question1: Define a plan.
 A plan is a proposed list of goals that an economy wants to achieve within a specific
period of time.
 It suggests the optimum ways to utilize the scarce available resources to achieve the
goal.
 In India, planning is done for a period of five years, which is called five year plan.

Question 2: Differentiate between specific & general objectives.

 Specific goals are related to a five year plan. These are also known as plan specific
objectives or short term objectives. They vary from plan to plan. e.g.: 3rd plan
objective was to create a self reliant & self sustaining economy.
 General goals are also known as long period objectives or perspective plans. They are
common to all five year plans. Some of the common goals are economic growth,
modernization, self reliance and equity.

Question 3: Why did India opt for planning?

 India inherited an underdeveloped backward & stagnant economy from Britishers.
Govt of India had the responsibility to create a strong infrastructure in the economy & to
take India on accelerated path of development.
 India had to choose between capitalism & socialism. India opted for the combination of
both. India adopted the idea of socialism with a strong emphasis on public sector and
active participation of the private sector in a democratic framework.
 Here the idea was that the public sector would lay down the basic economic framework
and would encourage private sector. Later on private sector could play a n active role in
economic development by establishing industries & creating employment.
 The Planning Commission (1950) was established with the motive that the government
would undertake comprehensive planning for the nation as a whole.
 Other reasons were removal of poverty ; taking India on a path of growth by ensuring
development of all sectors.

Question 4: Explain planning objectives.

ECONOMIC GROWTH: Growth refers to the increase in GDP over a long period of time.
 Economic growth implies a largest stock of productive capital for a larger size of
supporting services like transportation banking insurance for an increase in the
efficiency of productive capital and services.
 GDP is derived from different sectors of the economy that is Primary secondary and
tertiary sector the contribution made by each of these sectors make up the structural
composition of the economy which determines economic growth.
 After 1991 the contribution of service sector to GDP increased to nearly 42% which is
a good indicator of structural transformation and economic growth.

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EQUITY:
 Equity refers to an equitable distribution of GDP so that the benefits due to higher
economic growth are shared by all sections of population. Equity implies social
justice.
 . This objective ensures that the benefits of high growth are shared by all the people
equally and, hence, this not only leads to reduction of inequality of income, poverty
promotion of egalitarian society but also enables everyone to be self-reliant
 It can be done by improving standard of living of the weaker section of the society
and reducing income and regional inequalities to promote social justice.
 The objective is to provide basic needs such as food clothing shelter education and
health to every citizen of the country

MODERNISATION
 Modernisation refers to the use of new and modern technology in production
process that may make some people lose their jobs in the initial stages.
 At the time of independence India was lacking in technical knowledge.
 India was not able to reduce cost of production and was not able to compete with
international brand therefore modernization was required to increase the use of capital
and machinery.
 Change in social outlook and cultural life of the people.
 Modernization is the set of institutional changes in the economic activities which
make an economy progressive and modern.
 It also refers that women should have same rights as men.

Question 4: What are high Yielding Variety (HYV) seeds?

 High Yielding Variety of seeds were developed by the Nobel Laureate Dr. Norman
Borlough in Mexico.
 These seeds are more productive and need regular and adequate irrigation facilities
along with greater use of fertilizers and pesticides.HYV seeds grow faster than the
normal seeds and, consequently, crops can be harvested in a much shorter time period
 In 1966, Green Revolution was introduced in India especially in the crops of rice and
wheat. Initially, HYV seeds were used in states like Punjab, Andhra Pradesh and Tamil
Nadu (as these states had more suitable irrigation facilities) and later on to other states.

Question 5: What is marketable surplus?

Marketable surplus refers to the difference between the total output produced by a farmer and
his on-farm consumption. In other words, it is that portion of the total output that the farmer
sells in the market.

Question 6: Explain the need and type of land reforms implemented in the agriculture
sector.
The need for land reforms in India was very necessary due to the following reasons:

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1. Land Tenure System:

 There were three types of land tenure systems namely, the Zamindari System, the
Mahalwari System and the Ryotwari System prevalent in the Indian agricultural sector at
the time of independence.
 In these systems the land was cultivated by tenants and the land revenues were paid by
them to their landlords. The rent charged by land lords was too high & exploitative. This
led to the exploitation of tenants.
2. Size of Land Holdings:
 The size of land holdings owned by the farmers was very small.
 The land holdings were fragmented& sub divided which obstructed the use of modern
techniques as the cost of production was too high.
3. Lack of Initiative:
 Most of the land was owned by the landlords, so the farmers lacked initiative to
introduce permanent improvements on land.
 Due to exploitation farmers were not having enough means to undertake mechanized
methods of cultivation.
4. Traditional Approach and Low Productivity:
 Indian farmers used to rely on the conventional and the traditional methods.
 Agriculture was a gamble of monsoon which adversely affected the productivity of
agricultural sector.
5. Absence of Marketing System:
 Due to the absence of well developed marketing system, the farmers used to rely on the
intermediaries to sell their product in the market. These intermediaries used to purchase
the farm products at a very low price and sell them at higher price at market.
 The farmers were not getting their reasonable share of profit which resulted in
investment on farm.
6. Nature of Farming:
The basic motive for farming was for subsistence. That is, farming was done basically to
earn survival and not for sale and to earn profit.
Question 7: Explain various land reforms introduced by govt of India.
1. Abolishing Intermediaries: The prime focus of land reforms was to abolish
intermediaries like Zamindars, Jagirdars, etc. Steps were undertaken to make the tillers,
owners of the land.
2. Regulation of Rent:
 The cultivators were exploited in the form of high rent charges by land owners.
 In the first five year plan, the maximum rent fixed was one-fourth or one-fifth of the
total farm produce.
 The regulations of rent helped in increasing income of the tenants& improved their
standard of living.
3. Consolidation of Holdings:
 As the land holdings were small; sub divided & fragmented, so it was necessary to
consolidate the land holdings for the use of modern and advanced technology.

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 The farmers were given consolidated holdings equal to the total of the land in their
various fragmented plots.
 This enabled them to use modern techniques & the benefits associated with the large
scale production.
4. Land Ceiling:
 It means maximum area of land that an individual may hold.
 The basic motive behind this step was to promote equality of ownership of land holdings.
This eradicated the concentration of land holdings in few hands.
 Government took back the excess land over the fixed amount of land from the rich
landlords and distributed it among the landless farmers.
5. Co-operative Farming:
 This step was taken to solve the problem of sub-division of land holdings.
 Small scale farming by an individual land holder is neither profitable nor productive, so,
these steps encouraged different farmers to pool their farms and perform farming jointly.
This enhanced the productivity and greater profits were shared by the individual farmers.

Question 7: What is Green Revolution? Why was it implemented and how did it benefit
the farmers? Explain in brief.
 Due to low productivity, frequent occurrence of famines and low levels of agricultural
output in the latter half of second five year plan, a team was formed to suggest ways to
counter these problems. As per the recommendations of the team, government introduced
the use of HYV seeds, modern techniques and fertilizers, irrigation facilities and
subsidized credit. These steps collectively are known as Intensive Area Development
Programme (IADP).
 Consequently, in the year 1967-68, food grains production increased nearly by 25%. Due
to this substantial increase of food grains production, this outcome is known as ‘Green
Revolution’. The word Green Revolution comprises of two words ‘Green’ that is
associated to crops and ‘Revolution’ is associated to the substantial increase.
Need of Green Revolution
The needs of Green Revolution are as follows.
1. Lack of Irrigation Facility: The well irrigated and permanent irrigated area was only 17%
in 1951. The major part of area was dependent on rainfall and, consequently, agriculture
suffered from low level of production.
2. Conventional and Traditional Approach of farming: The use of conventional inputs
and absence of modern techniques further hampered the agricultural productivity.
3. Frequent Occurrence of Famines: Famines in India were very frequent during the period
1940s to 1970s. Further, due to higher growth rate of populations, agriculture failed to grow
at the same speed.
4. Lack of Finance (credit): Small and marginal farmers found it very difficult to get finance
and credit at cheap rate from the government and banks; so they have to depend on local
money lenders.
5. Self-sufficiency: Due to the traditional agricultural practices, low productivity, and to feed
growing population, often food grains were imported that drained away scarce foreign
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reserves. It was thought that with the increased production due to Green Revolution,
government can maintain buffer stock and India can achieve self-sufficiency and self-reliable.
6. Lack of marketing facilities: Agriculture was basically for subsistence and, therefore, less
amount of agricultural product was offered for sale in the market. Hence, the need was felt to
encourage the farmers to increase their production and offer a greater portion of their
products for sale in the market.

Question 8: Explain ‘growth with equity’ as a planning objective.

Both growth and equity are the two important aspects of India’s five year plans.
1) Economic growth:
 Growth refers to the increase in GDP over a long period of time.
 Growth is assessed by the market value of goods and services (GDP) and it may be
possible that the goods and services that are produced may not benefit the majority of
population. In other words, only a few with high level of living and money income may
get the share of GDP.
 As the country develops changes take place in occupational structure ie more
contributions are made by secondary & tertiary sectors.
2) Equity :
 equity refers to an equitable distribution of GDP so that the benefits due to higher
economic growth are shared by all sections of population.
 This objective ensures that the benefits of high growth are shared by all the people
equally and, hence, this leads to reduction of inequalities of income& poverty alleviation.
Growth itself is desirable but growth in itself does not guarantee the welfare of people.
Hence, growth with equity is a rational and desirable objective of planning. Therefore, to
conclude, it can be said that growth with equity is the most important objective of an
economic planning.

Question 9: Does modernization as a planning objective create contradiction in the light

of employment generation? Explain.
No, modernization as a planning objective does not contradict employment generation. In fact
both modernization and employment generation are positively correlated.
 Modernization refers to the use of new and modern technology; institutional changes in
an economy; change in sectoral composition of GDP.
 Due to use of capital intensive methods of production people lose their jobs in the initial
stages. But gradually, the use of modern technology will raise the productivity and,
consequently, the income of the people will increase & they will raise the demand for
goods and services.
 In order to fulfil this increased demand, there will be more job opportunities will be
generated. Hence, both modernization and employment generation are not contradictory
but are complementary to each other.

Question 10: Why was it necessary for a developing country like India to follow self-
reliance as a planning objective?
Self-reliance implies:

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 Discouraging the imports of those goods that could be produced domestically. A nation
should promote economic growth & modernization by using its own resources.
 Achieving self-reliance is of prime importance for a developing country like, India
otherwise, it country’s dependence on foreign products will increase.
 Dependence on foreign goods and services can promote economic growth of India but
this would not contribute to the development of domestic productive resources.
Dependence on foreign goods and services provides incentives to foreign industries at
the cost of domestic infant industries.
 Imports drain away the scarce foreign reserves that are of prime importance to any
developing and underdeveloped economy. It helps in the development of self sustaining
& self generating economy.
Question 11: What is sectoral composition of an economy? Is it necessary that the
service sector should contribute maximum to GDP of an economy? Comment.
Meaning of sectoral composition: It is the contribution of different producing sectors
(agricultural sector, industrial sector and service sector) in GDP of an economy during a year.
Yes, it is necessary that at the later stages of development, service sector should
contribute the maximum to the total GDP. This phenomenon is called Structural
Transformation.
 This implies that gradually the country’s dependence on the agricultural sector will shift
from the maximum to minimum and, at the same time, the share of industrial and service
sector in the total GDP will increase. This structural transformation indicates economic
growth.
Question 12: Why was public sector given a leading role in industrial development
during the planning period?
At the time of independence, Indian economy was underdeveloped; stagnant & backward. In
such economic condition it was only the public sectors that could take the initiative. The
following are the reasons for the role of the public sector in the industrial development:
1. Need of large infrastructural Investment:
 It was very difficult for the private sector to invest in projects demanding for huge capital
as the risks involved in these projects were very high due to long gestation period&
uncertainty of profits.
 Govt owns the resources & works for welfare so the government played a leading role in
industrial development of the economy.
2. Low Level of Demand:
 At the time of independence, the majority of population was poor and had low level of
income.
 Consequently, there was low level of demand and so there was no impetus for any
private sector to undertake investment. India was trapped into a vicious circle of low
demand. The only way to encourage demand was by public sector investments.

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Question 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.
 Green Revolution led to an increase in the production of food grains.
 With the use of modern technology, extensive use of fertilizers, pesticides and HYV
seeds there was a significant increase in the agricultural productivity and production .
 In addition, the spread of marketing system, abolition of intermediaries and easy
availability of credit has enabled farmers with greater portion of marketable surplus. All
these factors enabled the government to procure sufficient food grains to build the buffer
stock which could be used during famines and shortages.

Question 14: Define subsidy. 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 statement.
Meaning of Subsidy:
 Subsidies are defined as monetary concession given by the govt to a section in the
economy to enable them to purchase certain goods at affordable prices.
 In agriculture subsidy help farmers in purchasing agricultural inputs at a concessional
rate. During 1960s, in order to adopt new technology; HYV seeds; fertilizers and
insecticides, farmers were given subsidies.
The following arguments are given in favour of subsidy:
1) Subsidy is very important for marginal land holders and poor farmers who cannot avail the
essential farm inputs at the ongoing market rate. It is an incentive for the farmers to use
modern techniques; fertilizers, HYV seeds, etc.
2) Subsidy is generally provided to the poor farmers with the motive of reducing inequality of
income between rich and poor farmers.
The following arguments are given against subsidy.
1) It is generally argued that subsidy favours and benefits fertilizer industries than the
farmers. Subsidies provide a protective shield against the market conditions and,
consequently, these industries need not to bother about their market share and competition.
2) Subsidies are also enjoyed by the potential farmers who do not need them. This often leads
to the misallocation and wastage of the scarce resources.
3) Subsidies, if provided at a much lower rate than the market rate may lead to the wastage of
resources. For example, subsidised electricity leads to the wastage of energy.
4) There is a general consensus that in order to assess the benefit and feasibility of a
particular technique, subsidy should be provided but once the performance is improved
subsidies should be withdrawn.
5) Subsidies are a burden as they increase unproductive revenue expenditure of govt.

Question 15: Why, despite the implementation of green revolution, 65 per cent of our
population continued to be engaged in the agriculture sector till 1990?
 Indian agricultural production has increased substantially since independence. India has
also attained the status of self-sufficiency in food grains but this increase is substantial
only in comparison to food grain production in the past.
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 India failed to achieve structural transformation ie industrial and service sector failed to
generate significant employment opportunities in order to attract and absorb excess
Agricultural labour.
 The agricultural contribution to GDP has fallen from 51% in 1960-61 to 44% in 1970-71,
on the other hand, the share of industry and service sector in India’s GDP increased
merely from 19% to 23% and from 30% to 33% during the same period. Meantime, the
percentage of population dependent on agriculture decreased merely from 67.50% (in
1950) to 64.9% (in 1990). Hence, the industrial and service sector growth was not very
significant; due to this primary & secondary sector failed to employ and attract surplus
labour from agricultural sector.

Question 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.
Although, the mismanagement and wrong planning in PSUs led wastage of the scarce
resources but PSUs do have some positive and useful advantages.
1. Welfare oriented: The main motive of the PSU was to provide goods and services that
add to the welfare of the country as a whole. For example, schools, hospitals, electricity, etc.
These services not only enhance welfare of country’s population but also enhance the future
prospects of economic growth and development.
2. Long Gestation Projects: It was not feasible and economically viable for the private
sectors to invest in the large scale projects like basic industries and electricity, railways,
roads, etc. As these projects demand a very huge initial investment and have long gestation
period. Hence, PSU is the most appropriate to invest in these projects.
3. Basic Framework: An important ideology that was inherited in the initial five year plans
was that the public sector should lay down the basic framework for industrialization that
would encourage the private sector at the latter stage of industrialization.
4. Socialistic pattern of development: In the initial years after independence, Indian
planners and thinkers were more inclined towards socialist pattern. It was justified on the
rational ground that if the government controls the productive resources and production, then
country’s resources will not be wasted & economy will attain a significant rate of growth.
PSUs produce goods not according to the profit motive but according to the social needs and
economic welfare of the country.
5. Reduction in Inequalities of Income and Generation of Employment Opportunities: It
was assumed that in order to reduce inequalities of income, eradicate poverty and to raise the
standard of living, government sector should invest in the economy via PSUs.

Question 17: Define Inward looking trade strategy. Explain how import substitution
can protect domestic industry?
Meaning of Inward looking trade strategy or import substitution:
It refers to the policy of having reliance on import substitution and protection of domestic
Industries through import restrictions and import duties. This policy was adopted to save
foreign exchange and to attain self-reliance.

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In this policy the government protected the domestic Industries from foreign competition in
two ways:
1. TARIFFS: Tariffs are tax on imported goods. Due to these imported goods became
more expensive.
2. Quotas: They specify the quantity of goods which can be imported . Due to these
the domestic firms could be protected from foreign competition.
 In the initial seven five year plans, India opted for import substitution strategy, which
implies discouraging the imports of those goods that could be produced domestically.
 Import Substitution Strategy not only reduces an economy’s dependence on the foreign
goods but also provides impetus to the domestic firms.
 Government provides various financial encouragements, incentives, licenses to the
domestic producers to produce the goods domestically.
 This would not only allow the domestic producers to sustain but also enables them to
grow as they enjoy the protective environment.
 They need not to fear from any competition and also not to worry about their market
share as license gives them the monopoly status in the domestic market. Being
monopolist, they earn more profits and invest continuously in R&D and always look for
new and innovative techniques. This gradually improves their competitiveness and when
they are exposed to the international market they can survive and compete with their
foreign counterparts.

Question 18: Why and how was private sector regulated under the IPR 1956?
IPR 1956 was adopted in order to accomplish the aim of state controlling the commanding
heights of economy.
According to this resolution,
a) industries were classified into following three categories:
Category 1: Those industries that are established and owned exclusively by the public sector
( 19 industries)
Category 2: Those industries in which public sector will perform the primary role while the
private sector will play the secondary role. That is, the private sector supplements the public
sector in these industries. (12 industries)
Category 3: Those industries that are not included in Category 1 and Category 2 are left to
the private sector. (All remaining industries)
B) Industrial licensing & concessions: These industries that were left to the private sector,
the government own an indirect control by the way of license. In order to initiate a new
industry, private entrepreneurs should obtain license (or permit) from the government. By
licensing system, tax holidays and subsidies government can promote industries in a
backward region that will in turn promote the welfare and development of that region. This
was supposed to reduce regional disparities.
Further, in order to expand the scale of production, private sector needs to obtain license from
government. This was supposed to keep a check on the production of goods that are socially
undesirable and unwanted. Hence, the state fully controlled the private sector either directly
or indirectly.

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QUESTION 19: Suggest a critical evaluation of green revolution.

 Positive effects of green revolution
1) Self sufficiency
India became self sufficient in production of food grains .India was not supposed to
import from America or any other country for the purpose of meeting country s food
requirements.
2) Marketable surplus
A good proportion of rice and wheat produced during the green revolution was sold in
the market by the farmers. Due to which the low income had to spend lesser proportion of
of their income on purchase of food grains.
3) Buffer stock
Due to the green revolution the government was able to create a buffer stock which
could be used during the times of food shortages.
4) Increase in productivity
There was a sharp increase in food grain production in India. The production per acre
of wheat increased by 3.5 times from 19 60- 61 to 2010-11. Food grain production
increased from 82 million tonnes in 1961 to 257 millions in 2011-12.
 Shortcomings of Green revolution
1) Increase in the disparities of income:
Income disparities between small and big farmers increased because only the big
farmers could purchase the required input needed for increasing productivity.
2) Confined to few crops
Green revolution was remained confined to wheat & rice only. Progress in major
commercial crops like cotton; jute; oil spills was very less.
3) Regional inequality
Effects of green revolution took place only in Punjab; Haryana; Maharashtra;
Tamil Nadu and Andhra Pradesh which created regional inequalities.
4) Ecological degradation
Extensive use of chemical fertilizers; insecticides and pesticides reduced the fertility
& created large scale damage to the environment.

Question 20: Define small scale industry and explain their characteristics.
 MEANING: A small scale industry is defined according to the maximum investment
allowed on the Assets of a unit. At present the maximum investment allowed in small
scale units is Rupees 1 Crore . However this limit has been raised to rupees 5 Crore in
case of 69 items reserved for manufacturing in the small scale sector.
 FEATURES OF SMALL SCALE INDUSTRIES :
 Employment oriented and Labour intensive: They absorb surplus labour by creating
employment opportunities.
 Equality oriented and establish regional equality: Small scale industries show
locational flexibility so they can be established anywhere without considering the
source of raw material

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 Equity oriented: Small scale industries result in establishment of income equality in

the economy. They require small investments compared to large scale industries as a
result concentration of economic part is avoided. They help in attaining socialistic
pattern of society

Question 21: Write a note on composition and direction of foreign trade in India after
independence.
 COMPOSITION OF FOREIGN TRADE :
 There was a decline in Percentage share of Agricultural exports. It was due to India's
policy of using agricultural goods as raw material for domestic production. There was
a substantial increase in demand of domestically produced goods.
 Decline in Percentage share of exports of conventional items like jute ; minerals ;IT
sector as after independence domestic demand of these goods went up.
 Increase in Percentage share of exports of machine made goods it was due to
development programmes of government
 DIRECTION OF FOREIGN TRADE:
 The bulk of India's exports before independence war with England; America and
Commonwealth countries but after independence India started exporting to Australia
America; Newzealand; Japan; countries of European Union etc.
 There was a substantial change and imports trade also at the time of independence
import was from UK and America only but after independence India started importing
from Russia; Japan; countries of European Union; Australia; New Zealand etc.

Question 22: Critically evaluate the economic planning till 1991

ACHIEVEMENTS:
 Increased national income : After the adoption of economic planning the national
income increased from 2.1% in 1956 to 5.9% in 1990
 Increase in per capita income : Per capita income increased from 1.8% in 1956 to
nearly 3.6 % in 1990 it is a clear reflection of improvement in the standard of living
of the people
 Generation of employment : Due to industrial policy resolution cultural reforms
new policy adopted by the government the country was able to generate employment
opportunities in the year 1990 employment was provided that 2350 lakh persons as a
gain 70 lakh people in the 1956
 Diversification of industrial sector : During the planning period industrial
production increased by 7% per annum India started producing all kinds of consumer
and capital goods
 Development of social infrastructure: Death rate came down from 27000 in 1951
to nearly 8,000 in 1990 life expectancy increased from 32 years in 1951 to 64 years
in 1990
 FAILURES OF ECONOMIC PLANNING

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 Increase in poverty : The policy adopted by the government till 1990 were very rigid
and these policies were not able to generate sufficient employment opportunities
 Regular increase in prices till 1991: Inflation was not controlled. Price level
increased from nearly 6% in 1956 to 16.7% in 1990
 Inefficient public monopolies: Though public sector made significant contributions
to the growth of Indian economy but due to excessive promotion given by the
government public sector developed its Monopoly in certain segments. Due to
absence of competition the efficiency of public sector was getting affected.

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