R- 2

CHAPT E
L AN S
A R P
E Y E A L S
FI V : G O
I ND I A
I N N D
A N T
E M E
H I E V
A C
OBJECTIVES:

1.COME TO KNOW THE GOALS OF INDIA’S FIVE

YEAR PLANS.

2.KNOW ABOUT THE DEVELOPMENT POLICIES IN

DIFFERENT SECTORS SUCH AS AGRICULTURE
AND INDUSTRY FROM 1950-1990.

3.LEARN TO THINK ABOUT THE MERITS AND

LIMITATIONS OF A REGULATED ECONOMY.
2.1 – INTRODUCTION

ON 15th August 1947, India WOKE TO A NEW DAWN OF FREEDOM.

FINALLY WE WERE MASTERS OF OUR OWN DESTINY AFTER TWO HUNDRED
YEARS OF BRITISH RULE.

THE LEADERS OF INDEPENDENT INDIA HAD TO DECIDE AMONG OTHER

THINGS, THE TYPE OF ECONOMIC SYSTEM MOST SUITABLE FOR OUR
NATION.

THERE ARE DIFFERENT TYPES OF ECONOMIC SYSTEM. BUT NEHRU

APPEALED TO THE MOST. HOWEVER, HE WAS NOT IN FAVOUR OF THE
KIND OF SOCIALISM ESTABLISHED IN THE FORMER SOVIET UNION WHERE
ALL MEANS OF PRODUCTION, i.e; FACTORIES AND FARMS OWNED BY THE
GOVERNMENT.

NEHRU AND MANY OTHER LEADERS AND THINKERS OF THE NEWLY

INDEPENDENT INDIA SOUGHT AN ALTERNATIVE TO THE EXTREME VERSIONS
OF CAPITALISM AND SOCIALISM.
TYPES OF ECONOMIC SYSTEMS:

EVERY SOCIETY HAS TO ANSWER THREE QUESTONS-

1. WHAT GOODS AND SERVICES SHOULD BE PRODUCED IN THE COUNTRY?

2. HOW SHOULD THE GOODS AND SERVICES BE PRODUCED? SHOULD PRODUCERS
USE MORE HUMAN LABOUR OR MORE CAPITAL(MACHINES) FOR PRODUCING
THINGS?
3. HOW SHOULD THE GOODS AND SERVICES BE DISTRIBUTED AMONG PEOPLE?
ONE ANSWER TO THESE QUESTIONS IS TO DEPEND ON MARKET FORCES OF SUPPLY
AND DEMAND.
IN A MARKET ECONOMY, ALSO CALLED CAPITALISM, ONLY THOSE CONSUMER GOODS
WILL BE PRODUCED THAT ARE IN DEMAND. i.e; GOODS THAT CAN BE SOLD
PROFITABLY.

Market economy or capitalism – not based on need but on purchasing

power; if labour is cheap – go for labour-intensive industries – in this
majority of the people are left behind

Socialist economy – govt. decides what goods should be produced and

distributed – need based economy – Cuba & China

Mixed Economy – Govt. & market forces together answer – what to

produce? How to produce? How to distribute?
What is Plan?
Objective to be attained in 5 years (basis for perspective plan) & what to
be achieved in 20 years (perspective plan)

THE INDUSTRIAL POLICY RESOLUTION OF 1948 AND THE DIRECTIVE

PRINCIPLES OF INDIAN CONSTITUTION REFLECTED THIS OUTLOOK.
IN 1950, THE PLANNING COMMISSION WAS SET UP WITH THE PRIME
MINISTER A ITS CHAIRPERSON. THE ERA OF FIVE-YEAR BEGUN.

THE GOALS OF FIVE-YEAR PLANS

A PLAN SHOULD HAVE SOME CLEARLY SPECIFIED GOALS. THE GOALS OF 5-

YEAR PLANS ARE: GROWTH, MODERNISATION, SELF-RELIANCE & EQUITY.
IT DOES NOT MEAN THAT ALL THE PLANS HAVE GIVEN EQUAL IMPORTANCE
TO ALL THESE GOALS.

PC Mahalanobis
2nd 5 year plan was based on his ideas
Regarded as architect of Indian Planning
Educated from Presidency College, Kolkata & later at Cambridge University,
England
Fellow member of Britain’s Royal Society
Established Indian Statistical Institute (ISI), Kolkata
Started journal, Sankhya
Planning Commission

Established in 1950
Chairperson: Prime Minister
Goal of 5 year plan – growth, modernization, self-reliance and equity
Growth: Increase in country’s capacity to produce goods and services –
larger stock of capital or services – increase in GDP (GDP is the market
value of all the goods and services produced in the country during a year
– agri., industry, service)
Modernization: Adopt new technology & change in social outlook (women
at work)
Self-Reliance: By using its own resources & reduce dependence on foreign
countries mainly for food – will avoid foreign interference in our policies
Equity: Benefits of economic prosperity to reach to the poor sections.

Agriculture
Promoting HYV seeds
Land Reforms – had intermediaries who collected rent from tillers without
improvement –
low productivity and import of food grains from USA – abolish intermediaries
& give incentive to tillers & 200 lakh tenants came in direct contact with
government (still poorest labourer did not got the benefit)
Ownership enables tiller to make profit from increased output (absence of
ownership leads to
inefficiency – as in Soviet Union)
Land ceiling – fixing maximum size of land that could be owned by individual
– reduce
concentration in hands of few. Big landlords challenged it by delaying
implementation & register land is name of relatives to escape legislation
(numerous loopholes were seen) Land reforms were successful in Kerala &
West Bengal – as govt. was committed to the policy of land to the tiller.
Benami
and Political
Farzi will
Transcti
ons Big farmers
Corner the
land of
State Reasons marginal
side farmers
With big for land
Farmers reforms
failure Surplus
land
Is fallow
Loop landand
holes Poor uncultiva
Redressa ble land
l system
GREEN REVOLUTION

New
Techn
ology
Electric Hybrid
ity seeds
subsidy
Govt.
Initiati
ves
Increas Easy
ed credit
finance
Diesel
subsid
y
So far – low productivity due to old technology, absence of infrastructure,
vagaries of monsoon
Brought in HYV seeds of wheat and rice – fertilizer and pesticides with water

1st Phase: HYV seeds restricted to the more affluent states such as Punjab,
Andhra Pradesh and Tamil Nadu & benefitted mainly wheat growing areas

2nd Phase: Spread to other states and other crops – help attain self-
sufficiency in food grains
Agricultural produce sold in market by farmers – marketed surplus – enabled
govt. to procure good amount of foodgrains to build stock for food shortage

Disadvantages

HYV crops were prone to diseases

Rising disparity b/w small and big farmers
Unemployment due to mechanization
Need for weed control
Governmental Intervention
Loans at low interest rate
Subsidized fertilizers to small farmers
Services of research institutes

Subsidy
Encourage farmers to test new technology
Once technology is fruitful, subsidy should be phased out
Fertilizer subsidy benefits farmers and also fertilizer industry
Eliminating subsidy will increase rich and poor divide
Remove subsidy as it doesn’t benefit target group and has huge burden on
govt. finances
65% population is employed in agriculture as in 1990 – GDP from agriculture
declined from
67.5% in 1950 to 64.9% in 1990 – industry and service sector did not absorb
people in agricultural sector
Prices – if good becomes scarce, prices rise
Fertilizer and pesticide subsidies result in overuse of resources which can be
harmful to the environment.
Subsidies provide an incentive for wasteful use of resources.
SHORT PERIOD GOALS/OBJECTIVES:

Short period objectives vary from plan to plan depending on current

needs of the country.
When first plan was initiated, the country was battling severe shortage of
foodgrains.
Accordingly, the first plan focused on higher agricultural producton as the
principal objective.
So far 12 five-year plans completed in 2017.

OBJECTIVES OF PLANNING: It refers to the long period objectives of

growth and development of the economy. Broadly under:
i. Sustained GDP growth over time,
ii. Equitable distribution of income and wealth, applying social justice, &
iii. Fuller utilisation of manpower, leading to full employment.
OBJECTIVES OF PLAN: It refers to a set of specific objectives related to
each specific plan.
Like, 1st plan focused on higher agricultural producton,
2nd plan focused on higher production in industrial sector.
Long term period objective are more like the end-result of planning,
Short term period are like the instruments used to achieve the target of
long term period.
FEATURES OF ECONOMIC POLICY PURSUED UNDER PLANNING TILL 1991:

Planning in India is witnessed a marked shift in the economic policy of the

govt. in the year 1991. The present section describes the features of
economic policy between the period 1951-1991, as under:

1. Heavy Reliance on Public sector: India adopted a system of mixed

economy system. Though Industrial policy 1956, 17 industries were
exclusively reserved for public sector and 12 industries marked for
private sector.
2. Regulated Development of Private Sector: Private sectors faced
several restrictions under Industrial Development Regulation Act,
1948. under Monopoly and Restricted Trade Practices Act, 1969 were
imposed on expansion of industries.
3. Protection of small-scale industry and regulation of large scale
industry: Large scale was regulated through several acts, particularly
MRTP Act. Small scale on the other hand, was offered protection from
competition. Also financial institutions were developed like handloom
and silk board were established.
4. Development of Heavy Industry: Industries of strategic significance are
those which serve as ‘universal intermediaries’, like generation of
electricity, engineering goods industries and iron and steel industry.
5. Thrust on saving and investment: Saving and investment were
identified as the key determinants of economic growth.

6. Protection from foreign competition: Domestic industry was protected

from foreign competition. High import duties levied on imports.

7. Focus on import substitution: Domestic production of goods were

imported from abroad. The basic idea was to save foreign exchange
and become self sufficient.

8. Restriction on foreign capital: Foreign direct investment was

controlled and regulated through (FERA). This was to minimise
economic control of the domestic market by the foreign investors.

9. Centralised planning: Programmes of growth and development at the

state level were aligned with the concept of centralised planning.
Overall strategy of growth as specified in the five year plans.
ACHIEVEMENT OF GOALS OF PLANNING:

1. Increase in national income: It refers as economic growth. During

British period, our economy plundered and drained. Before british
period our national income increased 0.5%. 1 st plan set as 2.1%,
growth rate of all plans from 2nd to 11th plan above 5%, 11th plan 9%
and 12th plan 8%

2. Increase in percapita income: Before british percapita was 2.9%, 1st

plan rises to 2.7%, 3rd plan as low as 1%, 11th plan was 6%. Rises in
quality of life of people in terms of percapita of goods and services.

3. Rise in rate of capital formation: Capital formation is a major

determinant of economic growth. During Five year plans, rate of
capital formation has increased. Rate of capital formation depends on
the rate of saving and investment. In 1950-51 capital formation was
10% and in 2015-16 capital formation was 33.2%.

4. Institutional and technical change in Agriculture: Plans have

contributed to the development of agriculture in two ways firstly land
reforms and secondly Green revolution; included:
i) abolition of zamindari system,
ii) moderation on rents,
iii) land ceiling act,
iv) optimising holding size,
5. Growth and diversification of industry: Industrial sector received
significantly development. Basic and capital goods industries
flourished. Indian economy is now ranked 10th largest economy. 12th
plan achieved 7.6% compared to 1.6% in 1951.

6. Economic infrastructure: Means of transport and communication,

irrigation facilities, power, banking and insurance factilities are the
key factor of economic infrastructure. Indian Railways achieved 2 nd
place in the world where as Roadways 3rd place in the world. A
revolutionary growth of IT sector has earned India a global player in
international market.

7. Social infrastructure: Health and educational facilities are the key

parameters of social infrastructure. Death rate, Average life
expectancy, educational facilities recorded significant rise over time.

8. Employment: Concerned efforts have been made during plans to

increase employment opportunities. In 12th plan govt. has fixed 50
million employment opportunities.

9. International trade: Since independence, the volume and value of

India’s foreign trade has increased. In 1948-49 the value of foreign
trade was 792 crores and in 2015-16 it increased to 42,06,680 crores.
FAILURES OF PLANNING:

1. Abject poverty: Poverty was the central theme of planning.On an

average normal healthy person needs 2508 calories but in India 2400
calories availability of food. Nearly 50% of those who are absolute
poor in the world are living in India.

2. High rate of inflation: High rate of inflation, real income of the people
has divide between haves and haves not.

3. Unemployment crisis: More and more opportunities have been

generated, unemployment assume alarming proportions. This is a
serious cause of social unrest threatening the process of growth.

4. Deficient infrastructure: Development of infrastructure continued to

be in sufficient. Shortage of power has been a serious problem of
growth and development.

5. Skewed distribution of income and wealth: Economic and social

equality was considered as the principal goal of planning. This
emerged to be challenging and compelled the govt. to offer
reservations in jobs to economically and socially weaker sections. NEW
ECONOMIC POLICY WAS ANNNOUNCED BY THHE GOVT. TO UPLIFT THE
GROWTH AND PROGRESS.
 CREATED BY-
THANK YOU
VERY MUCH

AKRAM SIR