These Class 12 Notes on the Indian economy from 1950 to 1990 cover all the important topics and events. Get a thorough understanding of this crucial period in India's history.
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Class 12 Economics Chapter 2: Indian Economy 1950-1990 Notes
Types of Economic Systems:
- Capitalist system - This is a system dependent on market forces. Goods are produced based on demand and can be obtained only by those who have purchasing power.
- Socialist system - Goods and services are provided by the government based on the needs of the society and not on who can purchase them. There is strictly no private property and everything is owned by the state.
- Mixed economy- The market will produce what it can, and market forces will be in play. But the government will provide what the market fails to do, and to those who cannot afford it.
- Jawaharlal Nehru and many other leaders and thinkers of Independent India decided that India would be a socialist society with a strong public sector but also with private property and democracy.
- The First Industrial Policy Resolution of Independent India was announced in the year 1948.
- In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson.
- A plan spells out how the resources of a nation should be put to use. It should have some general goals as well as specific objectives which are to be achieved within a specified period of time.
The Goals of Five-Year Plans
The primary goals of the five-year plans were:
- Modernization: encouraging new techniques, methodologies, social outlook, and policies. Example: modernization of informal sector enterprises and provision of social security, measures to informal sector workers.
- Self-reliance: avoiding import of goods that could be produced in India itself, optimum utilization of nation's own resources, encouraging indigenous industries.
- Equity: encouraging policies revolving around providing food, a decent house, education, and health care so that the inequality in the distribution of wealth could be reduced.
- Growth: aiming to increase the country’s capacity to produce the output of goods and services within the country by either stimulating a larger stock of productive capital, or a larger size of supporting services, etc.
‘Modernisation does not refer only to the use of new technology but also to changes in the social outlook.’: The government wanted to increase the production of goods and services through new methods with the help of technology. But they also, through its various policies, simultaneously ensured that this progress in a socialist economy should be assessed in accordance with the –
- Equality of opportunities between men and women.
- Bridging the gap between the haves and have-nots.
- Availability of basic infrastructural facilities to all.
- Optimum utilization and distribution of resources.
Prasanta Chandra Mahalanobis is known as the Architect of Indian Planning. The Second Five-Year Plan (1956-1961) was based on his ideas.
At the time of Independence, the low productivity of the agricultural sector forced India to import food from the United States of America (U.S.A.).
After independence, the government of India took several institutional/land reforms to ensure the transformation of Indian agriculture, such as:
- Land ceiling – This means fixing the maximum size of land which could be owned by an individual. The purpose of land ceiling was to reduce the concentration of land ownership in a few hands.
- Abolition of the Zamindari system – It focused on the elimination of farmers’ exploitation and the promotion of agricultural growth. Steps were taken to abolish intermediaries and to make the tillers the owners of land.
These reforms have led to the stability of farming as an occupation and promoted equity.
Drawbacks/Challenges of Land Reforms:
- In some areas, the former zamindars continued to own large areas of land by making use of some loopholes in the legislation
- there were cases where tenants were evicted and the landowners claimed to be self-cultivators (the actual tillers), claiming ownership of the land
- even when the tillers got ownership of land, the poorest of the agricultural laborers (such as sharecroppers and landless laborers) did not benefit from land reforms.
Drawbacks/Challenges of Land Ceiling:
- 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 that were exploited by the big landholders to retain their land.
The Green Revolution
This refers to the large increase in the production of food grains resulting from the use of high-yielding variety (HYV) seeds, especially for wheat and rice.
The use of these seeds required:
- the use of fertilizer and pesticide in the correct quantities as well as a regular supply of water
- the application of these inputs in correct proportions is vital.
First Phase of Green Revolution (mid-1960s to mid-1970s): The use of HYV seeds was restricted to the more affluent states such as Punjab, Andhra Pradesh, and Tamil Nadu. Further, the use of HYV
seeds primarily benefited the wheat-growing regions only.
Second Phase of Green Revolution (mid-1970s to mid-1980s): The HYV technology spread to a larger number of states and benefited more variety of crops.
Impact of Green Revolution:
- The spread of green revolution technology enabled India to achieve self-sufficiency in food grains.
- India no longer had to be at the mercy of America, or any other nation, for meeting its food requirements.
- The green revolution enabled the government to procure a sufficient amount of food grains to build a stock that could be used in times of food shortage.
Marketed Surplus: The portion of agricultural produce which is sold in the market by the farmers is called marketed surplus.
Risks of the HYV technology:
- It would increase the disparities between small and big farmers.
- The HYV crops were also more prone to attack by pests and the small farmers who adopted this technology could lose everything in a pest attack.
Steps taken by the Government to avoid the risks:
- The government provided loans at a low-interest rate to small farmers and subsidized fertilizers so that small farmers could also have access to the needed inputs.
- The risk of small farmers being ruined when pests attack their crops was considerably reduced by the services rendered by research institutes established by the government.
The Debate over Subsidies
Arguments against Subsidies:
- Subsidies were needed to encourage farmers to test the new technology. Some economists believe that once the technology is found profitable and is widely adopted, subsidies should be phased out since their purpose has been served.
- A substantial amount of fertilizer subsidy also benefits the fertilizer industry.
- Among farmers, the subsidy largely benefits the farmers in the more prosperous regions. So, it does not benefit the target group.
- It is a huge burden on the government’s finances.
Arguments in favor of Subsidies:
- The government should continue with agricultural subsidies because farming in India continues to be a risky business.
- Most farmers are very poor and they will not be able to afford the required inputs without subsidies.
- Eliminating subsidies will increase the inequality between rich and poor farmers and violate the goal of equity.
In India, between 1950 and 1990, the proportion of GDP contributed by agriculture declined significantly but not the population depending on it (67.5% in 1950 to 64.9% by 1990). The answer is that the industrial sector and the service sector did not absorb the people working in the agricultural sector.
- Economists have found that poor nations can progress only if they have a good industrial sector.
- The industry provides employment that is more stable than employment in agriculture
- It promotes modernization and overall prosperity.
Industrial Policy Resolution 1956 (IPR 1956):
IPR 1956 formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society.
This resolution classified industries into three categories.
- The first category comprised industries that would be exclusively owned by the government.
- The second category consisted of industries in which the private sector could supplement the efforts of the public sector, with the government taking the sole responsibility for starting new units.
- The third category consisted of the remaining industries which were to be in the private sector.
- No new industry was allowed unless a license was obtained from the government.
- This policy was used for promoting industry in backward regions.
- It was easier to obtain a license if the industrial unit was established in an economically backward area.
- In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff.
- The purpose of this policy was to promote regional equality.
Small Scale Industry:
In 1955, the Village and Small-Scale Industries Committee, also called the Karve Committee, noted the possibility of using small-scale industries for promoting rural development.
It refers to those industries in which the maximum investment allowed is Rs. 1 crore on the assets of the unit.
Benefit: It is believed that small-scale industries are more ‘labour intensive’ i.e., they use more labour than the large-scale industries and, therefore, generate more employment.
Steps taken by the Government to protect small scale industries:
- The production of a number of products was reserved for the small-scale industry.
- They were also given concessions such as lower excise duty and bank loans at lower interest rates.
Trade Policy: Import Substitution
Import substitution: It imples replacing or substituting imports with domestic production. For example, instead of importing vehicles made in a foreign country, industries would be encouraged to produce them in India itself. In this policy the government protected the domestic industries from foreign competition.
The domestic industries were protected from foreign competition by using the following tools:
- Tariffs: Tariffs are a tax on imported goods that make imported goods more expensive and discourage their usage.
- Quota: Quotas specify the quantity of goods that can be imported.
Logic behind the policy of import substitution:
- It was assumed that if the domestic industries were protected they would learn to compete in the course of time.
- Our planners also feared the possibility of foreign exchange being spent on the import of luxury goods if no restrictions were placed on imports.
Effect of Policies on Industrial Development:
- The proportion of GDP contributed by the industrial sector increased in the period from 13% in 1950-51 to 24.6% in 1990-91.
- The 6% annual growth rate of the industrial sector during the period is commendable.
- The industrial sector became well diversified by 1990.
- 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.
- State enterprises continued to produce certain goods and services (often monopolizing them) although this was no longer required. For example, telecommunication, Modern bread, etc.
- Many public sector firms incurred huge losses but continued to function because it is difficult to close a government undertaking even if it is a drain on the nation’s limited resources.
- The need to obtain a license to start an industry was misused by industrial houses; a big industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms.
- More time was spent by industrialists in trying to obtain a license or lobby with the concerned ministries rather than thinking about how to improve their products.
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