CBSE Class 11 Economics Chapter 2 Indian Economy 1950-1990

Class Notes of Chapter 1: Indian Economy 1950-1990

Class 11th Economics

Indian Economy 1950-1990 

      Topics:

• Economic Planning
• Agriculture 
• Industry
• Problems of Industrial Development in India
• Role of the Public Sector/Govt. in Industrial Development
• Industrial Policy Resolution (IPR) 1956
• Features of Industrial Policy Resolution (IPR) OF 1956
• Small Scale Industry (SSI)
• Foreign Trade
• Trade Policy
• Industrial Licensing
• Main Objectives of the IDRA Act of 1951
• Criticism Against Industrial Licencing
• Permit Licence Raj
• NCERT Solutions

Economic Planning

Economic Planning means utilization of country’s resources in different development activities in accordance with national priorities.

Goals of Planning in India

1. Long Term Goals(To be achieved over a period of 20 years)
2. Short Term Goals(To be achieved over a period of five years)

• LONG TERM GOALS / OBJECTIVES OF PLANNING

1. Modernization – Adoption of new technology and changes in social outlook
2. Self-reliance – Reducing dependence on imports.
3. Economic Growth – Increase in the aggregate output of Goods & services.
4. Equity – Reduction in inequality of income and wealth
5. Full employment – Refers to a situation when all the people in the working age group is actually engaged in some gainful employment.

• SHORT TERM GOALS / OBJECTIVES OR OBJECTIVES OF FIVE YEAR PLANS

Short term objectives vary from plan to plan depending on the current needs of the country. For example, the first plan (1951-56) focused on higher agricultural production while in the second plan (1956-61) shifted the focus from agriculture to Industry. In India, growth, and equity are the objectives of all the five-year plans. The goal of the current five-year plan (12th, 2012-17) is INCLUSIVE DEVELOPMENT.

Agriculture

• Main Features of Indian Agriculture

1. Low productivity
2. Disguised unemployment.
3. Dependence on rainfall
4. Subsistence farming-objective of the farmer is to secure subsistence for his family not to earn the profit.
5. Traditional inputs
6. Smallholdings
7. Backward technology.
8. Landlord-tenant conflict.

• Problems of Indian Agriculture

      A. General Problems

1. The pressure of population on land
2. Land degradation
3. Subsistence farming
4. Social environment
5. Crop losses-by pest, insect, flood draught etc.

      B. Institutional Problems

1. Small and scattered holdings.
2. Poor implementation of land reforms.
3. Lack of credit and marketing facilities.

      C. Technical Problems

1. Lack of irrigation facilities.
2. Wrong cropping pattern.
3. The outdated technique of production.

Reforms in Indian Agriculture

      A. Institutional Reforms also called Land reforms

1. Abolition of intermediaries.
2. Regulation of rent.
3. Consolidation of holdings.
4. Ceiling on land holdings.
5. Cooperative Farming

      B. General Reforms

1. Expansion of irrigation facilities.
2. Provision of credit
3. Regulated markets and co-operative marketing societies.
4. Support price policy.

      C. Technical Reforms or Green Revolution

1. Use of HYV seeds
2. Use of chemical fertilizers.
3. Use of insecticides and pesticides for crop protection
4. Scientific rotation of crops
5. Modernized means of cultivation.

Achievements of the Green Revolution

1. The rise in production and productivity.
2. Increase in income.
3. Rise in commercial farming.
4. Impact on social revolution-use of new technology HYV seeds, fertilizers etc.
5. Increase in employment.
6. Substantial Rise in Average

Failures of the Green Revolution

1. Restricted to limited crops and areas such as two crops wheat & rice-growing states like Punjab, Haryana, U.P., and Andhra Pradesh.
2. Partial removal of poverty.
3. Neglected land reforms.
4. Increase in income disparity between small and big farmers
5. Ecological degradation.

Industry

Role of the Industrial Sector in India

Industrialization is important for the overall growth of a country. Following points highlight the importance of Industry is an economy:

1. Provides employment.
2. Raises national income.
3. Promotes regional balance.
4. Leads to modernization.
5. Helps to modernize agriculture.
6. Leads to self-sustainable development.
7. High potential for growth.
8. Key to the high volume of exports.
9. The growth of civilization.
10. Change in the basic structure of the economy
11. Source of Employment
12. Imparts Dynamism to Growth Process

Industrialization is a pre-condition for the final take-off of an economy.

Industrial Development since Independence 26.4.2010-11

The share of the industrial sector in the GDP has increased up to 20% in 2013-14.

The following important changes have taken place:

1. Development of infrastructure like power transport, communication, banking & finance, qualified and skilled human resource.
2. Much progress in the field of research and development.
3. Expansion of the public sector.
4. Building up of the capital goods industry.
5. The growth of non-essential consumer goods industries.

Problems of Industrial Development in India

1. Sectoral imbalances- Agriculture and infrastructure have failed to provide the support to the industrial sector.
2. Regional imbalance- Restricted to few states.
3. Industrial sickness- which raised the problem of unemployment.
4. The higher cost of industrial production due to lack of healthy competition.
5. Dependence on the Government- for reduction in tax or duty to make import easier.
6. The poor performance of the public sector
7. Underutilization of capacity.
8. Increasing capital-output ratio.

Role of the Public Sector/Govt. in Industrial Development

Direct intervention of the state was considered essential in view of the following factors:

1. Lack of capital with private entrepreneurs.
2. Lack of incentive among the Pvt. entrepreneurs demands due to the limited size of the market.
3. The socialistic pattern of the society-main aim of Govt. is to generate employment rather than profits.
4. Development of infrastructure.
5. Development of backward areas.
6. To prevent the concentration of economic power.
7. To promote import substitution.

Industrial Policy Resolution (IPR) 1956

Industrial policy is an important instrument through which the govt. regulates the industrial activities in an economy.

The 1956 resolution laid down the following objectives of the industrial policy are:

1. To accelerate the growth of industrialization.
2. To develop heavy industries.
3. To expand the public sector.
4. To reduce disparities in income and wealth.
5. To prevent monopolies and concentration of wealth and income in the hands of a small member of individuals.

Features of Industrial Policy Resolution (IPR) OF 1956

Features of Industrial policy resolution of 1956 were:

1. The new classification of Industries: Industries were classified into three schedules depending upon the role of the state.

• Schedule-A- 17 industries listed in schedule-A whose future development would be the responsibility of the state.
• Schedule-B- 12 industries were included in Schedule-B, the Private sector could supplement the efforts of the Public Sector, with the state taking sole responsibility for starting new units.
• Schedule-C – other residual industries were left open to the private sector.

2. Stress on the role of cottage and small scale industries.

3. Industrial licensing: Industries in the Pvt. the sector could be established only through a license from the government.

4. Industrial concessions-were offered-Pvt. entrepreneurs for establishing industry in the backward regions of the country. Such as tax rebate and concessional rates for power supply.

Small Scale Industry (SSI)

A small-scale industry is presently defined as the one whose investment does not exceed Rs. 5 crore.

CHARACTERISTICS OF SSI OR ROLE OF SMALL SCALE INDUSTRIES

1. Labour intensive-employment oriented

2. Self-employment.

3. Less capital intensive.

4. Export Promotion.

5. Seedbeds for large-scale industries.

6. Shows locational flexibility.

PROBLEMS OF SMALL SCALE INDUSTRIES

1. The difficulty of finance.

2. Shortage of raw material.

3. The difficulty in marketing.

4. Outdated machines & equipment

5. Competition from large-scale industries.

Foreign Trade

At the time of independence raw material was exported from India to Britain in abundance, on the other hand, finished goods from Britain were imported into India. Notably, our balance of trade was favorable (exports > imports)

After independence, India’s foreign trade recorded a noticeable change such as:

1. The decline in percentage share of agricultural exports.
2. Increase in percentage share of manufactured goods in total exports.
3. Change in direction of export trade and import trade.
4. The decline of Britain as the main trading Partner.

Trade Policy

In the first seven five year plans of India, the trade was commonly called an ‘inward-looking’ trade strategy.

This strategy is technically known as ‘import substitution’. Import substitution means substituting imports with domestic production. Imports were protected by the imposition of tariff and quotas which protect the domestic firms from foreign competition. Impact of Inward looking Trade strategy on the domestic industry.

1. It helped to save foreign exchange by reducing the import of goods.

2. Created a protected market and large demand for domestically produced goods.

3. Helped to build a strong industrial base in our country which directly leads to economic growth.

Criticism of import-substituting strategy

1. It did not lead to growth.

2. Lack of competition implied lack of modernization.

3. The growth of inefficient public monopolies.

4. It did not lead to efficiency.

Industrial Licensing

Licensing is a tool for channelizing scarce resources in predetermined priority sector of an economy.

The Industries development and resolution act (IDRA) was enacted in 1951.

Main Objectives of the IDRA Act of 1951

1. Regulation of industrial development in accordance with planned priorities.
2. Avoidance of monopoly.
3. Balanced regional development.
4. Prevention of undue competition between large-scale industries and small-scale industries.
5. Optimum utilization of scarce foreign exchange resources. Under this act the following were applicable.

• All the scheduled industries should be registered with the govt.
• A license must be obtained by all the new industries.
• Govt. is authorized to examine the working of any industrial undertaking.
• If the undertaking continued to be mismanaged, govt. can take over its management.

Criticism Against Industrial Licencing

1. There was an ad-hoc system for accepting or rejecting an application for a license.

2. The quality of techno-economic examination conducted by Director General of technical development was generally poor.

3. Licensing policy resulted in underutilization of capacity in many industries.

4. In reality, the policy helped large business houses in accumulating economic power.

Permit Licence Raj

The licensing authorities many a time granted a license to big business houses without proper scrutiny of their applications.

NCERT Solutions

Question 1. Define a plan.

Answer. A plan is a long-term strategy which spells out how the resources of a nation are going to be used. A plan should have some general goals and some specific goals which are to be achieved within a specified time period.

Question 2. Why did India opt for planning?

Answer. At the time of independence, the Indian economy was in very poor shape. The private capital was at a low level. Basic industries were very few in numbers. The whole economy was dependent on a few sectors. Agriculture was done through primitive methods and needed a lot of improvement to feed a growing population. The first Prime Minister and other thinkers of the time thought it suitable to opt for a planned economy.

Question 3. Why should plans have goals?

Answer. For any plan to succeed you need to have some goals. Without a goal, one does not know where to reach. It is similar to setting a destination before beginning a journey. Without a preset destination, you will reach nowhere at the end of a journey.

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

Answer. High Yielding Variety (HYV) seeds are the new variety of seeds which are produced after cross-breeding or genetic engineering. As the name suggests; HYV seeds give higher yields per acreage than the conventional seeds.

Question 5. What is marketable surplus?

Answer. If a farmer produces so much of farm produce that a surplus amount can be saved after his own consumption, this surplus amount can be sold in the market. This surplus amount is called market surplus.

Question 6. Explain the need and type of land reforms implemented in the agriculture sector.

Answer. Two types of reforms were introduced in the agriculture sector. The first reform was related to the ownership of land. The actual tillers; who were not the owners of the land were given the ownership of land. It was assumed that ownership would give them the motivation to invest in the improvement of land and it would help in better farm productivity. The second reform was related to the land ceiling. This put a ceiling on maximum land holding which a farmer could have. This reform helped in the equitable distribution of land. Previously, a few farmers held the ownership of biggest chunks of land; while most of the farmers were marginal farmers or landless farmers.


Question 7. What is Green Revolution? Why was it implemented and how did it benefit the farmers? Explain in brief.

Answer. Green Revolution refers to the large increase in food grain production due to use of High Yielding Variety (HYV) seeds; especially for wheat and rice.


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

Answer. Equity was one of the major goals of planning. Growth, modernization, and self-reliance (the other goals of planning) could not be enough if the fruits of these developments did not reach a large section of the society. If the issue of equity is not taken care of, then the rich would become richer and the poor would become poorer. Prosperity would be concentrated in only a few hands and a vast section of the society would be devoid of the quality of life which a prosperous economy can give. Thus, equity should be a major objective of the planned economy.


Question 9. Does modernization as a planning objective create the contradiction in the light of employment generation? Explain.

Answer. It is a wrong notion that modernization as a planning objective creates a contradiction in the light of employment generation. Modernization not only involves the adoption of new technology but also changes in social norms. Many early thinkers thought that new machines can reduce employment opportunities because one machine can do the work of hundreds of people in less time. But we should not forget that a new machine can help in opening up new employment opportunities which could not have been even thought of. Following example illustrates this in a relevant way. When our former Prime Minister, Rajiv Gandhi talked about computerization to modernize various sectors; there was a huge protest. People thought that since a computer can do the work of thousands of people in a fraction of time, it would result in mass unemployment. But the current scenario tells a different story. Thanks to the advent of the computer and IT, many new employment opportunities have opened up about which people could not even imagine in the past.


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

Answer. For a developing country, it is very important that local business grows to a size that develops the ability to compete with companies from other nations. Moreover, at the time of independence; it was feared that overdependence on other countries may lead to interference in domestic policies. Self-reliance was desirable at least in those products and services which catered to the basic needs such as food and clothing.


Question 11. What is the sectoral composition of an economy? Is it necessary that the service sector should contribute maximum to GDP of an economy? Comment.

Answer. An economy can be divided into three main sectors, viz. primary, secondary and tertiary sectors. Agriculture and related activities come under the primary sector, industries come under secondary sector and services come under the tertiary sector. Relative share in GDP and in employment opportunities of different sectors shows the sectoral composition of an economy. Traditionally, it has been seen that an economy remains over-dependent on agriculture during initial stages of development. It gradually progresses to being dependent on the industries. In the case of developed economies, dependency on services sector is the highest. This is not a rule but experience from most of the developed economies suggests that a higher contribution by services sector is an indication towards a developed economy.


Question 12. Why was the public sector given a leading role in industrial development during the planning period?

Answer: At the time of independence, India was a poor country and private capital was not very high. Thus, most of the sectors which required huge investments could not be operated by private businesspersons. The basic industries; like iron and steel and heavy machinery needed an immediate infusion of capital and technology. The infrastructure needed to be built. All of this could not have been possible without the intervention of the government. Hence, the public sector was given a leading role in industrial development during the planning period.


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.

Answer. Before the beginning of the Green Revolution, the government had to depend on American imports to fulfill the demand of food during times of shortage. Green Revolution helped in creating a market surplus of foodgrains; especially wheat and rice. This resulted in falling prices of food grains. There was so much surplus food available that the government got enough food grains to build buffer stocks. This buffer stock could be used during the times of shortage. There was no more dependency on imports to meet the need during times of shortage.


Question 14. While subsidies encourage farmers to use new technology, they are a huge burden on government finances. Discuss the usefulness of subsidies in the light of this fact.

Answer: Subsidies to farmers has always been a debatable issue. It is beyond doubt that subsidies result in a huge financial burden on the government. But in the absence of subsidy, only the rich farmers would be benefited from new technologies; like HYV, fertilizers, pesticides and irrigation facilities. This will make the rich farmers more prosperous but the poor farmers would become even worse. Subsidizing HYV seeds, fertilizers, farm equipment, etc. helps even small farmers to improve their productivity. In the long run, good farm output benefits not only the farmers but the whole nation. Hence, in spite of putting some financial burden on the government, subsidies definitely help the farming community in particular and the whole society in general.


Question 15. Why, despite the implementation of the green revolution, 65 percent of our population continued to be engaged in the agriculture sector until 1990?

Answer. During the 1950s, the contribution of agriculture to the GDP was 59%; which decreased substantially to 35% by 1990. The contribution of other sectors in the GDP increased sharply during this period. But employment generation in secondary and tertiary sectors did not increase at the same pace. As a result, even after about four decades of the planned economy, the contribution of the agricultural sector in employment generation remained more or less same. 65% of the total population still continued to be engaged in agriculture till 1990.


Question 16. Though the 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.

Answer: Public sector undertaking’s main goal is public welfare rather than profit making. If a private sector company is running into losses, then it will close its shop. It looks like an ideal scenario but imagines about the families of those people who lose jobs in this process. In case of a public sector company; incurring losses; the government continues to operate the loss-making undertaking to keep the larger interest of the society in mind. Moreover, public sector undertakings usually produce goods or services which are needed by people so that even the poor can afford such goods and services.


Question 17. Explain how import substitution can protect domestic industry.

Answer: If the domestic industry can grow to such a level then it will be able to substitute the imports. Imports are always costlier than locally produced goods because importing something involves transportation costs and tariffs. Apart from reducing the cost of a particular product, import substitution also gives an opportunity for local players to gain expertise and to grow in terms of revenue. Thus, import substitution helps in protecting the domestic industry as well.


Question 18. Why and how was private sector regulated under the IPR 1956?

Answer: Under the IPR 1956, the private sector was regulated through a licensing system. To start a business, a company had to obtain a license from the government. The government also put a limit on the number of goods produced so that production should not be more than what the economy needed. Certain sectors were exclusively reserved for the small-scale sector. It was believed that the small-scale sector would provide more employment for people. If a company wished to open a factory in a backward area, then obtaining a license was very easy. Thus, opening a new venture or capacity expansion was strictly controlled by the government.


Question 19. Match the columns

Answer:

• Prime Minister: Chairperson of the Planning Commission
• Gross Domestic Product: The money value of all the final goods and services produced within the economy in one year.
• Quota: Quantity of goods that can be imported.
• Land Reforms: Improvements in the field of agriculture to increase its productivity.
• HYV Seeds: Seeds that give a large proportion of output.
• Subsidy: The monetary assistance given by the government for production activities.