Indian Economy 1950 to 1990 Class 12 Notes
Table of Content
| Category | CBSE Economics Class 12 Notes |
| Subject | Economics |
| Chapter | Part B: Indian Economic Development |
| Topic | Indian Economy 1950 to 1990 Class 12 Notes |
Introduction – An Indian economy 1950 to 1990
After 200 years of British subjugation, India rose to a new dawn of independence on 15th August 1947. We were the masters of our own destiny, the job of nation-building was in our hands.
It was the responsibility of our leaders to decide the type of economic system that our nation needed, the ultimate ‘Indian economy 1950 to 1990.’ There were a number of problems that our nation was facing at that time. Those were the following:
- Limitation of market mechanism- There were a number of difficulties that the Indian market was facing at the time of independence. It was very backward economically and the general consensus was that some kind of planning was required for the Economic development of the country. Relying entirely on the market wouldn’t even be of any hope to come out of the low-level equilibrium trap in which our country had fallen during the period of its colonial rule.
- Urgent need for social justice- The experience of many free enterprise Economy shows that the grains of economic growth does not necessarily trickle down. In fact, market forces operate in such a manner that further concentration of economic power takes place and the growth bypasses those very people who deserve to be helped most. Therefore, some kind of planning was required to deal with the problems of rising poverty, unemployment, and malnutrition.
- Resource allocation and mobilization in the context of overall development- Since India suffered from extreme resource constraints, it had to use resources that were available judiciously. In a society plagued by highly skewed income distribution, competitive markets would have dictated a pattern of investment in conflict with the long-term objectives of the country.
In developing countries thus, the choice of development projects had to be based on social benefits rather than private profitability.
Types of Economies
There are three types of questions that every society needs to answer:
One, what goods and services should be produced in the country?
Two, how should the goods and services be produced?
Three, how should the goods and services be distributed among people?
Based on the answer to these questions there are three types of economies:
- Capitalist Economy– In such a type of economy goods that are in demand will only be produced by the producers, those can be sold profitably in the market. Consumers need to have money that is purchasing power to buy those goods. Such an economy did not appeal to our then prime minister Jawaharlal Nehru.
- Socialist economy– This type of economy answers the above-stated questions in a different way. Here, the government decides what goods are to be produced in accordance with the needs of society. The government knows what is good for its citizens and decides what are goods to be produced. A socialist republic does not have any private property since everything is owned and regulated by the government. It is very unlike capitalism.
- Mixed Economy– Nowadays, most economies belong to this type. Here, the government and the market together answer the three questions mentioned above. In a mixed economy, the markets produce the goods that are high in demand and the government is responsible for providing the essential goods and maintaining social balance within the country.
India chose to follow a mixed economic system with a larger bent towards socialism. Nehru and the other leaders of newly independent India sought an alternative to the extreme versions of capitalism and socialism and combined the best features of the two without their drawbacks and thus a mixed economy was achieved.
The ‘Industrial policy resolution’ of 1948 and the Directive Principles of the Constitution reflected over this. In 1950, the Planning Commission was set up with the Prime Minister as the chairman and hence the five-year plans era set a start.
Indian Economy 1950-1990 Class 12 Notes: Planning – Definition and Objectives
A plan spells out how the resources of a nation should be put to use. It shall have some general goals as well as specific objectives which are to be achieved within a stipulated period of time. This idea of planning was borrowed from the former Soviet Union.
The main features of planning practiced in India have been,
- Indicative planning
- Physical planning
- Social planning
The long-term plans were known as ‘Perspective plans’.
The main objectives of planning are:
- Economic growth
- Self-reliance
- Removal of unemployment
- Reduction in income inequalities
- Elimination of poverty
- Modernization
- Inclusiveness
- Sustainability of growth
Goals of planning
Economic growth– It refers to the increase in the country’s capacity to produce goods and services. Economic growth has always remained in focus as the main objective of Indian five-year plans. A good indicator of economic growth is the steady increase in Gross Domestic Product (GDP). The GDP is the market value of all final goods and services produced in the domestic territory of the country during a year. The GDP is derived from the various sectors of the economy by these sectors making up the structural composition. GDP growth refers to economic growth.
Self-reliance– About six and a half decades ago on the eve of the first plan India was dependent on foreign countries at least in three respects. First, despite the fact that the Indian economy was essentially agrarian, the output of food grains was not adequate and the country imported a large number of food grains from the US and some other countries. Second, there were non-existent basic industries, transport equipment, machine tools, heavy engineering goods, electrical industries, and machinery and these had to be acquired from developed countries. Third, the saving rate was very low, foreign aid had to be obtained in order to boost the investment rate of the country. Planning would help the country to be independent and self-reliant by fulfilling these deficiencies.
Modernization– the adoption of new technology is very much necessary to increase the production of goods and services and this process is known as modernization. It also refers to the changes in social Outlook that help in the progress of society. Modernization in turn leads to economic growth and also acts as a booster to achieve self-reliance.
Equity– only growth, modernization, and self-reliance do not lead to overall economic development full stop there should be a reduction in poverty and unemployment. There should also be equal distribution of income and wealth, there should be a reduction in inequality.
Indian Economy 1950 to 1990 from the perspective of Agriculture.
Prior to Indian independence, during the period of colonial rule, there was neither growth nor equity in the agricultural sector. The policymakers of independent India had to address these problems with utmost sincerity.
The major reforms adopted in the agricultural sector were:
- The land tenure system was a major issue faced by the Indian small farmers at the time of independence. It was characterized by intermediaries such as Zamindars, Jagirdars, and Ryotwaris. This led to very low productivity in agriculture and a large amount of food grain was to be imported from the USA. To bring equity in agriculture, Various Land reform measures were adopted like the abolition of intermediaries, change in ownership of land holdings, tillers became the actual owners of the land. The states of West Bengal and Kerala mostly benefitted from this policy.
- The land ceiling was another major policy to promote agricultural growth. The land ceiling is the fixation of the maximum size of agricultural land that could be owned by an individual. The abolition of the middlemen meant that most of the farmers now came in direct contact with the government. This ownership conferment on tenants acted as an incentive for the farmers to increase output.
However, these two above-stated reforms didn’t serve the whole purpose in full swing. Abolition of intermediaries didn’t attain equality to the maximum extent, land ceiling legislation also faced hurdles. In some areas former zamindars still took hold of large areas of farmlands, there happened to be delays in legislation. These drawbacks had been existing.
About 75% of India’s population was dependent on agriculture at the time of independence. Agricultural productivity was very low, the sector needed improved infrastructure, such as advanced irrigation facilities, improved machinery, and proper seeds.
To address all these problems, the Green Revolution in India was first introduced in Punjab in the late 1960s as part of a development program issued by international donor agencies and the Government of India. In 1964-65 and 1965–66, India experienced two severe droughts which led to food shortages and famines among the country’s growing population. Modern agricultural technologies appeared to offer strategies to counter the frequency of famines.
The stagnation in agriculture was permanently broken by the introduction of ‘Green Revolution. A large increase in the production of food grains resulted from the introduction of HYV (high yielding variety) seeds, especially for wheat and rice.
The correct usage of fertilizers and pesticides proved to be very beneficial. The use of HYV seeds was more restricted to the states of Punjab, Andhra Pradesh, and Tamil Nadu during the first phase of the Green Revolution (1960-1970), it spread to the other parts of the country during the second phase.
Green Revolution enabled India to achieve self-sufficiency in food grains. A substantial amount of agricultural produce was sold in the market by the farmers, the higher output made a difference to the economy. The portion of agricultural produce which is sold in the market by the farmers is called a marketed surplus.
The rise in marketed surplus led to an improvement in agricultural growth. As a result, the price of food grains declined relative to other items of consumption. The low-income groups, who spend a large percentage of their income on food, benefited from this decline in relative prices. The green revolution thus enabled the government to procure a sufficient amount of food grains to build a stock that could be used in times of food shortage.
The economic justification of subsidies in agriculture is, at present, a hotly debated question. The question of financing the agricultural infrastructure was raised for a long.
The government started providing subsidies to small and marginal farmers. One side of intellects believed that phasing out subsidies to the farmers proved to be beneficial and the government should continue to provide subsidies, the other side believed, subsidizing agricultural inputs didn’t benefit the farmers well. Therefore, subsidizing agriculture wasn’t necessary.
Thus, by the late 1960s, Indian agricultural productivity had increased sufficiently to enable the country to be self-sufficient in food grains. One major drawback was that, though agricultural productivity increased in the 1950s, it considerably declined in early 1990. This was because a large part of the population almost around 65% were still employed in the agricultural sector.
Indian Economy 1950 to 1990 from the perspective of Industries.
According to the economists, underdeveloped nations can progress if they have self-sufficiency in Industries. Employment in the industrial sector is more stable than in the others. It is for this reason that the five-year plans placed a lot of emphasis on industrial development.
Previously our industries were only confined to Cotton and Jute and Jamshedpur had one steel and Iron Industry growing, but there was an urgent need to improve our Industrial base. Therefore, the second Five-year plan laid special emphasis on large-scale industrialization, it was based on the Mahalanobis model of development. It emphasized the development of heavy capital goods and investment goods industries.
Industrial Policy Resolution (IPR) was adopted in 1956 in accordance with the goal of the state controlling the commanding heights of the economy. This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of the economy. 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.
Licensing was used to promote industries in the backward regions. 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. This helped in the diversification of production.
The license was required to open a production unit by the private sector and even to expand the existing firm or to increase the production capacity they were required to obtain a license.
In 1955, the Village and Small-Scale Industries Committee called the Karve Committee was set up. It noted the possibility of using small-scale industries for the promotion of rural development. A ‘small-scale industry’ is defined with reference to the maximum investment allowed on the assets of a unit.
This limit has changed over a period of time. The main motive behind the establishment of small-scale industries was to promote regional equality and to increase employment opportunities.
This improved the conditions of self-sufficiency of India, unemployment reduced to a large extent as the industrial sector provided employment to a large number of people.
Indian Economy 1950 to 1990 from the perspective of the policy of Import Substitution.
Indian Industrial Policy was closely related to trading policy. For the first seven five-year plans, India followed an inward-looking trade policy. This strategy is popularly known as the import substitution policy. This policy aimed at replacing or substituting imports with domestic production. This was another major booster towards the aim of achieving self-reliance.
Protection from imports took two forms: tariffs and quotas.
- Tariffs are a tax on imported goods; they make imported goods more expensive and discourage their use.
- Quotas specify the number of goods that can be imported.
The effect of tariffs and quotas is that they restrict imports and, therefore, protect domestic firms from foreign competition. The policy of protection was based on the notion that industries of developing countries were not in a position to compete against the goods produced by more developed economies. No particular policies were adopted to promote exports.
The effect of the first seven five-year plans on the industrial sector was impressive. The proportion of GDP contributed by the industrial sector increased from 13 percent in 1950-51 to 24.6 percent in 1990-91. The rise in the industry’s share of GDP is an important indicator of development.
The six percent annual growth rate of the industrial sector during the period is commendable. Protection from foreign competition enabled the development of indigenous industries in the areas of electronics and automobile sectors which otherwise could not have developed. Some industries were privatized others continued to be reserved for the public sector.
Though in the later years, the licensing policy was abolished since it was misused by the large industrial units. A big industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms. The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient.
The protection from foreign competition was also being criticized on the ground that it continued even after it proved to do more harm than good. A few economists also pointed out that the public sector is not meant for earning profits but to promote the welfare of the nation. These drawbacks led to the foundation of the 1991 economic reforms popularly known as ‘The New Economic Policy.
Indian Economy 1950 to 1990 Class 12 Notes: A General Study.
The planning committee was set up in 1950 under the guidance of Pandit Jawaharlal Nehru and P.C. Mahalanobis. The Prime Minister was and still is the chairman of the Planning Committee. The first five-year was set up from 1951-1956, the second five-year plan put special emphasis on Industries, then after the third five-year plan, there was a period of annual plans from 1966-1969.
Then, planning was followed by the fourth and fifth five-year plans. The fifth five-year plan from 1974-1979 and the sixth five-year plan from 1979-1984 laid special emphasis on removing poverty. In the sixth plan, special emphasis was given to the energy sector.
In the seventh plan, the last one before the 1991 reforms led to stress on the development of the other sectors, the strategy of planning drifted from the Mahalanobis strategy to a different strategy. Thus, even though there were a number of limitations, planning helped a lot in improving India’s condition, boosting economic growth, helping in achieving self-reliance, and modernizing India’s infrastructure. The goals were planning were thus achieved.
Development Experience (1947-90) and Economic Reforms since 1991:- 12 Marks
CBSE Economics Class 12 Notes Term I Syllabus
Part A: Introductory Macroeconomics
- Money and Banking Class 12 Notes
- Government Budget and the Economy Notes
- Balance of Payments Class 12 Notes
- Foreign Exchange Rate Notes
Part B: Indian Economic Development
Development Experience (1947-90) and Economic Reforms since 1991:- 12 Marks
- Indian Economy on the eve of Independence Notes
- Indian Economy (1950-90) Notes
- Economic Reforms since 1991 Notes
Current challenges facing Indian Economy – 10 Marks