| INDIAN ECONOMY 1950 - 1990
Economic Planning
The leaders of independent India had to decide, among other things, the type of economic system most suitable for our nation, a system which would promote the welfare of all rather than a few. Nehru, and many other leaders and thinkers of the newly independent India, sought an alternative to the extreme versions of capitalism and socialism. The ‘Industrial Policy Resolution’ of 1948 and the Directive Principles of the Indian Constitution reflected this outlook. In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson. The era of five year plans had begun.
Socialist Economy
It is an economic system in which all economic decisions are taken by the government. In this system, the government decides what goods are to be produced in accordance with the needs of society, how goods are to be produced and how they should be distributed. Socialist economy promotes equitable distribution of income. However, it also suffers from the drawbacks of a bureaucratic set up in the form of red-tapism and corruption. In Cuba and China, most of the economic activities are governed by the socialistic principles(but they are communist countries).
Capitalist Economy
Capitalist economies depend upon the market forces of demand and supply. In this type of economy, only those consumer goods will be produced that have good demand in the market and yield profit to the producers. For example, cars will be produced if they are in demand and also if they can earn profits for the producer. In this economy, the goods and services produced are distributed among people not on the basis of what people need but on the basis of purchasing power. Capitalist economy generally manifests an unequal distribution of income, but it also generates fastest growth in output and national income. Capitalist economy is also called laissez faire or free market economy, it exists in North America, Japan, Australia, Western Europe, etc.
Mixed Economy
It is an economic system in which the public sector and private sector exist side by side. In this economy, the market will provide whatever goods and services it can produce well and the government will provide essential goods and services which the market fails to provide.
Merits of Mixed Economy - Mixed economy gives proper scope to private individuals to co-exist and contribute towards economic development. In this, planned economic development ensures stability and balanced development. In this, competition between the private sector and public sector industries is there. It leads to enhanced productivity.
Demerits of Mixed Economy - Mixed economy cannot effectively control the private sector industries which are outside the government purview. It is characterized by red-tapism and high degree of corruption. In it, there is a concentration of economic power in the hands of private sector politicians.
The Goals of Five Year Plans
The goals of the five year plans are: growth, modernization, self-reliance and equity. The planners have to ensure that, as far as possible, the policies of the plans do not contradict these four goals.
Growth - Growth implies a consistent increase in GDP or a consistent increase in the level of output or a consistent increase in the flow of goods and services in the economy over a long period of time. The GDP of a country is derived from the different sectors of the economy, namely the agricultural sector, the industrial sector and the service sector. The contribution made by each of these sectors makes up the structural composition of the economy.
Modernization -
To increase the production of goods and services to producers with the adoption of new technology. A modern society makes use of the talents of women in the workplace like in banks, factories, schools etc. and such a society will be more civilized and prosperous.
Self-reliance -
It means avoiding imports of those goods which could be produced in India itself. This policy was considered a necessity in order to reduce our dependence on Foreign countries, especially for food. Further, it was feared that dependence on imported food supplies, foreign technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our policies.
Equity -
It implies equitable distribution of income so that the benefits of growth are shared by all sections of the society. Without equity, growth, modernization and self-reliance by themselves may not improve the kind of life which people are living, so in addition to them equity is important.
Agriculture
It refers to all those activities which are related to the cultivation of land for the production of crops; food crops and non-food crops.
Importance of Agriculture in the Indian Economy are: Contribution to GDP. Generation of employment (nearly half of the population still working in agriculture). Supply of raw material to industries. Contribution to domestic trade and international trade leads to generation of wealth of the nation.
Problems of Indian Agriculture are: Lack of permanent means of irrigation (Indian agriculture primarily depends on monsoon and groundwater for cultivation ). Deficiency of finance (debt trap). Small and medium land holdings. Lack of organised marketing system.
Reforms in Indian Agriculture
Land reforms - Equity in agriculture called for land reforms which primarily refer to change in the ownership of landholdings. Aer independence, steps were taken to abolish intermediaries and to make the tillers the owners of land. The idea behind this move was that ownership of land would give incentives to the tillers to invest in making improvements provided sufficient capital was made available to them.
Land ceiling
It was another policy to promote equity in the agricultural sector. This means fixing the maximum size of land which could be owned by an individual. The purpose of the land ceiling was to reduce the concentration of land ownership in a few hands. However, the goal of equity was not fully served by abolition of intermediaries. The legislation also had a lot of loopholes which were exploited by the big landholders to retain their land. Land reforms were successful in Kerala and West Bengal because these states had governments committed to the policy of land to the tiller.
Green revolution
It started in India in the year 1967-68, food grain production increased by nearly 25%. So much increase in food grain production in a country which earlier used to import food grains. Introduction of HYV seeds and use of chemical fertilizers. Scientific farm management practices and mechanized means of cultivation.
Marketable Surplus: It refers to surplus of farmer’s output over and above his own farm consumption. Thus, Marketable surplus of wheat = Output of wheat – On farm consumption of wheat.
Achievements of green revolution are: Rise in production and productivity, Increase in income, Rise in commercial farming. Impact on social revolution -use of new technology like HYV seeds, fertilizers etc. Increase in employment, Substantial rise in average,
Failures of green revolution are: Restricted to limited crops(wheat and rice) and areas( Punjab, Haryana, Western UP, Andhra Pradesh). Neglected land reforms, Led to the increase of income disparity between farmers. Ecological degradation like overuse of groundwater.
Some general reforms have taken place like expansion of irrigation facilities, provision of credit, regulated markets and price support policy.
Debate over subsidies: It is generally agreed that it was necessary to use subsidies to provide an incentive for adoption of the new HYV technology by farmers in general and small farmers in particular. Any new technology will be looked upon as being risky by farmers. Subsidies were, therefore, needed to encourage farmers to test the new technology. Eliminating subsidies will increase the inequality between rich and poor farmers and violate the goal of equity.
Industry and Trade
Industry provides employment which is more stable than the employment in agriculture; it promotes modernization and overall prosperity. It is for this reason that the five year plans place a lot of emphasis on industrial development.
Public and Private Sector in Indian Industrial Development
At the time of independence, Indian industrialists did not have the capital to undertake investment in industrial ventures required for the development of our economy; nor was the market big enough to encourage industrialists to undertake major projects even if they had the capital to do so.
It is principally for these reasons that the state had to play an extensive role in promoting the industrial sector.
In addition, the decision to develop the Indian economy on socialist lines led to the policy of the state controlling the commanding heights of the economy, as the Second Five Year plan put it. The policies of the private sector would have to be complimentary to those of the public sector, with the public sector leading the way.
Industrial Policy Resolution 1956:
The Industrial Policy Resolution of 1956 was adopted. This resolution 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 which would be exclusively owned by the state.
The second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units. The third category consisted of the remaining industries which were to be in the private sector.
Although there was a category of industries le to the private sector, the sector was kept under state control through a system of licenses. 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. 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 was believed that small scale industries are more labour intensive than large scale industries, therefore generation of more employment. For this purpose, the production of a number of products was reserved for small-scale industry, the criterion of reservation being the ability of these units to manufacture the goods. They were also given concessions such as lower excise duty and bank loans at lower interest rates.
Trade Policy: Import Substitution
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. It helped to save foreign exchange by reducing import of goods. Created a protected market and large demand for domestically produced goods. Helped to build a strong industrial base in our country which directly led to economic growth.
Industrial licensing: Licensing is a tool for channelizing scarce resources in a predetermined priority sector of an economy. The Industries development and resolution act (IDRA) was enacted in 1951. Main objectives of IRDA act of 1951 are: Regulation of industrial development in accordance with planned priorities. Avoidance of monopoly. Balanced regional development. Prevention of undue competition between large-scale industries and small scale industries. 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. The government is authorized to examine the working of any industrial undertaking. If the undertakings continue to be mismanaged, the government can take over its management.
Permit license Raj: 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. The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient. Due to restrictions on imports, the Indian consumers had to purchase whatever the Indian producers produced. The producers were aware that they had a captive market; so they had no incentive to improve the quality of their goods. Competition from imports forces our producers to be more efficient. Nevertheless, scholars point out that the public sector is not meant for earning profits but to promote the welfare of the nation.
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