Chapter – 2

INDIAN ECONOMY – 1950-1990

After two hundred years of British rule and their exploitative policies, India finally got freedom on 15 August,
1947. Now, it was necessary to reconstruct the backward and stagnant Indian economy into a developed
economy. Therefore, the most important task before the Government of independent India was to decide the
type of ‘Economic System’ , which would be most suitable for India. Economic system refers to an
arrangement by which central problems of an economy are solved.

Central Problems of an Economy

The three major problems of an economy are:
1. What to Produce: it involves deciding the final combination of goods and services to be produced, i.e., it
involves selection of goods and services and the quantity of each, that the economy should produce.
2. How to Produce: It involves deciding the technique of production, i.e., whether selected goods be
produced with more labour and less capital (Labour Intensive Technique) or with more capital and less
labour (Capital Intensive Technique).
3. For whom to produce: It involves deciding the distribution of output among people, i.e., it involves
selection of the category of people who will ultimately consume the goods.

Types of Economic Systems

1. Capitalist Economy: A capitalist economy is the one in which the means of production are owned,
controlled and operated by the private sector. Production is done mainly for earning profits. So, the central
problems (what, how and for whom to produce) are solved through the market forces of demand and supply.
Under capitalist economy, the three central problems are solved in the following manner:
 What to produce: Under this system, only those goods are produced that can be sold profitably either
in the domestic or in the foreign market.
 How to Produce: Goods are produced using cheaper techniques of production. In case of cheap labour,
labour- intensive methods of production are used.
 For whom to produce: In a society, goods produced are distributed among people not on the basis of
their needs but on the basis of their income or purchasing power. This means that a sick person will be
able to get medicine only when he can afford to buy it, otherwise not, even if there is urgency.
2. Socialist Economy: A social economy is the one in which the means of production are owned, controlled
and operated by the government. Under socialist economy, the three central problems are solved in the
following manner:
 What to Produce: In a socialist society, the government decides what to produce in accordance with
needs of the society.
 How to Produce: The government decides how the goods are to be produced.
 For whom to Produce: Distribution under socialism is supposed to be based on what people need and
not on what they can afford to purchase. A socialist nation provides free health care to the citizens, who
need it.
3. Mixed Economy: A mixed economic system refers to a system in which he public sector and the private
sector are allotted their respective roles for solving the central problems of the economy.
 In mixed economy, the government and the market together solve the 3 central problems: what to
produce, how to produce, and for whom to produce.
 The private sector provides whatever goods and services, it can produce well, and the government
provides essential goods and services, which the market fails to do.

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India adopted the Mixed Economy
After the freedom, leaders of independent India (like Jawaharlal Nehru) were confused with regard to economic
system, to be followed in India.
 Some leaders were in favour of Socialist Economy. However, in a democratic country like India,
complete dilution of private ownership was not possible (as was possible in case of the former Soviet
Union).
 Capitalist Economic System did not appeal to Jawaharlal Nehru, our first Prime Minister, as under this
system, there would be less chances for improvement in quality of life of majority of people.
 As a result, Mixed Economy (with best features of both Socialist and Capitalist Economy) was adopted
by the Indian Economy. In this view, India would be a socialist society, with a strong public sector, but
also with private property and democracy.

ECONOMIC PLANNING
 For the development of Indian economy, it was necessary for the Government to ‘plan’ for the economy,
known as Economic Planning.
 Economic planning can be defined as making major economic decisions on the basis of a
comprehensive survey of the economy as a whole.
 The Industrial Policy Resolution of 1948 and the Directive Principles of the Indian Constitution assigned
a leading role to the public sector. Private sector was also encouraged to be part of the plan efforts.
 To make economic planning effective, the Government of India set up Planning Commission in 1950,
with the Prime Minister as the Chairman.
 The purpose of the Commission was to carefully assess the human and physical resources of the country
and to prepare the Plans for the effective use of resources.
 The Planning Commission fixed the planning period at five years, which began the era of ‘Five Year
Plans’.

What is “Plan”
Meaning of plan: Plan is document showing detailed scheme, program and strategy, worked out in advance for
fulfilling an objective.
Reason for Making Plans: Planning is done to achieve some predetermined goals within a specified time
period. It involves detailed analysis of the problems at hand and making conscious to solve them.
Duration of Each Plan: In India, plans are made for duration of five years and are known as “Five Year Plans’
(The concept of Five Year Plans was borrowed from the former Soviet Union).
Content in Plans: Our plan documents not only specify the objectives to be attained in the five years of a plan,
but also, what is to be achieved over a period of twenty years. This long-term plan is called ‘Perspective Plan’.
The five year plans are supposed to provide the basis for the perspective Plan.

GOALS OF FIVE YEAR PLANS

1. Growth: The stagnation during the British rule forced the planners to make Economic Growth as the first and
the foremost objective of Indian plans.
 Growth refers to increase in the country’s capacity to produce the output of goods and services within
the country.
 Growth implies:
 Either a larger stock of productive capital;
 Or a larger size of supporting services like transport and banking;
 Or an increase in the efficiency of productive capital and services.
 A good indicator of economic growth, in the language of economics, is steady increase in the Gross
Domestic Product (GDP).

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  GDP refers to market value of all the final goods and services produced in the country during a period of
one year. Increase in GDP or availability of goods and services enables people to enjoy a more rich and
varied life.
 The GDP of a country is derived from the different sectors (Agricultural sector, Industrial sector and
Service sector) of the economy.
 In some countries, growth in agriculture contributes more to the GDP growth, while in some countries,
growth in service sector contributes more to GDP growth.
 The Contribution of each sector makes up the structural composition of the economy
.
Share of Service Sector in GDP Increased: By 1990, the share of the service sector was 40.59 per cent more
than that of agriculture or industry. This phenomenon of growing share of the service sector was accelerated in
the past 1991 period, which marked the beginning of globalization in the country.

2. Modernisation: Indian planners have always recognized the need for modernization of society to raise the
standard of living of people. Modernisation includes:
 Adoption of New Technology: Modernisation aims to increase the production of goods and services
through use of new technology. For example, a farmer can increase the output on the farm by using new
seed varieties instead of using the old ones. Similarly, a factory can increase output by using a new type
of machine.
 Change in social outlook: Modernisation also requires change in social outlook, such as gender
empowerment or providing equal rights to women. A society will be more civilized and prosperous if it
makes use of talents of women in the work place

3. Self-reliance: The third major objective is to make the economy self-reliant.

 Self-reliance under Indian conditions means overcoming the need of external assistance. In other words, it
means to have development through domestic resources.
 To promote economic growth and modernisation, the five year plans stressed on the use of own resources,
in order to reduce our dependence on foreign countries.
 The policy of self-reliance was considered a necessity because of two reasons:
 To reduce foreign dependence: As India was recently freed from foreign control, it is necessary to
reduce our dependence on foreign countries, especially for food. So, stress should be give to self-
reliance.
 To avoid Foreign Interference: It was feared that dependence on imported food supplies, foreign
technology and foreign capital may increase foreign interference in the policies of our country.
4. Equity: The objectives of growth, modernisation and self-reliance, by themselves, may not improve the
kind of life, which people are living.
 So, it is important to ensure that benefits of economic prosperity are availed by all sections (rich as well
as poor) of the economy.
 According to Equity, every Indian should be able to meet his or her basic needs (food, house, education
and health care0 and inequality in the distribution of wealth should be reduced.
 In short, Equity aims to raise the standard of living of all people and promote social justice.

MAHALANOBIS : THE ARCHITECT OF INDIAN PLANNING

 Mahalanobis was born on 29th June, 1893 in Calcutta (now Kolkata).
 He was educated at the Presidency College in Calcutta and at Cambridge University in England.
 In 1946, he was made a Fellow (member) of Britain’s Royal Society, one of the most prestigious
organisations of scientists.
 Mahalanobis established the Indian Statistical Institute (ISI) in Calcutta and started a journal, Sankhya,
which still serves as a respected forum for statistics to discuss their ideas.

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 He is best remembered for the Mahalanobis distance, a statistical measure. He made pioneering studies in
anthropometry in India. His contributions to the subject of statics brought him international fame.
Contribution of Mahalanobis in Indian Planning
In India, planning in the real sense, began with the Second Five Year Plan. The Second Plan laid down the basic
ideas regarding goals of Indian planning, which was based on the ideas of Mahalanobis. In that sense, he can be
regarded as the architect of Indian planning.
During the second plan period, Mahalanobis invited many distinguished economists from India and abroad to
advise him on India’s economic development. Mahalanobis will always be remembered for playing a vital role
in putting India n the road to economic progress.

AGRICULTURAL
 At the time of independence, the land tenure system was characterized by intermediaries (like zamindars)
who merely collected rent (lagaan) from the actual tillers of the soil.
 The low productivity of the agricultural sector forced India to import food from the United States of
America.
 The agricultural sector accounted for the largest share of workforce with approximately 70-75 per cent.
So, agricultural development was focused right from the First Five Year plan.
 The measures undertaken to promote the growth in the agricultural sector can be broadly categorized as
‘land Reforms’ and ‘Green Revolution’.

Features (Problem) of Agriculture

1. Low Productivity: Agriculture sector was known for its low productivity. Lack of knowledge was
responsible for stagnation in this sector.
2. Disguised Unemployment: It refers to state in which more people are engaged in work than are really
needed. There was very high incidents of disguised unemployment during 1950-1990.
3. High dependency on Rainfall: Due to poor irrigation facilities, farmers largely depended on rain fall.
Bad monsoon means low productivity.
4. Subsistence Farming: There was a practice of growing crops only for self consumption without any
surplus for trade.
5. Outdated Technology: There were many obsolete technologies and harvesting machines. Harvesting
was generally done manually and was very tiresome
6. Conflict between Tenant and Landlords: Farmers under a contract were bound them to their
landlords. Landlords used to extract huge amount of lagaan from farmers and deprived them of their
necessities.
Land Reforms
Land Reforms primarily refers to change in the ownership of landholdings. Land Reforms measures have
been introduced by various underdeveloped and developing countries, for attaining a rational land distribution
pattern and viable farming structure.
 There was a great need for land reforms in a country like India, where majority of its population still
depends on agriculture.
 Land reforms were needed to achieve the objective of Equity in agriculture.
Abolition of Intermediaries
Indian Government took various steps to abolish intermediaries and to make tillers, the owners of land.
 The idea behind this step was that ownership of land would give incentives to the actual tillers to make
improvements (provided sufficient capital was made available to them).
 The abolition of intermediaries brought 200 lakh tenants into direct contact with the government.
 The ownership rights granted to tenants gave them the incentives to increase output and this contributed
to growth in agriculture.
 However, the goal of equity was not fully served by abolition of intermediaries because of following
reasons;

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 (i) In some areas, the former zamindars continued to own large areas of land by making use of some
loopholes in the legislation;
(ii) In some cases, tenants were evicted and zamindars claimed to be self-cultivators;
(iii) Even after getting the ownership of land, the poorest of the agricultural labourers did not benefit
from land reformers.
Let us now discuss ‘Land Ceiling’, which was one of the very important measures towards land
reforms in the country.

Land Ceiling
It refers to fixing the specified limit of land, which could be owned by an individual.
 Beyond the specified limit, all lands belonging to a particular person would be taken over by the
Government and will be allotted to the landless cultivators and small farmers.
 The purpose of land ceiling was to reduce the concentration of land ownership in few hands.
 Land ceiling helped to promote equity in the agricultural sector.
 However, Land ceiling legislation was challenged by the big landlords. They delayed its
implementation. This delay time was used by them to get the land registered in the name of close
relatives, thereby escaping from the legislation.
Conclusion: Land reforms were successful in Kerala and West Bengal because governments of these states
were committed to the policy of land reforms. Unfortunately, other states did not have the same level of
commitment and vast inequality in landholdings continued.

Green Revolution
Green Revolution refers to the large increase in production of food grains due to use of high yielding variety
(HYV) seeds. Green Revolution is the spectacular advancement in the field of agriculture.
At the time of independence, about 75 per cent of the country’s population was dependent on agriculture.
 India’s agriculture vitally depends on the monsoon and in case of shortage of monsoon, the farmers
had to face lot of troubles.
 Moreover, the productivity in the agricultural sector was very low due to use of outdated technology
and absence of required infrastructure.
 As a result of intensive and continued effort of many agricultural scientists, this stagnation in agriculture
was permanently broken by the “Green Revolution’.

Origin of Green Revolution

In the Kharif season (1966), India adopted High Yielding Varieties Programme for the first time. The
programme was successful due to:
 High Yielding Varieties (HYV) of seeds;
 Adequate irrigation facilities;
 Application of fertilizers, pesticides, insecticides, etc.
In this way, a new technology was gradually adopted in Indian agriculture. This new strategy is also popularly
known as modern agricultural technology or Green Revolution.

HYV seeds: Main Reason for Agricultural Revolution

Agricultural revolution occurred due to (high yielding varieties (HYV) of seeds}, which raised agricultural yield
per acre to incredible heights.
 These seeds can be used in those places where there are adequate facilities for drainage and water supply.
 As compared to other ordinary seeds, these seeds need heavy doses of chemical fertilizers (4 to 10 times
more fertilizers) to get the largest possible production.
 So, to derive benefit from HYV seeds, Indian farmers need to have;
 Reliable irrigation facilities; and
 Financial resources (to purchase fertilizers and pesticides).
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Indian Economy experienced the success of Green Revolution in 2 phases;
1. In the first phase (Mid 60s to Mid 70s), the use of HYV seeds was restricted to more affluent states (
like Punjab, Andhra Pradesh, Tamil Nadu, etc.). Further, the use of HYV seeds primarily benefitted the
wheat growing regions only.
2. In the second phase (Mid 70s to Mid 80s), the HYV technology spread to a larger number of states and
benefitted more variety of crops.
Important Effects of Green Revolution
The spread of Green Revolution technology enabled India to achieve self-sufficiency in food grains. India was
no longer at the mercy of America, or any other nation, for the food requirements.
1. Attaining Marketable Surplus: Green Revolution resulted in “Marketable Surplus”. Marketable
Surplus refers to that part of agricultural produce which is sold in the market by the farmers after
meeting their own consumption requirement.
 Growth in agricultural output makes a difference to the economy only when large proportion of this
increase is sold in the market.
 Fortunately, a good proportion of rice and wheat produced during the green revolution period was
sold by the farmers in the market.
2. Buffer Stock of Food Grains: The green revolution enabled the government to procure sufficient
amount of food grains to build a stock which could be used in times of food shortage.
3. Benefit to low-income groups: As large proportion of food grains was sold by the farmers in the
market, their prices 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.

Risks involved Under Green Revolution

While the nation had immensely benefited from the green revolution, the technology involved was not free from
risks.
(i) Risk of Pest Attack: The HYV crops were more prone to attack by pests. So, there was a risk that small
farmers who adopted technology could lose everything in a pest attack. However, this risk was
considerably reduced by the services rendered by research institutes established by the Government.
(ii) Risk of Increase in Income Inequalities: There was a risk that costly inputs (HYV seeds, fertilizers,
etc.) required under green revolution will increase the disparities between small and big farmers since
only the big farmers could afford the required inputs.
However, due to favourable steps taken by the government, these fears did not come true. The government
provided loans at a low interest rate to small farmers so that they could also have access to the needed inputs.
Since the small farmers could obtain the required inputs, the output on small farms equaled the output on large
farms in the course of time. As a result, the green revolution benefited the small as well as rich farmers.

Debate Over Subsidies to Agriculture

Subsidy, in context of agriculture, means that the farmers get inputs at prices lower than the market prices.
 During the initial phases of green revolution, new technology was looked upon as being risky by the
farmers.
 So, it was necessary for the Government to grant subsidies to provide an incentive for adoption of the
new HYV technology.
 However, with the passage of time, there has been debate over the huge amount of subsidies granted by
the government.
Economists in Favour of Subsidies
1. The government should continue with agricultural subsidies as farming in India continues to be a risky
business.
2. Majority of the farmers are very poor and they will not be able to afford the required inputs without the
subsidies.

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 3. Eliminating subsidies will increase the income inequality between rich and poor farmers and will violate
the ultimate goal of equity.
In brief, subsidies in India are necessary for poor and small farmers, to enable them to make use of modern
agricultural techniques. Necessary steps should be taken to ensure that only the poor farmers enjoy the benefits
of subsidies and not the fertilizer industry and big farmers.

Economists -Against the Subsidies

1. According to some economists, subsidies were granted by the Government to provide an incentive for
adoption of the new HYV technology. So, after the wide acceptance of technology, subsidies should be
phased out ad their purpose has been served.
2. Subsidies do not benefit the poor and small farmers (target group) as benefits of substantial amount of
subsidy go to fertilizer industry and prosperous farmers.
Therefore, there is no case for continuing with subsidies as it does not benefit the target group and it is a huge
burden on the government’s finances.

PRICES ACT AS SIGNALS

It is important to understand that prices are signals about the availability of goods.
 Higher price indicates that demand for goods is more than the supply, i.e., there is scarcity of resource,
like in case of “Petrol”. Whenever there is further rise in price of petrol, it reflects greater scarcity and
need to use less petrol or look for alternate fuels.
 Lower price indicates that supply of Goods is more than the demand.
So, it is rightly said that price act as signals with respect to availability of goods in the economy.
However, granting of subsidies does not allow prices to indicate the supply of a good. For example, when
electricity and water are provided at a subsidized rate or free to farmers, they may be used wastefully without
any concern for their scarcity. Similarly, fertilizer and pesticides subsidies may led to overuse of resources by
the farmers, which can be harmful to the environment. So, there is a risk that subsidies may provide an
incentive for wasteful use of resources.

Critical Appraisal of Agricultural Development (1950 – 1990)

Indian economy inherited stagnant and backward agricultural sector from the British rule. So, immediately after
the independence, Indian Government undertook various measures to improve the condition of agriculture.
 The ‘Land Reform’ measures and ‘Green Revolution’ were the greatest achievements of the Indian
Government, in enhancing the agricultural production and productivity.
 Between 1950 and 1990, there had been substantial increase in the agricultural productivity. As a result
of Green revolution, India became self-sufficient in food production. Land Reforms resulted in abolition
of zamindari system.
 The Proportion of GDP between 1950 and 1990 contributed by agriculture declined significantly, but
not the population depending on it.
 Around 65 per cent of the country’s population continued to be employed in agriculture, even till 1990.
The involvement of such a large proportion of the population in agriculture was regarded as the
important failure of policies followed during 1950 -1990.

INDUSTRIAL DEVELOPMENT
The developing countries (like India) can progress only if they have a good industrial sector. Industry provides
employment, which is more stable than the employment in agriculture. Industrialization promotes
modernization and overall prosperity. Due to this reason, Five Year Plans stressed a lot on the industrial
development.

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At the time of independence, the variety of industries was very limited. The cotton textile and jute industries
were mostly developed in India. There was only two well-managed iron and steel firms; one in Jamshedpur and
the other in Kolkata. So, there was a strong need to expand the industrial base with a variety of industries.

Role of Public Sector in Industrial Development

At the time of independence, the big question facing the policy makers was to decide the role of government
(public sector) and the private Sector in industrial development.
There was a need for a leading role of the Public Sector due to the following reasons:
1. Shortage of Capital with Private Sector: Private entrepreneurs did not have the capital to undertake
investment in industrial ventures, required for the development of Indian economy. At the time of
independence, Tatas and Birlas were the only well- known Private enterpreneurs. As a result,
Government had to make industrial investment through Public Sector Undertakings (PSU’s)
2. Lack of Incentive for Private Sector: The Indian market was not big enough to encourage private
industrialists to undertake major projects, even if they had capital to do so. Due to limited size of the
market, there was low level of demand for the industrial goods.
3. Objectives of Social Welfare: The objective of equity and social welfare of the Government could be
achieved only through direct participation of the state in the process of industrialization.
As a result, state had complete control over those industries, that were vital for the economy. The policies of the
private sector had to be complementary to those of the public sector, with public sector leading the way.
Industrial Policy Resolution 1956
Industrial Policy is a comprehensive package of policy measures which covers various issues connected with
different industrial enterprises of the country.
 Industrial Policy is essential for devising various procedures, principles, rules and regulations for
controlling industrial enterprise of the country.
 After the Industries Policy, 1948, Indian economy had to face a series a series of economic and political
changes, which necessitated the need for a fresh industrial policy for the country. So, on April 30, 1956,
a second Industrial Policy Resolution was adopted in India.
Classification of Industries
According to Industrial Policy Resolution 1956, the industries were reclassified into three categories, viz,
Schedule A, Schedule B and Schedule C.
1. Schedule A: This first category comprised industries which would be exclusively owned by the state. In
this schedule, 17 industries were included, like arms and ammunitions; atomic energy; heavy and core
industries; aircraft; oil; railways; shipping; etc.
2. Schedule B: In this schedule, 12 industries were placed, which would be progressively state-owned.
The state would take the initiative of setting up industries and private sector will supplement efforts of
the state. This schedule includes industries like aluminium, other mining industries, machine tools,
fertilizers, etc.
3. Schedule C: This schedule consists of the remaining industries which were to be in the private sector.
The state would facilitate and encourage the development of all these industries. These industries were
controlled by the state through a system of licenses, enforced under Industries (Development and
Regulation) Act, 1951.

Industrial Licensing
An industrial license is a written permission from the government, to an industrial unit to manufacture goods.
The Industries (Development and Regulation) Act, 1951, empowered the government, to issue licenses for:
 Setting up of new industries;
 Expansion of existing ones; and
 Diversification of products.
According to Industrial Licensing:
1. No new industry was allowed unless is obtained from the government.

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 2. 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 a tax benefits and electricity at a lower
tariff. The purpose of this policy was to promote regional equality.
3. License was needed even if an existing industry wants to expand output or diversify production.
License to expand production was given only if the government was convinced that there is a need for
larger quantity of goods in the economy.

Small-Scale Industries (SSI)

In 1955, the village and small-scale Industries Committee (Karve Committee) recognized the possibility of
using small-scale industries to promote rural development. In 1950 a small scale industry unit was one which
invested a maximum of rupees five lakh.
Important Points about Small-scale Industries
1. Employment Generation: Small-scale industries are more labour intensive, i.e., they use more labour
than the large-scale industries and, therefore, they generate more employment. After agriculture, small-
scale industries provide employment to the largest number of people in India.
2. Need for Protection from Big Firms: Small-scale industries cannot complete with the big industrial
firms. They can flourish only then they are protected from the large firms. So, various steps were taken
by the government for their growth.
 Reservation of Products: Government reserved production of a number of products for the small-
scale industry. The criterion for reserving the products depended on the ability of these units to
manufacture the goods.
 Various Concessions: Small-scale industries were also given concessions, such as lower excise duty
and bank loans at lower interest rates.

TRADE POLICY : IMPORT SUBSTITUTION

In order to be self-reliant in vital sectors, India has followed the strategy of replacing many imports by domestic
production.
 In the first seven plans, trade was characterized by an inward looking Trade Strategy. Technically, this
strategy is called “Import Substitution’.
 Import Substitution refers to a policy of replacement or substitution of imports by domestic
production.
 For example, instead of importing vehicles made in a foreign country, domestic industries would be
encouraged to produce them in India itself.
 The Basic aim of the policy was to protect domestic industries from foreign competition.
 The policy of Import Substitution can serve 2 definite objectives:
(i) Saving of precious foreign exchange; and
(ii) Achieving self-reliance.

Protection from Imports through “Tariffs’ and ‘ Quotas’

Government made use of two ways to protect goods produced in India from Imports;
1. Tariffs: Tariffs refer to taxes levied on imported goods. The basic aim for imposing heavy duty on
imported goods was to make them more expensive and discourage their use.
2. Quotas: Quotas refer to fixing the maximum limit on the imports of a commodity by a domestic
producer.
The tariff on imported goods and fixation of quotas helped in restricting the level of imports. As a result, the
domestic firms could expand without fear of competition from the foreign market.
Reasons for Import Substitution
1. The policy of protection (in the form of Import Substitution) is based on the notion that industries of
developing countries, like India, are not in a position to compete against the goods produced by more
developed economies. With protection, they will be able to compete in the due course of time.

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 2. Restriction on imports was necessary as there was a risk of drain of foreign exchange reserves on the
import of luxury goods.

CRITICAL APPRAISAL OF INDUSTRIAL DEVELOPMENT (1950 -1990)

The achievements of India’s industrial sector during the first seven plans are impressive indeed.
1. The proportion of GDP contributed by the industrial sector increased in the period from 11.8 per cent in
1950- 51 to 24.6 in 1990 – 91. This rise in industry’s share of GDP is an important indicator of
development. The 6 per cent annual growth rate of the industrial sector during the period is also admirable.
2. Indian Industry was no longer restricted to cotton textiles and jute. It also included engineering goods and
a wide range of consumer goods. The industrial sector became well diversified by 1990, largely due to
public sector.
3. The promotion of small-scale industries gave opportunities to people with small capital to get into
business. New investment opportunities helped in generating more employment. It promoted growth with
equity.
4. Protection from foreign competition (through Import Substitution) enabled the development of indigenous
industries in the areas of electronics and automobile sectors, which otherwise could not have developed.
However, this protection had two drawbacks:
(i) Inward Looking Trade Strategy: Our policies were ‘inward oriented’ and so we failed to develop a
strong export sector.
(ii) Lack of Competition: Due to restrictions on imports, some domestic producers made no sincere efforts to
improve the quality of their goods and it forced the Indian consumers to purchase, whatever is produced by
them. The domestic industry failed to achieve international standards of product quality.
According to some economists, we should protect our producers from foreign competition as long as the
rich nations to do so.
5. Licensing Policy helped the government to monitor and control the industrial production. However,
excessive regulation by the government created two difficulties:
(i) Misuse: it was misused by industrial houses. Some big industrialists would get a license, not for starting
a new firm, but to prevent competitors from starting new firms.
(ii) Time Consuming: The cumbersome and complex procedure for obtaining license was very time
consuming. A lot of time was spent by industrialists in trying to obtain a license.
6. Public Sector made a remarkable contribution by creating a strong industrial base, developing infrastructure
and promoting development of backward areas.
 However, the public sector continued to monopolise in certain non-essential areas, which could be well
handled by the private sector. For example, telecommunications, hotel industry, production of goods
(like Modern Bread).
 As a result, precious funds of public sector channelized into areas, where private sector could have been
easily engaged.
 Many public sector firms also incurred huge losses but continued to function because of difficulty in
closing a government undertaking.
 The monopoly of public sector in such non-essential areas was criticized by many scholars. According
to them, the role of public sector should be limited to strategic areas (like national defence) and private
sector should be given the opportunity for other non-essential areas.
According to some economists, public sector is not meant for earning profits but to promote the welfare of
nation. So, they should be evaluated on the basis of their contribution to welfare of the people and not on the
profits they earn.

Conclusion
The progress of the Indian economy in the three sectors can be summarized as under:
In Agriculture Sector:
 India became self-sufficient in food production due to the green revolution.

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  Land reforms resulted in abolition of zamindari system.
In Industrial Sector:
 The industries became far more diversified compared to the situation at independence. However,
excessive government regulation prevented their growth.
 Many economists were dissatisfied with the performance of public sector enterprises.
In Trade Sector:
 Our policies were ‘inward oriented’ and so we failed to develop a strong export sector.
 The domestic producers were protected against foreign competition in order to gain self-reliance.
However, this did not give them the incentive to improve the quality of goods that they produced.

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