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INDIAN ECONOMY {1950-1990}

ECONOMIC PLANNING: Economic planning means utilizing of country’s resources in different developments activities in
accordance with national priorities.

Plan: It is a document showing detailed scheme, program and strategy in advance for fulfilling an objective.

Reasons for making plan : It is done to achieve some predetermined goals with in a time period .it is detailed analysis of the
problem and making decision to solve them.

Duration of Each plan :- plans are made for duration of five year are know as five year plan .It was borrowed from the
soviet union.

State by planning commission.

Planning commission is the central authority of India, which formulate India’s five year plans among other functions. It was
established in 1950. In India Prime Minister is the chairperson of planning commission. It is important to note that the
Planning commission has been now abolished. In February 2015, it has been renamed as policy commission.

The role of policy commission is to make policies to accelerate the pace of growth and development in the country.

Types of economy

1. Free market economy: A free market economy is one where in which the market forces of demand and supply
determined the prices of goods and services. It is an economic system in which major economic decisions i) what
goods and services are to be produced ii) how goods and services are to be produced iii) for whom goods and
services are to be produced. Thus i) only those goods and services are to be produced which yields high profit, ii)
only that technology is used that which is cost efficient ,iii) only those people are supplied goods who have
necessary purchasing power. In this type of market poor section people often suffer, there is no social welfare.
2. Socialism or socialist economy: The government owns the factors of production and takes decision about what to
produce, for whom to produce, and how to produce. Social welfare is the guiding factor for the decision making.
Socialism promotes collective interest, and it focuses on social equality whereas it gives no choice to the consumer,
or it does not respect consumers’ sovereignty. As a consumer, you are to consume what the government offers you
for consumption.
3. Mixed economy: After independence India’s process of economic development was launched within the
framework of mixed economy. It is an economic decisions (what, how and for whom to produce) are left to the free
play of the market forces, but not without certain controls and regulations by the government.
A mixed by the existence of both the private sector and public sector. Public sector dominates those which require
huge amount of investment but their profitability is low such as coal, steel power, heavy industries etc. Private
sector on the other hand, operates with the objective of earning profits. It dominates in agricultural consumer
goods industries, retail trade etc.

Five year plan

It is made for removal of economic backwardness of the country to make India a developed economy .

• Five year plan take care to ensure the weaker section of the population

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• First five year plan was launched by our prime minister , pandit Jawaharlal Nehru in the parliament
• It was launched on 31st march, 1956.

Basic goals of five year plan

• Growth
• Modernization
• Self reliance
• Equity

Objective of economic planning

1. Economic growth: It is an increase in the aggregate output of goods and services in a country in a given period of time.
The indicator of economic growth is GDP. It is the market value of all goods and services produced in the country in one
year. In economic planning, the main target is to be increased in the national income as well as per capita income by
growth. When the increase in the flow of goods and services is consistent over a long period of time, it is called economic
growth.

2. Equity or equitable distribution: The distribution of income should be equal. Equitable distribution of income implies
social equality and this is one of the principal objective or goals of planning in India. Equity (in terms of equitable
distribution of income) implies that economic growth is related to social justice. It is only when economic growth is related
to social justice that growth is converted into development. Moreover there should be stability in the distribution of
income.

3.Increase in employment: Another major object in our plan has been better utilization on man power resources and
increase in employment opportunities, many steps have been taken to provide employment to millions of people during
various five year plans. But the employment generation has not kept pace with the growth of labour force in India.

4.Modernization: To increase the production of goods and services the producers have to adopt 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
factor can increase output by using a new type of machine. Adoption of new technologies, new method of production is
called modernization.

However, modernization does not refer only to use of new technologies but also to change in social outlook such as the
recognition that women should have the same right as men. In traditional society, women are supposed to remain at
home while men at work. A modern society makes use of talents of women in work place like in banks, factories,
schools etc.

5.Self-sufficiency: A nation can promote economic growth and modernization by using its own resources or by using
resources imported from other nation. The first five year plans gave importance to self-reliance which 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. It is understandable that people who were recently free from
foreign domination should give importance to self-sufficiency. It includes the following motive:

• Self-sufficiency in food grain.

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• Fall in foreign aid.
• Rise in exports.
• Rise in contribution of industry in GDP.

Achievement of the goals of planning

1. Increase in national income: Increase in national income shows the economic growth. At the time of British rule,
the national income of India increase at rate of 0.5% per annum. During the period of planning, the rate of increase
in national income has been 5% per annum. Although this is less than targeted rate, yet it is significant as it has
broken the vicious circle of economic stagnation.
2. Increase in per capita income: During the periods of planning, per capita income increased at the rate of 2.9%
per annum. During the period, 1951-1990, per capita income at constant price has risen by about 3% p.a. This
points to the fact that during planning, not only has domestic output risen, but it has risen faster than the rise in
country’s population. So that the ratio between GDP and population size tended to rise. Implying a rise in quality of
life of the people in terms of per capita availability of goods and services.
3. Rise of capital formation: Capital formation is a major determinant economic growth. During five year plans, rate
of capital formation has significantly increased. Rate of capital formation depend on the rate of saving and
investment. During the five year plans, there has been considerable increase in the rate of saving and investment.
In 1950-51, rate of saving was 8.6% of national income and the rate of saving increased to 33% for the year 2104-
2015 respectively.
4. Technical changes in agriculture:
5. Diversification of industry:
6. International trade:

Failures of planning

1. Slow growth rate: During economic plans our actual growth rate has been lower as compare to targeted growth
rate. The overall growth rate during the planning period has been about 3.8% which can’t be regarded satisfactory.
2. Abject poverty: To get rid of poverty was the central theme of planning, a normal healthy person needs 2508
calories of food per day, but in India per capita availability of food provides only 2400 calories. In India 21.9 percent
of population still lives below the poverty line. These are those people who are not getting even the basics of life
including food, shelter and clothing.
3. Increase in unemployment: During the last 20 years growth rate of employment in India has been 2.2% where as
growth rate of labour supply has been 2.6%. Due to this gap the magnitude of unemployment in India has
increased.
4. Rise in price level: One of the input objective of our planning has been to create price stability in fact the biggest
failure of Indian planning is the rise in general price level(Inflation). It is 6.2% p.a. in 2nd plan and 6.6% p.a. in the 7th
plan and during 11th it was increased to 7.4% p.a. currently it is estimated as 2%.
5. Self-reliance: The ultimate goal of Indian planning is to make the country self-reliant. During the last 35 years a
significant progress seems to have been made towards the achievements of this objective however still depend
upon the imports of technology and heavy industry machinery. The defect in balance of payment was of Rs. 42
crores during the first plan which is increased to Rs. 3813 crores in 7th plan which implies excess of imports over
exports.

Problem of Indian agriculture

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Indian agriculture sector faced a number of problems since 1951 which can be summarized as following:

1. Pressure of population on land: The population in India is increasing at an alarming rate, which resulted in sub-
division of land holding and unfavorable land man ratio. Due to over crowdies the area of cultivated land has
remained small.
2. Lack of irrigation facilities: It has been estimated that 60% of the gross cropped area still depends upon rain which
are very uncertain and insufficient. Even remaining area having irrigation facilities, potential is not wholly utilized
because of defective management. The cost of irrigation is also increasing continuously and the small farmers can’t
afford it.
3. Defective land tenure system: Land tenure system in India is totally defective and it is standing in the way of its
agricultural development even after the abolition of the zamindari system. The position of the tenure is still far
from satisfactory. The cultivator has to pay high rent to the landlord.
4. Lack of credit and marketing facility: The facility for credit institution is quite inadequate hence, Indian farmer are
exploited by money lenders for the supply of finance. Similarly, in the absence of organized market facility the
farmers are not able to plan their investment in agriculture.
5. Outdated agriculture techniques: Majority of farmers still use traditional wooden ploughs, bullocks, and depend
upon monsoon for irrigation. The use of HYV seeds, fertilizers, pesticides, etc. is limited and this lead to low
productivity.
6. Crop losses: Considerable losses are reported in agriculture production on account of insects, crop disease,
untimely rain, drought, etc. which reduces the productivity of agricultural product.

Reforms

With a view to tackling the problem of Indian agriculture, the govt. took a series of reform measures during 5 year plans.

Reforms are categorized as

• Technical reform
• Land reform
• General reform

Features of these reforms are:

1. Technical reform
• Use of HYV seeds
• Use of chemical fertilizers
• Use of insecticides and pesticides for crop protection
• Scientific farm management practice
• Mechanized means of cultivation.
2. Land reforms

After independence, land reform policy measure was adopted for development of agriculture. The land reform was
more successful in Kerala and west Bengal because the govt. of these states was committed to the policy of land to the
tillers.

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• Abolition of intermediaries: Intermediaries (between the state and the actual tillers of the soil), popularly
known as zamindars have been conferred upon those who actually cultivate (or till) the soil. This has been done
with a view to stopping exploitation of the cultivators by the zamindars.
• Tenancy reforms: Zamindars didn’t cultivate land by themselves; they rented it out to the tenants. Tenancy
reform are concerned with the following three aspects:
a) Regulation of rent: after independence all states enacted law for fixing the rent payable by the tenant
cultivator. Each state has a different rent structure which varies between 33 to 40% of the produce.
b) Security of tenure: under this, the tenant cannot be removed from land, except under law. In case land
owner reserve the land for self cultivation, the tenant has to be given prescribed mini mum area for
cultivation.
c) Ownership rights for tenants: in this step, tenants have been made the owners and asked to pay the
compensation to the previous owner. As a result approx 11 million tenants have acquired ownership on 15
million acres of land.

Reorganization of agriculture: It means making changes on the holding size of land. It includes the
following steps:
a) Consolidation of holding: it means, small pieces of land can be grouped together in a single block and
these can be exchanged land to land. This work in production started in Punjab in 1921.
b) Co-operative farming: under this scheme, all the land owners in the village form co-operative society
for cultivation of land in village, but this program is not very successful in India.
3. General reform
• Expansion of irrigation facilities.
• Provision of credit
• Regulated market
• Price support policy.

2.7) Achievements of reform

The achievements of reforms result in a breakthrough in Indian agriculture. The breakthrough has been so substantial that
it comes to be termed as “Green revolution”. In short green revolution implies large increase in agriculture production.(It
refers to the large increase in production of food grains due to use of high yield variety or miracle seeds especially for
wheat and rice.it was founded by M.S. Swami Nathan.

Effects of green revolution are:

1. Increase in production: The major achievement of green revolution is the sharp increase in the production of major
crop like wheat and rice. The productivity of wheat has increased from 663 kg per hectare in 1951 to 2872 kg per
hectare in 2014-15. The production of rice increased from 668 kg per hectare in 1951 to 2390 kg per hectare in
2014-15.
2. Rise in the area of cultivation: HYV technology has significantly reduced the time between sowing and harvesting
of crops. Use of chemical fertilizers has eliminated the need for fallowing. Accordingly, double cropping has been
facilitated. This lead to increase in the gross area under cultivation.

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3. Shift from subsistence farming to commercial farming: Due to the increase in production and rise in output, the
income of farmer also increases. This enforces them to shift their crops from subsistence farming to commercial
farming.
4. Change in farmers outlook: A healthy contribution of green Revolution is the change in altitude of farmers. Now,
they can change their misfortune by adopting new technologies.
5. Self-sufficiency in food grain: A rise in production of crops helps India to start maintains buffer stocks of food grain.
This results in more exports over imports. A revolutionary rise in output has helped India achieve its principal goal
of five year plan, “growth with self-sufficiency”.

Weaknesses of green revolution

1. Confined for food crop: Green revolution has remained confined to wheat and rice only. It didn’t cover pulses.
Progress in our major commercial crops like cotton, jute, oil seeds etc. has been very slow.
2. Limited coverage: Increase in food production has taken place only in Punjab, Haryana, Maharashtra, Tamilnadu,
and western uttar Pradesh. Thus it has separate of regional inequalities.
3. Inequality among farmers: Only big farmers have benefits from new technology. The new technology therefore has
increased the inequality of income. It thus, led to growth of capitalist farming in Indian agriculture.
4. Undesirable social effect: green revolution has produced some undesirable effects. Use of machinery has created
the problem of surplus labor. On the other hand big farmers have now found it more profitable to cultivate land
themselves. This has led to a greater incidence of landlessness among the farmers.

Diversification of industry

In 1948, immediately after independence, govt. introduced IPR industrial policy resolution for industrial growth and
development.

IPR 30 april,1956 was a clear and loud declaration of the govt. on the leading role of the government in the process of
industrialization.

Following were the principal element of IPR 1956.

1. Three fold classification of industries: Industries were classified into three categories:
• The first category comprise 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 ,aircrafts
railways and shipping.
• In this 12 industries were were placed , which would be progressively state owned .this would take the
initiative of setting up industries and pvt. Sector . In this aluminum other mining industries ,Machines tools
,fertilizers are there.

• All the industries other than in categories above were left to the private sector.
2. Industrial licensing: Industries in the private sector could be established only through a license from the
government. This implies a check on indiscriminate growth of the private sector industries. The basic idea of
licensing policy was to encourage industry in backward region of the country. A license was needed not only for
establishing a new enterprise, but also for expanding production capacity of the existing ones. This was to regulate
the allocation of resources to different uses. The focus was to promote social welfare rather than private profit.

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3. Industrial concession: The private enterprise were offered many types of industrial concession for establishing
industry in the backward regions of the country like i) tax holiday (freedom from the payment of tax for sometime)
ii) subsidized power supply. broad dimensions i) growth of large scale industry(like iron, steel) ii) growth of small
scale industries to generate employment opportunities.

Problems of small scale Industries

The investment limit of SSI is Rs 1crore. However this limit has been increased to Rs 5crores in respect of 69 specific
items. SSI basically labour intensive which provide opportunities for self employment. This industry recorded great
progress during last 5 years but it also suffer from various problem which are as follows:-

1. Difficulties of frame - Small scale Industry are poor & heavily indebted. They find it difficult to get cheap credit
facilities. They are forced to borrow money from moneylenders and traders who charge a very high rate interest
and purchase finished goods from SSI at lower rate.
2. Shortages of raw material - SSI have limited access to quality raw material. They are either ignorant of sources of
supply or lack the necessary finance. So they obtain raw material from money lenders, traders, and commission
agents who supply them at high price.
3. Difficulty of marketing – since methods of production of SSI remain static, goods do not get ready market. There
are problem of insufficient holding capacity, inadequate market intelligence holding capacity, inadequate market
intelligence and competition from large scale efficient units.
4. Outdated machines &equipments – It is only through improved tools & scientific methods that entrepreneurs can
hope to produce artistic goods of quality. Methods of production used are old &inefficient. They result in low
productivity poor quality of product and high costs.

Inward looking trade strategy

Import substitution is a strategy to save foreign exchange by encouraging domestic production of such goods which the
country has been importing from rest of the world. Domestic industry offered protection from foreign competition through
import restriction and import duties.

Impact of inward looking trade strategy

India pursued a trade strategy to protect its domestic industry from foreign competition, called inward looking trade
strategy. While it accelerate the pace of industrial growth, is also generated some adverse impact.

It had both good as well as bad impact on the industrial health of the economy. Following is a brief description of the good
and bad impacts of inward looking trade strategy pursued in India prior to 1991.

Good impact

1. High rate of Industrial growth with structural transformation: GDP increased from nearly 12% in 1951 to nearly
25% in 1991. Rising share of industrial sector in GDP is a sign of economic growth based on structural
transformation in the economy.
2. Diversification of industrial growth: The period 1950-1990 saw diversification of industrial growth. Modern
industry was no longer confined to textile and jute. It also included engineering goods and wide range of consumer
goods.

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3. Opportunities of investment: Protection to SSI opened new opportunities for those who did not have much capital.
It also implied the use of latent resources in the country which otherwise would have remained idle, new
investment opportunities implied new opportunities of self employment. It promotes growth with equity hence by
inward looking trade strategy helps SSI to produce such goods which has been importing from rest of the world.

Bad impact

1. Growth of inefficient public monopolies: Protection of public sector industry led to the growth of insufficient
monopolies. Telecommunication was a government monopoly till about 1990. We all know that people had to wait
for years and years just for a telephone connection. But now you get repeated SMS offering you a new telephone
connection free of charge.
2. Lack of modernization: lack of competition implied lack of modernization. Only ambassador and fiat were two
models produced by the domestic industry in India. Domestic producers failed in upgrading and modernizing their
product and after 1990, people rejected these cars.

Importants Dates
• First Industry policy resolution 1948.
• Setup of planning commission – 1950
• Industries act- 1951
• Karvve committee or village and small scale industries 1955
• First five year plan duration (1st april,1951 to 31st march ,1956)
• Niti ayog - 2015