Indian Economy (1950-1990) Flashcards
- Central problems of economy
- What is economic system
3.types of economy systems
4.which economy system is india and why
three major central 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 (known as Labour Intensive Technique) or with more capital and less labour (known as Capital Intensive Technique).
- For whom to produce: It involves deciding the distribution of output among people, lei it involves selection of the category of people who will ultimately consume the goods.
- {Economic System refers to an arrangement by which central problems of an economy are solved.
- Capitalist Economy: A capitalist economv is he one in colich the means of production are otored, controlled and operated by the private sector. Production is done mainly for earning profits.
So, the centra probed by the priale sector Production is doduce, 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 inods domestitue d using cheaper techniques of production. In case of cheap labour; labour are produced hour of production are used and in case of costly labour, capital-intensive methods of production are used.
° For whom to Produce: In a capitalist 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.
- Capitalist Economy: A capitalist economv is he one in colich the means of production are otored, controlled and operated by the private sector. Production is done mainly for earning profits.
- Socialist Economy: A socialist economy is the one in which the eans 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
oduced.
. 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. - Mixed Economy: A mixed economic system refers to a system in which the public sector and the prioate 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. - Indian Economic System
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.
Explain what is plan , reason for making plan ,duration of plan and content of plan
Meaning of Plan: Plan is a 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 decisions 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 bordwed 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 live year plans are supposed to provide the basis for the Perspective Plan.
How has the economy planning of india done by the government
After adopting the ‘Mixed Economic System’, the next important step for the Government was to revive the poor, backward and stagnant economy, inherited from the British rule.
• 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 (what, how and for whom to produce) by the conscious decision of a determinate authority, 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’.
Note: It must be noted that ‘Planning Commision’ is no more in existence. On 1st January, 2015, a Cabinet Resolution was passed to replace the Planning Commission with the newly formed NITI Aayog (National Institution for Transforming India).
When was first five year plan launched and what are the basic goals of five year plans .explain ?
benefit from the economic progress of the country.
• The first five year plan was launched by our first Prime Minister, Pandit Jawaharlal Nehru in the parliament. It was launched for a period starting from 1st April, 1951 and ending
on 31st March, 1956.
Each five year plan listed the basic Goals of India’s development, which served as the guiding principles of Indian planning.
• These basic Goals are:
(i) Growth
(i) Modernisation (iii) Self-reliance (vi) Equity
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 seroices 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).
• GDP refers to market value of all the final goods and seroices 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.
Modernisation
Indian planners have always recognised the need for modernisation 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 civilised and prosperous if it makes use of the talents of women in the work place.
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 eserbeerued from foreign control, 1 so secessary to reduce our dependence on foreign countries, especially for food. So, stress should be give to attain self-reliance.
• To asolid Foregen hatain self relance. red tha dependence on imported food spelicie. foreign technology and foreign capital davalcrease foreign interference in the policies
of our country.
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.
* Inaddition to the objectives of growth, modernisation and self-reliance, equity is also important.
° According to Equity, every Indian should be able to meet his or her basic needs (food, house, education and health care) 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.
Features of agriculture and polices for growth of agriculture
Features (or Problems) of Agriculture
Following were some of the main features (or Problems) of Indian agricultural sector between 1950 and 1990:
1. Low Productivity: Indian agricultural sector was known for its low productivity. Lack o knowledge was responsible for stagnation in this sector.
- Disguised Unemployment: It refers to a state in which more people are engaged in work than are really needed. There was very high incidents of disguised unemployment in the sector during 1950 and 1990.
- High dependency on Rainfall: Due to poor agricultural techniques, farmers depended largely on rainfall. There was minimum growth of this sector in the year that receives the least rainfall.
- Subsistence Farming: It is the practice of growing crops only for one’s own use without any surplus for trade. There was also very high incidents of subsistence farming.
- Outdated Technology: There were many obsolete technologies and harvesting machines.
Harvesting was generally done manually and was very tedious. - Conflicts Between Tenant and Landlords: Farmers were often a part of a critical contract that bound them to their landlords. Landlords used to extract huge amount of interest from farmers and deprived them of their necessities.
- Small Land Holdings: Most of the land holdings of the farmers were small. Small land holding is a hindrance in the process of agricultural growth as farming can be carried out by only labour intensive techniques, i.e. use of machines become difficult. Moreover, farmers use their produce (which is obviously less due to small holdings) more for their own use rather for sale in the market.
MEASURES TO PROMOTE GROWTH IN AGRICULTURAL SECTOR
Green Revolution
(Refers to large increase in production of food grains due to use of HYV)
Land Reforms
(Involves change in ownership of landholdings through abolition of intermediaries and land ceiling)
Define land reform , why was it imp and what were measures taken to achieve it and was it successful
Land Reforms primarily refers to change in the ownership of landholdings. Land reform 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. 2.8
Indian Economic Development
• Aim behind’Land to the Tiller: The idea behind this step was that ownership ofland would give incentives to the actual tillers to make improvements and to increase output (provided Sufficient capital was made available to them). Tenants do not have any incentive to make improvements on land since it is the owner of the land who benefits more from higher output. Ownership of land will enable the tiller to make profit from the increased output Just for Reference: The importance of’Land to the Tiller’ can be justified with the following incident that took place in former Soviet Union. The farmers in the former Soviet Union used to be very careless while packing fruits for sale. Quite often, rotten fruits were packed by them along with the fresh fruits in the same box. Every farmer was aware that the rotten fruits will spoil the fresh fruits if they are packed together. Since farmers did not own any land, they neither enjoyed the profits nor suffered the losses. In the absence of ownership rights, there was no incentive on their part to be efficient.
• The abolition of intermediaries brought 200 lakh tenants into direct contact with the government.
• The ownership rights granted to tenants gave them the incentive 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:
(i) In some areas, the former zamindars continued to own large areas of land by making use of some loopholes in the legislation;
(in) 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 reforms.
Let us now discuss ‘Land Ceiling’, which was one of the very important measures towards land reforms in the country.
Land Ceiling
Land Ceiling 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, the 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.
When was green revolution adopted and why was green revolution adopted and what is it
Who founded hyv seeds
What were the benefits of using hyv seeds and how were the benefits achieved.
The new agricultural strategy was adopted in India during the Third Plan, i.e., during 1960s.
The aim of this strategy was to raise agricultural production and productivity in selected regions of the country through the introduction of modern inputs like fertilizers, credit, marketing facilities, etc.
At the time of independence, about 75% 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
From a
grain deficient nation to food security for all
Green Revolution
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 efforts of many agricultural scientists, this stagnation in agriculture was permanently broken by the ‘Green Revolution’.
Green Revolution refers to the large increase in production of food grains due to use of high yielding variety (HYV) or miracle seeds especially for wheat and rice.
Dr. Norman E. Borlaug, an American agricultural scientist, is considered to be the ‘Father of the Green Revolution’. He was awarded the Nobel Peace Prize in 1970 for breeding higher-yielding varieties. In India, it was mainly found by M.S. Swaminathan.
Agricultural revolution occurred primarily due to the miracle of new wonder seeds (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 fertilize (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 fertilisers and pesticides).
Success of green revolution in phases
imp Effects of green revolution
Risk involved under green revolution
And were they solved
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 benefited 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 benefited
with introduction of HYV seeds, the yield multiplied on an average three-fold
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 or Marketed 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. 1 Risk of Pest Attack: The HYY crops were more prone to attack by pests. So, there was a risk that small farmers who adopted this 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.
(i Risk of Increase in Income Inequalities: There was a risk that costly inputs (HYV seeds, fertilizers, etc.) reguired under green revolution will increase the disparities hetween 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
HYV Crops were prone to attack by Pests
at a low interest rate to small farmers so that they could also have access to the needed inputs.
What were subsidies in green revolution and why were they given .
Discuss the points of the economist in favour and against the subsidies
Subsidy, in context of agriculture, means that the farmers get inputs at prices lower than the market prices. In other words, Subsidy is the financial assistance provided by the government to producers to fulfil its social welfare objectives.
• 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.
Let us discuss the points in favour and against the grant of subsidies.
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.
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 fertiliser 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 HYY technology. So, after the wide acceptance of technology, subsidies should be phased out as 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 fertiliser 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.
How price acts as a signal and how subsidies provides an incentive for wasteful use of resources
Prices as Signals: Prices act as signals about the availability of goods. When a good becomes scarce, its price tends to rise and those who use this good are required to make efficient decisions about its use based on the price. For example, with the outspread of coronavirus, sanitizers, infrared thermometers, oximeters, masks, etc. became very costly due to their short supply or scarcity in relation to demand. Similarly, when price of petrol increases, it reflects greater scarcity of petrol and the price rise is a signal that less petrol is available.
It provides an incentive to use less petrol or look for alternate fuels.
2. Subsidies may lead to wasteful use of resources: According to some economists, subsidies do not allow prices to indicate the supply of a good. Examples.
(1) When electricity is provided at a subsidised rate or free, it will be used wastefully without any concern for its scarcity.
(11) When water is supplied free to the farmers then they may cultivate water intensive crops, even though the water resources in that region may be scarce. As a result, such cropping pattern will further deplete the already scarce resources. It water is priced to reflect scarcity, farmers will cultivate crops suitable to the region.
(111) Fertiliser and pesticide subsidies result in overuse of resources which can be harmful to the environment.
So, subsidies provide an incentive for wasteful use of resources.
Why the agriculture policies adopted during 1950to 1990 considered failure
The Proportion of GP between 1950 and 1990 contributed by agriculture declined significantly, but not the population depending on it.
Around 65% of the country’s population continued to be employed in agriculture, even Hil 199. Agricultural output could have been grown with much less people working in the sector, hut industrial and service sectors were unable to absorb the extra people involved in agriculture.
The involvement of such a large proportion of the population in agriculture was regarded as the important failure of policies followed during 1950-1990.
1.why was industrial development imp
2. Role of public and private sector in industrial development 3. Different policies taken for industrial development
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.
Industrialisation promotes modernisation and overall prosperity. Due to this reason, Five Year Plans stressed a lot on the industrial development.
At the time of independence, the variety of industries was very limited. The cotton textile and jute industries were mostly developed in India. There were 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.
For “Benefits of Industrialisation”, refer Power Booster.
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 entrepreneurs. 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. Objective 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 industrialisation.
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.
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 exclusioely owned by the state. In this schedule, 17 industrior sed mdustries a 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 staineaude. industres worseting 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 consisted 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 a license is obtained from the government.
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 as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality.
- 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 Industry (SSI)
In 1955, the Village and Small-scale Industries Committee (Karve Committee) recognised the possibility of using small-scale industries to promote 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 from rupees five lakh in 1950 to present limit of rupees one crore.
Important Points about Small-scale Industries - 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.
- Need for Protection from Big Firms: Small-scale industries cannot compete with the big industrial firms. They can flourish only when they are protected from the large firms.
So, various steps were taken by the government for their growth.
• Reservation of Products: Government reserved production
Small-Scale Industries
generate more Emplovment
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.
What was the share of india in total production .
Explain the trade policy adopted in 1950.
What was the measures taken uder this policy to be successful
And why was this policy adopted
India’s share in the total world trade was 1.78%.
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 characterised 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
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) Savings of precious foreign exchange; and (in) Achieving self-reliance.
Protection from Imports through ‘Tariffs’ and ‘Quotas’
Goverment 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 dake inor ted expensive and discourage their use.
2. Quotas: Quota refers to non-tariff barriers imposed on the quantity of imports and exports.
It is 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.
Reason 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.
2. Restriction on imports was necessary as there was a risk of drain of foreign exchange reserves on the import of luxury goods.
Discuss the success and the failure of policies followed for industrial development
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% in 1950-51 to 24.6% in 1990-91. This rise in the industry’s share of GDP is an important indicator of development. The 6% annual growth rate of the industrial sector during th 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 the public sector.
3. The promotion of small-scale industries gave opportunities to people with small capital 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 th development of indigenous industries in the areas of electronics and automobile sector which otherwise could not have developed. However, this protection had two drawbads
(i) Inward Looking Trade Strategy: Our policies were ‘inward oriented’ and so we failed to develop a strong export sector.
(in) 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 continue 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:
4) 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.
(it) 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 (that too ineffectivelv) in certain non-essential areas, which could be well handled by the private sector. For example, telecommunication, hotel industry, production of goods (Like Modern Bread).
• As a result, precious funds of public sector channelised 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 wellare of the nation. So, they should be evaluated on the basis of their contribution to welfare of the people and not on the profits they earn.
