NCERT Class 11 Economics Chapter 2: Indian Economy 1950 βˆ’ 1990 YouTube Lecture Handouts

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NCERT Class 11 Economics Chapter 2: Indian Economy 1950-1990

Aim of Planning?

  • Initiate development to raise living standards

  • Bring in new opportunities

  • After 1947, build economic system for welfare for all

  • Nehru – appealed to socialism (but not want to change the ownership pattern of land)

  • India – Mixed Economy - Socialist nation with public sector & private property and democracy – reflected in Industrial Policy resolution of 1948 & Directive Principles of Constitution

Types of Economic System

  • Market economy or capitalism – not based on need but on purchasing power; if labour is cheap – go for labor-intensive industries – in this majority of the people are left behind

  • Socialist economy – govt. decides what goods should be produced and distributed – need based economy – Cuba & China

  • Mixed Economy – Govt. & market forces together answer – what to produce? How to produce? How to distribute?

What is Plan?

  • Objective to be attained in 5 years (basis for perspective plan) & what to be achieved in 20 years (perspective plan)

Image of Perspective Plan

Image of Perspective Plan

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PC Mahalanobis

  • 2nd 5 year plan was based on his ideas

  • Regarded as architect of Indian Planning

  • Educated from Presidency College, Kolkata & later at Cambridge University, England

  • Fellow member of Britain’s Royal Society

  • Established Indian Statistical Institute (ISI), Kolkata

  • Started journal, Sankhya

Image of Nehru-Mahalanobis Model of Growth

Image of Nehru-Mahalanobis Model of Growth

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Planning Commission

  • Established in 1950

  • Chairperson: Prime Minister

  • Goal of 5 year plan – growth, modernization, self-reliance and equity

  • Growth: Increase in country’s capacity to produce goods and services – larger stock of capital or services – increase in GDP (GDP is the market value of all the goods and services produced in the country during a year – agri., industry, service)

  • Modernization: Adopt new technology & change in social outlook (women at work)

  • Self-Reliance: By using its own resources & reduce dependence on foreign countries mainly for food – will avoid foreign interference in our policies

  • Equity: Benefits of economic prosperity to reach to the poor sections

Agriculture

  • Promoting HYV seeds

  • Land Reforms – had intermediaries who collected rent from tillers without improvement – low productivity and import of food grains from USA – abolish intermediaries & give incentive to tillers & 200 lakh tenants came in direct contact with government (still poorest labourer did not got the benefit)

Image of Land Reforms

Image of Land Reforms

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  • Ownership enables tiller to make profit from increased output (absence of ownership leads to inefficiency – as in Soviet Union)

  • Land ceiling – fixing maximum size of land that could be owned by individual – reduce concentration in hands of few. Big landlords challenged it by delaying implementation & register land is name of relatives to escape legislation (numerous loopholes were seen)

  • Land reforms were successful in Kerala & West Bengal – as govt. was committed to the policy of land to the tiller

Image of Reasons For Land Reforms Failure

Image of Reasons for Land Reforms Failure

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Green Revolution

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Image of Green Revolution

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  • So far – low productivity due to old technology, absence of infrastructure, vagaries of monsoon

  • Brought in HYV seeds of wheat and rice – fertilizer and pesticides with water

  • 1st Phase: HYV seeds restricted to the more affluent states such as Punjab, Andhra Pradesh and Tamil Nadu & benefitted mainly wheat growing areas

  • 2nd Phase: Spread to other states and other crops – help attain self-sufficiency in food grains

  • Agricultural produce sold in market by farmers – marketed surplus – enabled govt. to procure good amount of foodgrains to build stock for food shortage

  • Disadvantages

  • HYV crops were prone to diseases

  • Rising disparity b/w small and big farmers

  • Unemployment due to mechanization

  • Need for weed control

  • Governmental Intervention

  • Loans at low interest rate

  • Subsidized fertilizers to small farmers

  • Services of research institutes

Subsidy

  • Encourage farmers to test new technology

  • Once technology is fruitful, subsidy should be phased out

  • Fertilizer subsidy benefits farmers and also fertilizer industry

  • Eliminating subsidy will increase rich and poor divide

  • Remove subsidy as it doesn’t benefit target group and has huge burden on govt. finances

  • 65% population is employed in agriculture as in 1990 – GDP from agriculture declined from 67.5% in 1950 to 64.9% in 1990 – industry and service sector did not absorb people in agricultural sector

  • Prices – if good becomes scarce, prices rise

  • Fertilizer and pesticide subsidies result in overuse of resources which can be harmful to the environment

  • Subsidies provide an incentive for wasteful use of resources.

Industry & Trade

  • More stable employment than agriculture

  • Promotes modernization

  • Overall prosperity

  • Initially only iron & steel (Jamshedpur & Kolkata); cotton textile and jute

  • Expansion of industrial base started later on

  • Public and private sectors – state played an extensive role initially as initially industrialist did not had the capital and nor the market was big enough to encourage industrialists

  • State would have complete control over the vital industries

Image of Industry and Trade

Image of Industry and Trade

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Industrial Policy Resolution, 1956

Image of Key outcomes of the industrial policy resolution - …

Image of Key Outcomes of the Industrial Policy Resolution - …

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Formed basis for 2nd Five Year Plan for socialist pattern of society

  • Category -1: industries exclusively under state

  • Category -2: private sector would supplement the efforts of state sector – state taking sole responsibility for new units

  • Category -3: industries in private sector (under state control through licenses)

  • License was easy in backward area to promote growth there with concessions, tax benefits & low tariff for electricity – aim to promote regional equality

  • License must for expanding output or diversifying product

Image of Features of the new industrial policies

Image of Features of the New Industrial Policies

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  • 1955 – Village and Small Scale Committee (Karve Committee) – use small scale industries (defined on maximum investment allowed on the assets of a unit) for rural development – initially cap was 5 lakh and now it is 2 crore for service and 5 crore for manufacturing – more labour intensive, higher employment, concessions on excise and loans

Trade Policy

  • In first seven plans – trade was characterized by inward looking trade strategy (import substitution) – produce in India rather than import them & industries were protected from foreign competition by 2 ways

Image of Tariff Works

Image of Tariff Works

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  • Tariff: Taxes on imported goods (made them expensive)

  • Quotas: specify quantity that can be imported

Image of Compare and Contrast Different Types of Trade Barri …

Image of Compare and Contrast Different Types of Trade Barri …

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  • Idea – if domestic industries are protected they will learn to compete

  • GDP from industrial sector increased from 11.8% in 1950-51 to 24.6% in 1990-91 with nearly 6% annual growth rate

  • Development of industries now became diversified

  • Protection from foreign competition enabled Indian industries in electronics and automobiles

  • Some areas which were reserved for public sector was telecommunication until 1990s where people had to wait for long to get connection

  • Defence is still under state

  • State should get out of areas which the private sector can manage and the government may concentrate its resources on important services which the private sector cannot provide

  • Some public sectors incurred huge losses (not implies that private sector are profitable – some of these nationalized to protect job of workers)

  • Permit license raj – prevented some firms from becoming more efficient – more time spent on how to get license rather than how to improve

  • Producers had no incentive to improve quality of goods – competition from imports forces efficiency

  • We should protect our producers from foreign competition as long as the rich nations continue to do so – called for shift in our policy – new economic policy in 1991

Lessons Learnt!

  • Industries were diversified

  • Self-sufficiency in food with Green revolution

  • Abolition of zamindari system

  • Dissatisfaction with public sector performance – excessive regulations prevented growth

  • Policies were inward oriented

  • Failed to establish strong export sector

  • Reforms initiated in 1991 – LPG reforms