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

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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

Image of Perspective Plan

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

Image of Nehru-Mahalanobis Model of Growth

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

Image of Land Reforms

  • 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

Image of Reasons For Land Reforms Failure

Green Revolution

Image of Green Revolution

Image of Green Revolution

Image of Green Revolution

  • 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

Image of Industry and Trade

Industrial Policy Resolution, 1956

Image of Key outcomes of the industrial policy resolution - 1956

Image of Key Outcomes of the Industrial Policy Resolution - 1956

Image of Key outcomes of the industrial policy resolution - 1956

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

Image of Features of the new industrial policies

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

Image of Tariff Works

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

  • Quotas: specify quantity that can be imported

Image of Compare and Contrast Different Types of Trade Barriers

Image of Compare and Contrast Different Types of Trade Barriers

Image of Compare and Contrast Different Types of Trade Barriers

  • 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