1

CHAPTER 2 (INDIAN ECONOMY 1950-1990)

Question1: Define a plan.
 A plan is a proposed list of goals that an economy wants to
achieve within a specific period of time.
 It suggests the optimum ways to utilize the scarce available
resources to achieve the goal.
 In India, planning is done for a period of five years, which is
called five-year plan.

Question 2: Differentiate between specific & general objectives.

 Specific goals are related to a five-year plan. These are also known
as plan specific objectives or short-term objectives. They vary
from plan to plan. e.g.: 3rd plan objective was to create a self-
reliant & self-sustaining economy.
 General goals are also known as long period objectives or
perspective plans. They are common to all five-year plans. Some
of the common goals are economic growth, modernization, self-
reliance and equity.

Question 3: Why did India opt for planning?

India inherited an underdeveloped backward & stagnant
economy from Britishers. Govt of India had the responsibility to
create a strong infrastructure in the economy & to take India on
accelerated path of development.
 India had to choose between capitalism & socialism. India opted
for the combination of both. India adopted the idea of socialism
with a strong emphasis on public sector and active participation of
the private sector in a democratic framework.
 Here the idea was that the public sector would lay down the basic
economic framework and would encourage private sector. Later on
private sector could play an active role in economic development
by establishing industries & creating employment.
PRATIBHA

SHARMA

1
 2

 The Planning Commission (1950) was established with the motive

that the government would undertake comprehensive planning for
the nation as a whole.
 Other reasons were removal of poverty; taking India on a path of
growth by ensuring
development of all sectors.

Question 4: Explain planning objectives.

ECONOMIC GROWTH: Growth refers to the increase in GDP over
a long period of time.
 Economic growth implies a largest stock of productive capital
for a larger size of supporting services like transportation
banking insurance for an increase in the efficiency of productive
capital and services.
 GDP is derived from different sectors of the economy that is
Primary secondary and tertiary sector the contribution made by
each of these sectors make up the structural composition of the
economy which determines economic growth.
 After 1991 the contribution of service sector to GDP increased
to nearly 42% which is a good indicator of structural
transformation and economic growth.

EQUITY:
 Equity refers to an equitable distribution of GDP so that the
benefits due to higher economic growth are shared by all
sections of population. Equity implies social justice.
 . This objective ensures that the benefits of high growth are
shared by all the people equally and, hence, this not only leads
to reduction of inequality of income, poverty promotion of
egalitarian society but also enables everyone to be self-reliant
 It can be done by improving standard of living of the weaker
section of the society and reducing income and regional
inequalities to promote social justice.

PRATIBHA

SHARMA

2
 3

 The objective is to provide basic needs such as food clothing

shelter education and health to every citizen of the country

MODERNISATION
 Modernisation refers to the use of new and modern technology
in production process that may make some people lose their
jobs in the initial stages.
 At the time of independence India was lacking in technical
knowledge.
 India was not able to reduce cost of production and was not able
to compete with international brand therefore modernization
was required to increase the use of capital and machinery.
 Change in social outlook and cultural life of the people.
 Modernization is the set of institutional changes in the economic
activities which make an economy progressive and modern.
 It also refers that women should have same rights as men.

Question 5: Explain ‘growth with equity’ as a planning objective.

Both growth and equity are the two important aspects of India’s five-
year plans.
1) Economic growth:
 Growth refers to the increase in GDP over a long period of time.
 Growth is assessed by the market value of goods and services
(GDP) and it may be possible that the goods and services that are
produced may not benefit the majority of population. In other
words, only a few with high level of living and money income
may get the share of GDP.
 As the country develops changes take place in occupational
structure ie more contributions are made by secondary & tertiary
sectors.
2) Equity:

PRATIBHA

SHARMA

3
 4

 Equity refers to an equitable distribution of GDP so that the

benefits due to higher economic growth are shared by all sections
of population.
 This objective ensures that the benefits of high growth are shared
by all the people equally and, hence, this leads to reduction of
inequalities of income& poverty alleviation.
Growth itself is desirable but growth in itself does not guarantee the
welfare of people. Hence, growth with equity is a rational and
desirable objective of planning. Therefore, to conclude, it can be said
that growth with equity is the most important objective of an
economic planning.

Question 6: Does modernization as a planning objective create

contradiction in the light of employment generation? Explain.
No, modernization as a planning objective does not contradict
employment generation. In fact, both modernization and employment
generation are positively correlated.
 Modernization refers to the use of new and modern technology;
institutional changes in an economy; change in sectoral
composition of GDP.
 Due to use of capital-intensive methods of production people lose
their jobs in the initial stages. But gradually, the use of modern
technology will raise the productivity and, consequently, the
income of the people will increase & they will raise the demand
for goods and services.
 In order to fulfil this increased demand, there will be more job
opportunities will be generated. Hence, both modernization and
employment generation are not contradictory but are
complementary to each other.

Question 7: Why was it necessary for a developing country like

India to follow self-reliance as a planning objective?
PRATIBHA

SHARMA

4
 5

Self-reliance implies:
 Discouraging the imports of those goods that could be produced
domestically. A nation should promote economic growth &
modernization by using its own resources.
 Achieving self-reliance is of prime importance for a developing
country like, India otherwise, it country’s dependence on foreign
products will increase.
 Dependence on foreign goods and services can promote economic
growth of India but this would not contribute to the development
of domestic productive resources. Dependence on foreign goods
and services provides incentives to foreign industries at the cost of
domestic infant industries.
 Imports drain away the scarce foreign reserves that are of prime
importance to any developing and underdeveloped economy. It
helps in the development of self-sustaining & self-generating
economy.

Question 8: What are high Yielding Variety (HYV) seeds?

 High Yielding Variety of seeds were developed by the Nobel
Laureate Dr. Norman Borlough in Mexico.
 These seeds are more productive and need regular and adequate
irrigation facilities along with greater use of fertilizers and
pesticides. HYV seeds grow faster than the normal seeds and,
consequently, crops can be harvested in a much shorter time
period
 In 1966, Green Revolution was introduced in India especially in
the crops of rice and wheat. Initially, HYV seeds were used in
states like Punjab, Andhra Pradesh and Tamil Nadu (as these states
had more suitable irrigation facilities) and later on to other states.

Question 9: What is marketable surplus?

PRATIBHA

SHARMA

5
 6

Marketable surplus refers to the difference between the total output

produced by a farmer and his on-farm consumption. In other words, it
is that portion of the total output that the farmer sells in the market.

Question 10: Explain the need and type of land reforms

implemented in the agriculture sector.
The need for land reforms in India was very necessary due to the
following reasons:
1. Land Tenure System:
 There were three types of land tenure systems namely, the
Zamindari System, the Mahalwari System and the Ryotwari
System prevalent in the Indian agricultural sector at the time of
independence.
 In these systems the land was cultivated by tenants and the land
revenues were paid by them to their landlords. The rent charged by
land lords was too high & exploitative. This led to the exploitation
of tenants.
2. Size of Land Holdings:
 The size of land holdings owned by the farmers was very small.
 The land holdings were fragmented & sub divided which
obstructed the use of modern techniques as the cost of production
was too high.
3. Lack of Initiative:
 Most of the land was owned by the landlords, so the farmers
lacked initiative to introduce permanent improvements on land.
 Due to exploitation farmers were not having enough means to
undertake mechanized methods of cultivation.
4. Traditional Approach and Low Productivity:
 Indian farmers used to rely on the conventional and the traditional
methods.

PRATIBHA

SHARMA

6
 7

 Agriculture was a gamble of monsoon which adversely affected

the productivity of agricultural sector.
5. Absence of Marketing System:
 Due to the absence of well-developed marketing system, the
farmers used to rely on the intermediaries to sell their product in
the market. These intermediaries used to purchase the farm
products at a very low price and sell them at higher price at
market.
 The farmers were not getting their reasonable share of profit which
resulted in investment on farm.
6. Nature of Farming:
The basic motive for farming was for subsistence. That is, farming
was done basically to earn survival and not for sale and to earn
profit.
Question 11: Explain various land reforms introduced by govt of
India.
1. Abolishing Intermediaries: The prime focus of land reforms was
to abolish intermediaries like Zamindars, Jagirdars, etc. Steps were
undertaken to make the tillers, owners of the land.
2. Regulation of Rent:
 The cultivators were exploited in the form of high rent charges by
land owners.
 In the first five-year plan, the maximum rent fixed was one-fourth
or one-fifth of the total farm produce.
 The regulations of rent helped in increasing income of the
tenants& improved their standard of living.
3. Consolidation of Holdings:
 As the land holdings were small; sub divided & fragmented, so it
was necessary to consolidate the land holdings for the use of
modern and advanced technology.

PRATIBHA

SHARMA

7
 8

 The farmers were given consolidated holdings equal to the total of

the land in their various fragmented plots.
 This enabled them to use modern techniques & the benefits
associated with the large-scale production.
4. Land Ceiling:
 It means maximum area of land that an individual may hold.
 The basic motive behind this step was to promote equality of
ownership of land holdings. This eradicated the concentration of
land holdings in few hands.
 Government took back the excess land over the fixed amount of
land from the rich landlords and distributed it among the landless
farmers.
5. Co-operative Farming:
 This step was taken to solve the problem of sub-division of land
holdings.
 Small scale farming by an individual land holder is neither
profitable nor productive, so, these steps encouraged different
farmers to pool their farms and perform farming jointly. This
enhanced the productivity and greater profits were shared by the
individual farmers.

Question 12: What is Green Revolution? Why was it implemented

and how did it benefit the farmers? Explain in brief.
 Due to low productivity, frequent occurrence of famines and low
levels of agricultural output in the latter half of second five-year
plan, a team was formed to suggest ways to counter these
problems. As per the recommendations of the team, government
introduced the use of HYV seeds, modern techniques and
fertilizers, irrigation facilities and subsidized credit. These steps
collectively are known as Intensive Area Development
Programme (IADP).

PRATIBHA

SHARMA

8
 9

 Consequently, in the year 1967-68, food grains production

increased nearly by 25%. Due to this substantial increase of food
grains production, this outcome is known as ‘Green Revolution’

Need of Green Revolution

The needs of Green Revolution are as follows.
1. Lack of Irrigation Facility: The well irrigated and permanent
irrigated area was only 17% in 1951. The major part of area was
dependent on rainfall and, consequently, agriculture suffered from
low level of production.
2. Conventional and Traditional Approach of farming: The use of
conventional inputs and absence of modern techniques further
hampered the agricultural productivity.
3. Frequent Occurrence of Famines: Famines in India were very
frequent during the period 1940s to 1970s. Further, due to higher
growth rate of populations, agriculture failed to grow at the same
speed.
4. Lack of Finance (credit): Small and marginal farmers found it
very difficult to get finance and credit at cheap rate from the
government and banks; so they have to depend on local money
lenders.
5. Self-sufficiency: Due to the traditional agricultural practices, low
productivity, and to feed growing population, often food grains were
imported that drained away scarce foreign reserves. It was thought
that with the increased production due to Green Revolution,
government can maintain buffer stock and India can achieve self-
sufficiency and self-reliable.
6. Lack of marketing facilities: Agriculture was basically for
subsistence and, therefore, less amount of agricultural product was
offered for sale in the market. Hence, the need was felt to encourage
the farmers to increase their production and offer a greater portion of
their products for sale in the market.
PRATIBHA

SHARMA

9
 10

Question 13: What is sectoral composition of an economy? Is it

necessary that the service sector should contribute maximum to
GDP of an economy? Comment.
Meaning of sectoral composition: It is the contribution of different
producing sectors (agricultural sector, industrial sector and service
sector) in GDP of an economy during a year.
Yes, it is necessary that at the later stages of development, service
sector should contribute the maximum to the total GDP. This
phenomenon is called Structural Transformation.
 This implies that gradually the country’s dependence on the
agricultural sector will shift from the maximum to minimum and,
at the same time, the share of industrial and service sector in the
total GDP will increase. This structural transformation indicates
economic growth.
Question 14: Why was public sector given a leading role in
industrial development during the planning period?
At the time of independence, Indian economy was underdeveloped;
stagnant & backward. In such economic condition it was only the
public sectors that could take the initiative. The following are the
reasons for the role of the public sector in the industrial development:
1. Need of large infrastructural Investment:
 It was very difficult for the private sector to invest in projects
demanding for huge capital as the risks involved in these projects
were very high due to long gestation period& uncertainty of
profits.
 Govt owns the resources & works for welfare so the government
played a leading role in industrial development of the economy.
2. Low Level of Demand:
 At the time of independence, the majority of population was
poor and had low level of income.
PRATIBHA

SHARMA

10
 11

 Consequently, there was low level of demand and so there was

no impetus for any private sector to undertake investment. India was
trapped into a vicious circle of low demand. The only way to
encourage demand was by public sector investments.

Question 15: Explain the statement that green revolution enabled

the government to procure sufficient food grains to build its
stocks that could be used during times of shortage.
 Green Revolution led to an increase in the production of food
grains.
 With the use of modern technology, extensive use of fertilizers,
pesticides and HYV seeds there was a significant increase in the
agricultural productivity and production .
 In addition, the spread of marketing system, abolition of
intermediaries and easy availability of credit has enabled farmers
with greater portion of marketable surplus. All these factors
enabled the government to procure sufficient food grains to build
the buffer stock which could be used during famines and
shortages.

Question 16: Define subsidy. While subsidies encourage farmers

to use new technology, they are a huge burden on government
finances. Discuss the usefulness of subsidies in the light of this
statement.
Meaning of Subsidy:
 Subsidies are defined as monetary concession given by the govt to
a section in the economy to enable them to purchase certain goods
at affordable prices.
 In agriculture subsidy help farmers in purchasing agricultural
inputs at a concessional rate. During 1960s, in order to adopt new
technology; HYV seeds; fertilizers and insecticides, farmers were
given subsidies.
PRATIBHA

SHARMA

11
 12

The following arguments are given in favour of subsidy:

1) Subsidy is very important for marginal land holders and poor
farmers who cannot avail the essential farm inputs at the ongoing
market rate. It is an incentive for the farmers to use modern
techniques; fertilizers, HYV seeds, etc.
2) Subsidy is generally provided to the poor farmers with the motive
of reducing inequality of income between rich and poor farmers.
The following arguments are given against subsidy.
1) It is generally argued that subsidy favours and benefits fertilizer
industries than the farmers. Subsidies provide a protective shield
against the market conditions and, consequently, these industries need
not to bother about their market share and competition.
2) Subsidies are also enjoyed by the potential farmers who do not
need them. This often leads to the misallocation and wastage of the
scarce resources.
3) Subsidies, if provided at a much lower rate than the market rate
may lead to the wastage of resources. For example, subsidised
electricity leads to the wastage of energy.
4) There is a general consensus that in order to assess the benefit and
feasibility of a particular technique, subsidy should be provided but
once the performance is improved subsidies should be withdrawn.
5) Subsidies are a burden as they increase unproductive revenue
expenditure of govt.

Question 17: Why, despite the implementation of green

revolution, 65 per cent of our population continued to be engaged
in the agriculture sector till 1990?
 Indian agricultural production has increased substantially since
independence. India has also attained the status of self-sufficiency
in food grains but this increase is substantial only in comparison to
food grain production in the past.

PRATIBHA

SHARMA

12
 13

 India failed to achieve structural transformation i.e. industrial and

service sector failed to generate significant employment
opportunities in order to attract and absorb excess
agricultural labour.
 The agricultural contribution to GDP has fallen from 51% in 1960-
61 to 44% in 1970-71, on the other hand, the share of industry and
service sector in India’s GDP increased from 19% to 23% and
from 30% to 33% during the same period.
 The percentage of population dependent on agriculture decreased
from 67.50% (in 1950) to 64.9% (in 1990). Hence, the industrial
and service sector growth was not very significant; due to this
primary & secondary sector failed to employ and attract surplus
labour from agricultural sector.

QUESTION 18: Suggest a critical evaluation of green revolution.

 Positive effects of green revolution
1) Self sufficiency
India became self-sufficient in production of food grains. India was
not supposed to import from America or any other country for the
purpose of meeting country s food requirements.
2) Marketable surplus
A good proportion of rice and wheat produced during the green
revolution was sold in the market by the farmers. Due to which the
low income had to spend lesser proportion of their income on
purchase of food grains.
3) Buffer stock
Due to the green revolution the government was able to create a
buffer stock which could be used during the times of food
shortages.
4) Increase in productivity
There was a sharp increase in food grain production in India.
The production per acre of wheat increased by 3.5 times from
PRATIBHA

SHARMA

13
 14

1960- 61 to 2010-11. Food grain production increased from 82

million tonnes in 1961 to 257 million in 2011-12.
 Shortcomings of Green revolution
1) Increase in the disparities of income:
Income disparities between small and big farmers increased
because only the big farmers could purchase the required input
needed for increasing productivity.
2) Confined to few crops
Green revolution was remained confined to wheat & rice only.
Progress in major commercial crops like cotton; jute; oil spills
was very less.
3) Regional inequality
Effects of green revolution took place only in Punjab; Haryana;
Maharashtra; Tamil Nadu and Andhra Pradesh which
created regional inequalities.
4) Ecological degradation
Extensive use of chemical fertilizers; insecticides and pesticides
reduced the fertility & created large scale damage to the
environment.

Question 19: Though public sector is very essential for industries,

many public sector undertakings incur huge losses and are a
drain on the economy’s resources. Discuss the usefulness of public
sector undertakings in the light of this fact.
Although, the mismanagement and wrong planning in PSUs led
wastage of the scarce resources but PSUs do have some positive and
useful advantages.
1. Welfare oriented: The main motive of the PSU was to provide
goods and services that add to the welfare of the country as a whole.
For example, schools, hospitals, electricity, etc. These services not
only enhance welfare of country’s population but also enhance the
future prospects of economic growth and development.
PRATIBHA

SHARMA

14
 15

2. Long Gestation Projects: It was not feasible and economically

viable for the private sectors to invest in the large-scale projects like
basic industries and electricity, railways, roads, etc. As these projects
demand a very huge initial investment and have long gestation period.
Hence, PSU is the most appropriate to invest in these projects.
3. Basic Framework: An important ideology that was inherited in the
initial five-year plans was that the public sector should lay down the
basic framework for industrialization that would encourage the private
sector at the latter stage of industrialization.
4. Socialistic pattern of development: In the initial years after
independence, Indian planners and thinkers were more inclined
towards socialist pattern. It was justified on the rational ground that if
the government controls the productive resources and production,
then country’s resources will not be wasted & economy will attain a
significant rate of growth. PSUs produce goods not according to the
profit motive but according to the social needs and economic welfare
of the country.
5. Reduction in Inequalities of Income and Generation of
Employment Opportunities: It was assumed that in order to reduce
inequalities of income, eradicate poverty and to raise the standard of
living, government sector should invest in the economy via PSUs.

Question 20: Why and how was private sector regulated under
the IPR 1956?
IPR 1956 was adopted in order to accomplish the aim of state
controlling the commanding heights of economy.
According to this resolution,
a) industries were classified into following three categories:
Category 1: Those industries that are established and owned
exclusively by the public sector (19 industries)

PRATIBHA

SHARMA

15
 16

Category 2: Those industries in which public sector will perform the

primary role while the private sector will play the secondary role.
That is, the private sector supplements the public sector in these
industries. (12 industries)
Category 3: Those industries that are not included in Category 1 and
Category 2 are left to the private sector. (All remaining industries)
B) Industrial licensing & concessions: These industries that were
left to the private sector, the government own an indirect control by
the way of license. In order to initiate a new industry, private
entrepreneurs should obtain license (or permit) from the government.
By licensing system, tax holidays and subsidies government can
promote industries in a backward region that will in turn promote the
welfare and development of that region. This was supposed to reduce
regional disparities.
Further, in order to expand the scale of production, private sector
needs to obtain license from government. This was supposed to keep
a check on the production of goods that are socially undesirable and
unwanted. Hence, the state fully controlled the private sector either
directly or indirectly.

Question 21: Define small scale industry and explain their

characteristics.
 MEANING: A small-scale industry is defined according to the
maximum investment allowed on the Assets of a unit. At present
the maximum investment allowed in small scale units is Rupees 1
Crore. However, this limit has been raised to rupees 5 Crore in case
of 69 items reserved for manufacturing in the small-scale sector.
 FEATURES OF SMALL-SCALE INDUSTRIES:
 Employment oriented and Labour intensive: They absorb
surplus labour by creating employment opportunities.

PRATIBHA

SHARMA

16
 17

 Equality oriented and establish regional equality: Small scale

industries show locational flexibility so they can be established
anywhere without considering the source of raw material
 Equity oriented: Small scale industries result in establishment of
income equality in the economy. They require small investments
compared to large scale industries as a result concentration of
economic part is avoided. They help in attaining socialistic
pattern of society.

Question 22: Define Inward looking trade strategy. Explain how

import substitution can protect domestic industry?
Meaning of Inward-looking trade strategy or import substitution:
It refers to the policy of having reliance on import substitution and
protection of domestic Industries through import restrictions and
import duties. This policy was adopted to save foreign exchange and
to attain self-reliance.
In this policy the government protected the domestic Industries from
foreign competition in two ways:
1. TARIFFS: Tariffs are tax on imported goods. Due to these
imported goods became more expensive.
2. Quotas: They specify the quantity of goods which can be
imported. Due to these the domestic firms could be protected
from foreign competition.
 In the initial seven five-year plans, India opted for import
substitution strategy, which implies discouraging the imports of
those goods that could be produced domestically.
 Import Substitution Strategy not only reduces an economy’s
dependence on the foreign goods but also provides impetus to the
domestic firms.
 Government provides various financial encouragements,
incentives, licenses to the domestic producers to produce the goods
domestically.
PRATIBHA

SHARMA

17
 18

 This would not only allow the domestic producers to sustain but
also enables them to grow as they enjoy the protective
environment.
 They need not to fear from any competition and also not to worry
about their market share as license gives them the monopoly status
in the domestic market. Being monopolist, they earn more profits
and invest continuously in R&D and always look for new and
innovative techniques. This gradually improves their
competitiveness and when they are exposed to the international
market they can survive and compete with their foreign
counterparts.

Question 23: Write a note on composition and direction of foreign

trade in India after independence.
 COMPOSITION OF FOREIGN TRADE:
 There was a decline in Percentage share of Agricultural exports.
It was due to India's policy of using agricultural goods as raw
material for domestic production. There was a substantial
increase in demand of domestically produced goods.
 Decline in Percentage share of exports of conventional items
like jute; minerals; IT sector as after independence domestic
demand of these goods went up.
 Increase in Percentage share of exports of machine-made goods
it was due to development programmes of government
 DIRECTION OF FOREIGN TRADE:
 The bulk of India's exports before independence war with
England; America and Commonwealth countries but after
independence India started exporting to Australia America; New
Zealand; Japan; countries of European Union etc.
 There was a substantial change and imports trade also at the
time of independence import was from UK and America only
PRATIBHA

SHARMA

18
 19

but after independence India started importing from Russia;

Japan; countries of European Union; Australia; New Zealand
etc.

Question 24: Critically evaluate the economic planning till 1991

ACHIEVEMENTS:
 Increased national income: After the adoption of economic
planning the national income increased from 2.1% in 1956 to
5.9% in 1990
 Increase in per capita income: Per capita income increased
from 1.8% in 1956 to nearly 3.6 % in 1990 it is a clear
reflection of improvement in the standard of living of the people
 Generation of employment: Due to new policy adopted by the
government the country was able to generate employment
opportunities. In the year 1990 employment was provided
to2350 lakh persons .
 Diversification of industrial sector: During the planning
period industrial production increased by 7% per annum. India
started producing all kinds of consumer and capital goods
 Development of social infrastructure: Death rate came down
from 27000 in 1951 to nearly 8,000 in 1990. life expectancy
increased from 32 years in 1951 to 64 years in 1990
 FAILURES OF ECONOMIC PLANNING
 Increase in poverty: The policy adopted by the government till
1990 were very rigid and these policies were not able to
generate sufficient employment opportunities
 Regular increase in prices till 1991: Inflation was not
controlled. Price level increased from nearly 6% in 1956 to
16.7% in 1990
 Inefficient public monopolies: Though public sector made
significant contributions to the growth of Indian economy but
due to excessive promotion given by the government public
PRATIBHA

SHARMA

19
 20

sector developed its Monopoly in certain segments. Due to

absence of competition the efficiency of public sector was
getting affected.

PRATIBHA

SHARMA

20