Chapter 2: Indian Economy (1950–1990)
Q1. What was the condition of the Indian economy on the eve of independence?
Why was reconstruction necessary?
• After almost 200 years of British colonial rule, India’s economy was backward
and stagnant.
• Major issues inherited:
1. Low agricultural productivity: Farming was outdated and exploitative.
2. Neglected industry: Only a few industries like cotton and jute existed; no
diversification.
3. Poverty and unemployment: Widespread poverty, low literacy rates, and
poor health indicators.
4. Heavy foreign dependence: Reliance on imports even for food grains.
• Thus, India needed a complete economic reconstruction to improve living
standards and attain self-sufficiency.
Q2. What was the most important task for the Indian government post-
independence?
• To decide the type of economic system most suitable for India’s conditions to
solve its developmental problems.
Q3. What are the three central economic problems faced by any economy?
1. What to produce?
• Deciding the combination and quantity of goods and services.
• Example: Should we produce more wheat or more luxury cars?
2. How to produce?
• Deciding the production technique:
• Labour-intensive: More labour, less capital (suits countries with
abundant labour).
• Capital-intensive: More machines, less labour (suits developed
countries).
3. For whom to produce?
• Deciding how goods and services are distributed.
• Who benefits: only rich (if based on purchasing power) or everyone (if based
on needs)
Q4. Explain the three main types of economic systems. Which one did India adopt
and why?
1. Capitalist Economy:
• Ownership: Means of production owned & operated by private
individuals/firms.
• Goal: Profit maximisation.
• Decision-making: Through market forces (demand and supply).
• Drawbacks: Ignores social welfare; wealth inequality; poor may not access
basic needs.
2. Socialist Economy:
• Ownership: Means of production owned & operated by government.
• Goal: Fulfilment of social needs, not profit.
• Distribution: Based on needs (e.g., free healthcare even if you can’t pay).
• Drawbacks: Lack of incentives may lead to inefficiency.
3. Mixed Economy:
• Ownership: Both public (government) and private sectors share roles.
• Goal: Combine best features of capitalism & socialism.
• Role of govt.: Provides essential goods & services, ensures social justice.
• Role of private sector: Produces other goods, encourages competition.
Why India adopted Mixed Economy?
• Complete socialism (like USSR) not feasible due to democratic nature & private
property rights.
• Pure capitalism would widen inequalities.
• So, Jawaharlal Nehru preferred a mixed model with:
• Strong public sector,
• Democratic framework and private ownership.
Q5. What is economic planning? Who introduced it in India?
• Definition: Conscious decision by a central authority about what, how, and for
whom to produce based on a comprehensive survey of resources and needs.
• Architect: P.C. Mahalanobis.
• Objective: To revive the poor and stagnant economy.
Q6. What institutional arrangements were made for planning?
• Planning Commission set up in 1950 under Nehru.
• Task: Assess resources & prepare plans for optimal utilisation.
• Adopted Five Year Plans (concept borrowed from USSR).
• Planning Commission replaced by NITI Aayog in 2015.
Q7. What is a Plan?
• A document containing detailed schemes, strategies and objectives for
development over a fixed period.
• Also includes Perspective Plans for 15–20 years (long-term vision).
Q8. What were the four basic goals of Indian planning (1950–1990)? Explain in
detail.
1. Growth:
• Meaning: Increase the capacity of the economy to produce goods and
services.
• Measured by: Gross Domestic Product (GDP).
• Ways to achieve growth:
• Build capital goods industries.
• Improve infrastructure (roads, transport, banking).
• Reason: British left economy stagnant; urgent need to raise production.
2. Modernisation:
• Technological modernisation: Use of modern methods like HYV seeds,
machines.
• Social modernisation: Change in attitudes—women empowerment, equality.
• Quote (6th Plan): “Modernisation implies structural & institutional changes.”
3. Self-reliance:
• Meaning: Development using domestic resources; reduce dependence on
imports.
• Reasons: Avoid foreign interference, Preserve foreign exchange.
4. Equity:
• Meaning: Benefits of growth should reach all sections; reduce inequalities.
• Includes: Access to food, housing, education, healthcare, Reduction of
wealth gap.
Q9. What was the condition of Indian agriculture at independence?
• Dominated by zamindari system (intermediaries exploiting tillers).
• Problems:
1. Low productivity due to outdated methods.
2. High disguised unemployment.
3. Heavy dependence on rainfall.
4. Small fragmented land holdings.
5. Tenant-landlord conflicts.
Q10. What were the two major policies for agricultural growth?
1. Land Reforms:
• Abolition of intermediaries; land to tillers.
• Land ceiling: Govt. fixed maximum land ownership; extra land distributed to
landless.
• Impact: Partial success; best in Kerala & West Bengal; loopholes exploited
elsewhere.
2. Green Revolution:
• Adopted in 1960s (Third Plan).
• Use of HYV seeds, irrigation, fertilizers.
• Leaders: Norman Borlaug (world), M.S. Swaminathan (India).
• Phases: Phase 1: Limited to Punjab, Haryana; mainly wheat. Phase 2:
Spread to more states & crops.
• Effects:
• Self-sufficiency in food.
• Marketable surplus & buffer stock.
• Benefit to poor (stable food prices).
• Risks: Pest attacks, possible inequality (but govt. loans helped poor farmers
too).
Q11. Why were subsidies given to farmers? Should they continue?
• Reasons for subsidies:
• Technology initially risky.
• Most farmers poor; couldn’t afford inputs.
• Ensure equity.
• Arguments against subsidies:
• Now technology is accepted; subsidy benefits rich more.
• Leads to overuse/waste of resources.
• Balanced view: Continue for poor; ensure targeted benefits.
Critical Appraisal of Agriculture
Achievements:
• Abolition of zamindari.
• Self-sufficiency in food.
• Productivity increased.
Failures:
• 65% still engaged in agriculture; disguised unemployment.
• Inequalities in land persisted.
Q12. Why was industrialisation important?
• Generates stable employment.
• Promotes modernisation.
• Diversifies economy; reduces dependence on agriculture.
Q13. What was the condition of industry in 1947?
• Limited to cotton and jute.
• Only two steel plants.
• Lack of capital and technology.
Q14. Why did public sector lead industrial development?
• Private sector lacked capital & incentive.
• Market small; govt. needed for large projects.
• Govt. objective: social welfare.
Q15. Explain Industrial Policy Resolution (1956).
• Classified industries:
• Schedule A: 17 industries, only govt. (arms, railways).
• Schedule B: 12 industries, govt. with private help.
• Schedule C: Others, private but regulated.
• Industrial Licensing: Needed govt. permission to start/expand.
• Aim: Regional balance, prevent monopolies.
• Drawback: Misused; complex & time-consuming.
Q16. What was the role of small-scale industries (SSI)?
• Labour-intensive; created large rural employment.
• Govt. reserved certain products; gave concessions (loans, tax benefits).
Q17. What was India’s foreign trade strategy (1950–1990)?
• Import Substitution: Replace imports with domestic goods.
• Methods:
• High tariffs on imports.
• Import quotas (limit on quantity).
• Objective: Self-reliance, conserve foreign exchange.
• Drawback: Did not encourage exports; inward-looking.
Achievements:
• Industry’s share in GDP rose (11.8% → 24.6%).
• Diversified industries (engineering, electronics).
• SSI encouraged equity.
Failures:
• Lack of export growth.
• Poor product quality (due to lack of competition).
• Public sector inefficiencies; funds wasted in non-essential areas.
Conclusion & Overall Assessment (1950–1990)
• Agriculture: Self-sufficient in food; but over-dependence on agriculture
persisted.
• Industry: Diversified; excessive regulation slowed growth.
• Trade: Import substitution achieved self-reliance but export sector weak.
• These shortcomings led to economic reforms in 1991.