Colne Neal Bl =38 2.1 Introduction 2.2 Economic Planning 2.3. Goals of Five Year Plans 2.4 Agriculture 2.5. Industrial Development 2.6 Foreign Trade 2.7. Critical Appraisal of Industrial Development (1950 — 1990) 14 2.1 INTRODUCTION In the previous chapter, we have learnt that on the eve of independence, Indian economy was completely undeveloped. After two hundred years of British rule and their exploitative policies, India finally got freedom on 15" August, 1947. Now, it was necessary to reconstruct the backward and stagnant Indian economy into a developed economy. Therefore, the most overnment of independent India was to decide the type of “Economic important task before the G an arrangement by System’ which would be most suitable for India. Economic System refers to which central problems of an economy are solved. Letus first understand the various “Central Problems” of an economy, before we proceed to different types of economic systems. Central Problems of an Economy The three major central problems of an economy are: 4. What to Produce: It involves deciding the final combinat s selection of goods and services and the quantity of each, that tion of goods and services to be produced, ie., it involv the economy should produce. 2. How to Produce: It involves deciding the technique of production, i.e. whether se goods should be produced with more labour and less capital (known as Labour Intensive ) or with more capital and less labour (known as Capital Intensive Technique). lected Technique 3. For whom to produce: It involves deciding the distribution of output among people, ic., it involves selection of the category of people who will ultimately consume the goods. 24Ap} Indian Economic Developmen Types of Economic Systems Economic Systems are generally of 3 different types: TYPES OF ECONOMICSYSTEMS c i ~ Socialist Economy Mixed Economy (Means of production are owned, (Means of production are owned, (Goth Publicand Private Sector ore a ered and operated controlled and operated by allotted respective roles for solving by Private Sector) Government) Economy's Central Problems} 1, Capitalist Economy: A capitalist economy is the one in which the means of production are owned, controlled and operated by the private sector. Production is done mainly to earn profits. So, the central problems (what, how and for whom to produce) 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: Goods are produced using cheaper techniques of production. In case of cheap labour, labour-intensive methods 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 an urgency. 2. Socialist Economy: A socialist economy is the one in which the means 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 will be produced. * 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. 3. Mixed Economy: A mixed economic system refers to a system in which the public sector and the private 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 Tn freedom, leaders of independent India (like Jawaharlal Nehru) were confused with mic system, to be followed in India.PRS RT PNT SET YS Chapter 2. ¢ Indian Economy (1950 - 1990) 2.3 * Some leaders were in favour of the 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 fewer chances for improvement in quality of life of majority of people. + Asa 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. A 2.2 ECONOMIC PLANNING 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 fo produce) by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economy as a whole. known as the Architect of Indian Economic Planning.” PC. Mahalanobis’ is known a 2 ee Many distinguished thinkers contributed to the formulation of our five year plans. Among them, Prasanta Chandra Mahalanobis stands out. About Prasanta Chandra Mahalanobis ‘+ Mahalanobis was born on 29" June 1893 in Calcutta (now Kolkata). 3 + Hewas educated at the Presidency Collegein Calcuttaandat Cambridge | University in England. + In 1946, he was made a Fellow (member) of Britain's Royal Society, one ofthe most prestigious organisations of sc + Mahalanobis established the Indian Statistical Institute ('SI) in Calcutta and started a journal, Sankhya, which still serves asa respected forum PC Wanaranoeis for statisticians to discuss their ideas. + Heisbest remembered for the Mahalanobis distance, statistical measure. He made pioneering studies in anthropometry in India. His contributions to the subject of statistics brought him international fame. + Mahalanobis died on 28" June, 1972, a day before his seventy-ninth birthday. Even at this age, he was still active in doing research work and discharging his duties as the Secretary and Director of the IS! & as the Honorary Statistical Advisor to the Cabinet of Indian Government. Contribution of Mahalanobis in indian Planning Inindia, planning inthe real sense, began with the Second Five Year [Link] Second Plan aid down the basic ideas regarding goals of Indian planning, which was based on the ideas of Mahalanobis. In that sense, he can be regarded as the architect of Indian planning. During the second plan period, Mahalanobis invited many distinguished economists from indiaand abroad to advise him on India's economic development, Mahalanobis wil aways be remembered for playing a vital role In putting india on the road to economic progress.i Indian Economic Development + The Industrial Policy Resolution of 1948 and the Directive Principles of the Indian Constitution assigned a leading role to the public sector. Private sector wasalso encouraged to participate in the plan's efforts. + Tomake economic planning effective, the Government of India set up Planning Commission in 1950, under the chairmanship of the then Prime Minister Pandit Jawaharlal Nehru, + 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 thatPlanning Commission’ is no more in existence. On 1" January, 2015, a Cabinet Resolution was passed to replace the Planning Commission with the newly formed NITI Aayog (National Institution for Transforming India). Prime Minister is the ex-officio Chairman of NITI Aayog, = Eee 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 borrowed from the former Soviet Union). Contentin Plans: Our plan documents not only specify the objectives to be attained in thefive years of aplan, but also, whatis to be achieved over a period of twenty years. This long-term planis called ‘Perspective Plan. The five year plans are supposed to provide the basis for the Perspective Plan. ‘A 2.3 GOALS OF FIVE YEAR PLANS The five year plans have been concerned with the removal of economic backwardness of the country and making India a developed economy. + The five year plans have also taken care to ensure that the weaker sections of the population 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 1* April, 1951 and ending on 31* March, 1956. 12" Five Year Plan of the Government of India (2012-17) was India’s last Five Year Plan. In between these years, some annual plans were also introduced. * 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 (ii) Modernisation (iii) Self-reliance (iv) Equity