UNIT –II

STRUCTURE OF THE ECONOMY

Unit Structure
2.0 Introduction
2.1 Objectives
2.2 Structure of Indian Economy
2.3 Idea of Market and Theory of Political Economy
2.4 Mixed Economy in a Welfare State
2.5 Concept of Self Reliance
2.6 Progress Towards Self Reliance

2.0 Introduction :
At independence the economy was predominantly agrarian. Most
of the population was employed in agriculture, and most of those people
were very poor, existing by cropping their own small plots or supplying
labor to other farms. Landownership, land rental, and sharecropping
rights were complex, involving layers of intermediaries. Moreover, the
structural economic problems inherited at independence were exacerbated
by the costs associated with the partition of British India, which had
resulted in about 12 million to 14 million refugees fleeing past each other
across the new borders between India and Pakistan.

2.1 Objectives
After studying this lesson, you should able to:
 Understand the Structure of Indian Economy
 Know about the Idea of Market- Market Theory of Political Economy
 Estimate Mixed Economy in a Welfare State
 Explain the Concept of Self Reliance – Progress Towards Self
Reliance

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 2.2 STRUCTURE OF THE ECONOMY
Economic development has historically been
associated with structural changes in the national
economies. It has, in fact, most often, been defined as a
process combining economic growth with changing share
of different sectors in the national product and labour
force. The most common structural changes that have
been observed historically have followed a sequence of shift
from agriculture to industry and then to services.

India's leaders especially the first prime minister, Jawaharlal

Nehru, who introduced the five-year plans agreed that strong economic
growth and measures to increase incomes and consumption among the
poorest groups were necessary goals for the new nation. Government was
assigned an important role in this process, and since 1951 a series of
plans have guided the country's economic development. Although there
was considerable growth in the 1950s, the long-term rates of growth were
less positive than India's politicians desired and less than those of many
other Asian countries. From First five Year Plan 1951 to Fifth Five year
Plan 1979, the economy grew at an average rate of about 3.1 percent a
year in constant prices, or at an annual rate of 1.0 percent per capita.

It is only during the last about half a century that

‘modern’ development accompanying significant
structural changes has taken place in India. Indian
economy revealed similar structural characteristics in
1950, as most developed countries of today showed at the
time they embarked upon the road to industrialisation.
With about 60 per cent of GDP accounted for by

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agriculture, industry contributing about 13 and services
about 27 per cent, the Indian economy in 1950 was
structurally comparable to the economy of the Great
Britain in late eighteenth century, and of Germany at the
beginning of the nineteenth century, of the United States
and Italy of mid-nineteenth century and of Japan in 1900.

Similar comparisons hold in respect of the share of

labour force in different sectors: agriculture accounted for
about three-fourths, industry for about 11 and services 16
per cent of total employment in 1950, in India. This is
comparable with the United States of 1841, with 72 per
cent workers in agriculture, 12 per cent in industry and 16
per cent in services, or Japan of 1880 with the respective
shares of employment in the three sectors being 65, 15
and 20 per cent. Economic development in India over a
period of half a century seems to have followed the same
pattern of structural changes that the developed
economies of today underwent over a period ranging
between 150 to 100 years. The share of agriculture in GDP
declined from around 60 per cent in 1950-51 to 24 per
cent in 2003-04. That of industry increased from 13 to 25
per cent and of services from 28 to 51 per cent. This
pattern of shifts has been continuous throughout the
period of over half a century, but the speed of the shift
has been faster since 1990-91.

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 During this period, industry grew at an average rate of 4.5 percent
a year, compared with an annual average of 3.0 percent for agriculture.
Many factors contributed to the slowdown of the economy after the mid-
1960s, but economists differ over the relative importance of those factors.
Structural deficiencies, such as the need for institutional changes in
agriculture and the inefficiency of much of the industrial sector, also
contributed to economic stagnation. Wars with China in 1962 and with
Pakistan in 1965 and 1971; a flood of refugees from East Pakistan in
1971; droughts in 1965, 1966, 1971, and 1972; currency devaluation in
1966; and the first world oil crisis, in 1973-74, all jolted the economy.

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Growth since 1980

The rate of growth improved in the 1980s. From 1980 to 1989, the
economy grew at an annual rate of 5.5 percent, or 3.3 percent on a per
capita basis. Industry grew at an annual rate of 6.6 percent and agriculture
at a rate of 3.6 percent. A high rate of investment was a major factor in
improved economic growth. Investment went from about 19 percent of
GDP in the early 1970s to nearly 25 percent in the early 1980s. India,
however, required a higher rate of investment to attain comparable
economic growth than did most other low-income developing countries,
indicating a lower rate of return on investments.

Private savings financed most of India's investment, but by the

mid-1980s further growth in private savings was difficult because they
were already at quite a high level. As a result, during the late 1980s India
relied increasingly on borrowing from foreign sources. This trend led to a
balance of payments crisis in 1990; in order to receive new loans, the
government had no choice but to agree to further measures of economic
liberalization. This commitment to economic reform was reaffirmed by
the government that came to power in June 1991.

India's primary sector, including agriculture, forestry, fishing,

mining, and quarrying, accounted for 32.8 percent of GDP in 1991. The
size of the agricultural sector and its vulnerability to the vagaries of the
monsoon cause relatively large fluctuations in the sector's contribution to
GDP from one year to another.

In 1991, the contribution to GDP of industry, including

manufacturing, construction, and utilities, was 27.4 percent; services,
including trade, transportation, communications, real estate and finance,

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and public- and private-sector services, contributed 39.8 percent. The
steady increase in the proportion of services in the national economy
reflects increased market-determined processes, such as the spread of
rural banking, and government activities, such as defense spending.

Despite a sometimes disappointing rate of growth, the Indian

economy was transformed between 1947 and the early 1990s. The
number of kilowatt-hours of electricity generated, for example, increased
more than fifty fold. Steel production rose from 1.5 million tons a year to
14.7 million tons a year. The country produced space satellites and
nuclear-power plants, and its scientists and engineers produced an atomic
explosive device. Life expectancy increased from twenty-seven years to
fifty-nine years. Although the population increased by 485 million
between 1951 and 1991, the availability of food grains per capita rose
from 395 grams per day in 1950 to 466 grams in 1992.

However, considerable dualism remains in the Indian economy.

Officials and economists make an important distinction between the
formal and informal sectors of the economy. The informal, or
unorganized, economy is largely rural and encompasses farming, fishing,
forestry, and cottage industries. It also includes petty vendors and some
small-scale mechanized industry in both rural and urban areas. The bulk
of the population is employed in the informal economy, which
contributes more than 50 percent of GDP. The formal economy consists
of large units in the modern sector for which statistical data are relatively
good. The modern sector includes large-scale manufacturing and mining,
major financial and commercial businesses, and such public-sector
enterprises as railroads, telecommunications, utilities, and government
itself.

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 The greatest disappointment of economic development is the
failure to reduce more substantially India's widespread poverty. Studies
have suggested that income distribution changed little between
independence and the early 1990s, although it is possible that the poorer
half of the population improved its position slightly. Official estimates of
the proportion of the population that lives below the poverty line tend to
vary sharply from year to year because adverse economic conditions,
especially rises in food prices, are capable of lowering the standard of
living of many families who normally live just above the subsistence
level. The Indian government's poverty line is based on an income
sufficient to ensure access to minimum nutritional standards, and even
most persons above the poverty line have low levels of consumption
compared with much of the world.

Estimates in the late 1970s put the number of people who lived in
poverty at 300 million, or nearly 50 percent of the population at the time.
Poverty was reduced during the 1980s, and in 1989 it was estimated that
about 26 percent of the population, or 220 million people, lived below the
poverty line. Slower economic growth and higher inflation in 1990 and
1991 reversed this trend. In 1991, it was estimated that 332 million
people, or 38 percent of the population, lived below the poverty line.

Farmers and other rural residents make up the large majority of

India's poor. Some own very small amounts of land while others are field
hands, semi nomadic shepherds, or migrant workers. The urban poor
include many construction workers and petty vendors. The bulk of the
poor work, but low productivity and intermittent employment keep
incomes low. Poverty is most prevalent in the states of Orissa, Bihar,
Uttar Pradesh, and Madhya Pradesh, and least prevalent in Haryana,
Punjab, Himachal Pradesh, and Jammu and Kashmir.

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 By the early 1990s, economic changes led to the growth in the
number of Indians with significant economic resources. About 10 million
Indians are considered upper class, and roughly 300 million are part of
the rapidly increasing middle class. Typical middle-class occupations
include owning a small business or being a corporate executive, lawyer,
physician, white-collar worker, or land-owning farmer. In the 1980s, the
growth of the middle class was reflected in the increased consumption of
consumer durables, such as televisions, refrigerators, motorcycles, and
automobiles. In the early 1990s, domestic and foreign businesses hoped
to take advantage of India's economic liberalization to increase the range
of consumer products offered to this market.

Housing and the ancillary utilities of sewer and water systems lag
considerably behind the population's needs. India's cities have large
shantytowns built of scrap or readily available natural materials erected
on whatever space is available, including sidewalks. Such dwellings lack
piped water, sewerage, and electricity. The government has attempted to
build housing facilities and utilities for urban development, but the efforts
have fallen far short of demand. Administrative controls and other aspects
of government policy have discouraged many private investors from
constructing housing units.

Liberalization in the Early 1990s

Increased borrowing from foreign sources in the late 1980s, which
helped fuel economic growth, led to pressure on the balance of payments.
The problem came to a head in August 1990 when Iraq invaded Kuwait,
and the price of oil soon doubled. In addition, many Indian workers
resident in Persian Gulf states either lost their jobs or returned home out
of fear for their safety, thus reducing the flow of remittances. The direct

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economic impact of the Persian Gulf conflict was exacerbated by
domestic social and political developments.

In the early 1990s, there was violence over two domestic issues:
the reservation of a proportion of public-sector jobs for members of
Scheduled Castes and the Hindu-Muslim conflict at Ayodhya. The central
government fell in November 1990 and was succeeded by a minority
government. The cumulative impact of these events shook international
confidence in India's economic viability, and the country found it
increasingly difficult to borrow internationally. As a result, India made
various agreements with the International Monetary Fund other
organizations that included commitments to speed up liberalization.

In the early 1990s, considerable progress was made in loosening

government regulations, especially in the area of foreign trade. Many
restrictions on private companies were lifted, and new areas were opened
to private capital. However, India remains one of the world's most tightly
regulated major economies. Many powerful vested interests, including
private firms that have benefited from protectionism, labor unions, and
much of the bureaucracy, oppose liberalization. There is also
considerable concern that liberalization will reinforce class and regional
economic disparities. Inflation peaked at 17 percent in FY 1991, fell to
9.5 percent in 1993, and then accelerated again, reaching 11 percent in
late 1994. This increasing trend has been continuing in the year 2008
also. It was attributed to a sharp increase in prices of oil and a shortfall
in such critical sectors as sugar, cotton, and oilseeds. Many analysts agree
that the poor suffer most from the increased inflation rate and reduced
growth rate.

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2.3 IDEA OF MARKET AND THEORY OF POLITICAL ECONOMY

Introduction

The word `market' is not altogether easy to define, largely

because it is used in many senses. The word is derived from the Latin
word, `mercari', which means `to trade'. It came to signify a public place
in which goods and services are bought and sold. It is the act or
technique of buying and selling. - This had led to the very old saying
that two women and a goose may constitute a market. Then there is a
Stock Market where millions of dollars worth of stock may be sold in a
minute, with men listening in from San Francisco to London and
changing their bids every second or two. The infinite variety of
marketing, involving anywhere from two people to thousands, one dollar
or a hundred million, is what makes a market hard to define and describe.

Meaning of Market

The term `marketing' has numerous common meanings. To

the housewife, it is shopping for food. To the farmer, it stands for the
sale of his produce. To the wholesale businessman, it is the scientific
method of advertising and sales promotion. To the industrialists of the
country, it is the discovery of foreign outlets for goods manufactured.
These are only different phases of marketing.

For those who. are concerned with agriculture, "Marketing

is the performance of all business activities involved in the flow of
goods and services from the point of initial agricultural production
until they are in the hands of the ultimate consumer", The study of
agricultural marketing includes the study of all agencies involved in the
movement of farm-produce from the farms to the final consumers and
"the effects of such operations on farmers, middlemen and consumers".

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 In its original meaning, a physical coming together of a sizable
number of merchants and prospective customers at a pre-arranged time
and place (in medieval Europe, typically once a week on the main square
of the largest village in the vicinity) for the purpose of striking deals to
buy and sell a variety of goods and services. Large numbers of customers
came to such organized markets because they found it convenient to be
able to make many of their necessary purchases on the same day in one
central location (minimizing their total travel time and other travel costs)
and because the presence of many merchants offering similar wares made
it much more practical to comparison shop for the best deals in terms of
quality and price. Merchants were often attracted from considerable
distances to participate in such markets because of the opportunity to sell
so many of their wares to such large numbers of potential customers in
such a short time. Modern day flea markets, farmers' markets, gun shows
and crafts fairs are fairly close to the original concept.

In the language of modern industrial society, and especially in the

language of professional economists, the concept of a market has been
generalized and abstracted far beyond the original rather concrete and
localized meaning of the term. In the more modern sense of the term, a
market is the generalized name tag for the whole process that gets under
way whenever a sizable number of people free to buy and/or sell a
particular kind of good or service are in more or less close
communication with each other (either personally and directly or else
through the mediation of advertising, catalogs, news reports, postal
carriers, telephone systems, computer networks, etc.) so that information
about the terms of recent transactions and current offers to buy or sell is
generally available to a large number of interested parties at relatively
low cost -- regardless of the participants' physical proximity or distance.

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 Such technological innovations of the industrial age as ever
cheaper and more rapid transportation and communications over
increasing distances both have dramatically increased the size of the areas
from which buyers and sellers may be brought together to do business
and have greatly reduced the need for them actually to meet face-to-face
in one place in order to strike a bargain. The markets for many
consumers' durable goods like automobiles or TVs and major agricultural
and industrial commodities like oil, natural gas, wheat, beef, steel, forest
products and computer chips are now literally world-wide in extent. (Of
course, for many markets there do still exist central gathering places or
locations that play an especially important role in the local, national or
even worldwide networks of buyers and sellers -- for example, the New
York Stock Exchange, the Chicago Commodities Exchange, the seasonal
women's fashions shows in Paris and Milan, regional baseball card
collectors conventions and so on -- but in nearly all such cases, it is not
really necessary for an individual buyer or seller actually to travel to the
relevant marketplace in order to participate in the broader markets of
which these are nowadays only a part.)

Market economy

An economy in which scarce resources are all (or nearly all)

allocated by the interplay of supply and demand in free markets, largely
unhampered by government rationing, price-fixing or other coercive
interference. In classifying real historical economies, the level of
"marketization" is not primarily an either/or issue but rather a matter of
degree. The greater the proportion of the goods and services produced in
the society that are allocated by market processes (rather than by
government edict or the operation of unchangeable custom), the more
meaningful it is to refer to its economy as a market economy -- and the

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more useful is the abstract economic theory of the operation of markets
likely to be for understanding and even predicting economic behavior
within that society.

Probably the most critical single distinction between "basically

market" and "basically non-market" (socialist, feudal, hunter-gatherer,
etc.) economies is whether or not the determinations of what is to be
produced and of the corresponding allocation of producers' goods (land,
raw materials, machinery, and other "capital," as well as the services of
labor) are accomplished primarily through free markets rather than
primarily through government command or unalterable custom.

The concept of a market presupposes the existence of certain sorts

of property relations in the society involved. At least some goods and
services must be legally or socially regarded as alienable property -- that
is, there must be ascertainable individuals (or group representatives) who
are recognized as having not just the right to use particular scarce
economic resources for their own purposes but also the discretionary
authority permanently to transfer such rights of use to someone else in
exchange for some mutually agreeable quid pro quo, such as money or
other goods or services. Not all human societies have recognized any
such rights to transfer ownership, and most historical human societies
have forbidden or placed stringent limits on the transferability of at least
certain kinds of recognized property rights. In many societies (including
most of Europe during the Middle Ages), individual or family rights to
the perpetual use of particular plots of land were well established and
protected by law -- but such rights only rarely could legally be sold to
someone else because the land was socially regarded as fundamentally
the inalienable property of either the local community as a whole or of
the tribe or clan or church or perhaps of the reigning royal family. And

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even in the USA since 1865, while each person's ownership of his or her
own body is well established, the law will still not allow you to make a
binding contract to sell yourself into slavery or even to auction off your
spare bodily organs for purposes of a surgical transplant.)

It is worth noting for clarity's sake that the concept of a market

does not logically presuppose the existence of "private property in the
means of production" in the sense that private individuals or family
households are the owners of land and capital and thus the recipients of
profits, interest, rent etc. One may at least theoretically conceive of an
economy of market socialism, in which workers' collectives, consumers'
cooperatives, village communes or even autonomous state agencies
leased from the state or held actual title to land, mines, factories,
machinery and so forth -- so long as the socialist production organizations
were free to buy and sell their output and and the use of their assigned
land or capital assets to each other at freely negotiated prices responsive
to conditions of supply and demand (assuming, of course, they are
allowed to keep effective control of the bulk of the proceeds). There are,
of course, both theoretical and practical problems with market socialism,
and the costs and benefits of capitalist markets cannot be uncritically
attributed to such a system. The larger point is that socialist economies
have historically included varying proportions of "remnant" market
elements in their make-up, and the theoretical possibilities for additional
"hybrid" forms are numerous.

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 2.4 MIXED ECONOMY IN A WELFARE STATE

Mixed economy is a system in which “the Public Sector and the

Private Sector are allotted their respective roles in promoting the
economic welfare of all sections of the Community”. It is the e outcome
of the compromises between the two diametrically opposite schools of
thought – the one which champions the cause of capitalism and the other
which strong pleads for the socialization of the means of production and
of the control of the entire economy by the state.

State that ensures equitable distribution of wealth, protection of the

poor, needy and the weak, minimum level of standard of standard of
living may be called a welfare state. Such a state, besides protecting
people, opens and maintains hospitals to take care of public health,
maintains educational institutions, builds roads and bridges, regulates
industry, agriculture, trade and commerce, and numerous social service
functions. Thus, a welfare state is committed to the maximum good of
maximum number of people. This welfare state performs Economic and
Regulatory functions.

These functions are mostly Economic nature. They seek to regulate

planning and economic life of the country. Ever since Soviet Union
launched the process of five year plans many countries have adopted the
course of planned development. Planning and implementations of plans is
an important function aimed at economic development and welfare of
people . Even in the United States, where people still believe in private
sector.

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 The concept of mixed economy accepts the possibility of the co-
existence of private enterprise side by side with public enterprise. But
then, private enterprise should reconcile the element of self interest with
the element of social interest and , in certain cases, the survival of private
enterprise may be made conditional to it serving the community at large.
In mixed economy, the government has a positive role to play in the field
of economic activity. Some industries may be completely state- owned
and managed by the state and private enterprise.

The present economic structure in India is characterized as ‘ Mixed

Economy’. This indicates the functioning of two major sectors viz.,
Private Sector and Public Sector. The Industrial Policy Resolution of
1948 and 1956 introduced the concept of ‘Mixed Economy’ in India’s
industrialization programme. At the time of independence, in India, the
activities of the public sector were restricted to limited field like
irrigation, power. railways, ports, communications and some
departmental undertakings. After independence, the area of public sector
activities was enhanced and expanded rapidly. The Industrial Policy
Resolution of 1948 and 1956 divided the industries into different
categories. Some areas were exclusively earmarked for public sector. The
heavy and basic industries were kept for the public sector, while entire
field of consumer goods were left to the private sector.

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 2.5 CONCEPT O F SELF-RELIANCE

INTRODUCTION
Self-reliance is being independent, which is being able to depend
on yourself alone and to do things by yourself without assistance from
others. Self-reliance is what you do using your mind, body and [Link]
term self-reliance is often confused with self-sufficiency though they are
not one and the same. Self-sufficiency can be interpreted in both a
general as well as a partial sense. In general sense, self-sufficiency
implies that a country is in a position to fulfill all its requirements of
goods and services from domestic sources and is not at all dependent on
import. In such a situation the possibility as exports can also be ruled out
as, if the country is not dependent on imports, foreign, exchange earned
through exports has no relevance for such country.

In fact, self-sufficiency in general sense is an unrealistic situation.

However, self-sufficiency in partial sense implies that a country is in a
position to fulfil all its requirements of goods and services either from
domestic sources or has adequate foreign exchange to import goods and
services it requires from abroad. Self-reliance implies self-sufficiency in
partial sense, i.e., a country is capable of meeting all its requirements
either from domestic sources or has an ability to import them from
abroad. Therefore, it can be said that to be self-reliant a country need not
be self-sufficient.

IMPORTANCE OF SELF-RELIANCE
India won independence after about two centuries of colonial
exploitation. At this juncture, the world politics as whole was undergoing
a revolutionary change but the developed countries, were not prepared to

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abandon their imperialistic pursuit. Hence, India, like many other newly
liberated countries, could not risk its freedom again by opening up its
economy to the western world. However, Indian economy at that time
was afflicted by severe problems like shortage of foodgrains,
underdevelopment of agricultural as well as industrial sector, scarcity of
capital and technological obsolescence. We need to analyse these aspects
of Indian economy in order to understand why economically backward
country like India should become self reliant in these key areas of
development.

(a) Shortage of Foodgrains:- At the time of independence, India was

purely an agrarian economy and this character of Indian economy has not
changed over the past five decades. At the time of independence, the
production of foodgrains in India was much less than its demand.
Shortage of food grains in the country often led to mass unrest and
therefore India entered into the PL-480 agreement with the USA for the
import of foodgrains. Though this benefited consumers in the short run
but it had many adverse repercussions such as threat of political
blackmailing from major foodgrains suppliers, bad impact on domestic
producers, etc. However, with the withdrawal of PL-480 programme by
the US and subsequent launch of the Green Revolution strategy by India
has removed obstacles to the development of agricultural sector in India
and today we are self sufficient in the production of foodgrains.

(b) Underdevelopment of Industrial Structure: - On the eve of

independence, the industrial development in the India was confined to
traditional indigenous industries producing handful of consumer goods
such as cotton textile, sugar, paper and leather goods. Industries
manufacturing intermediate good like iron and steel, cement, etc., had a

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capacity much below the requirements. Capital goods industries were
almost non-existent. In short, industrial development in India after
independence manifested all the signs of underdevelopment. The
government, thus, accorded a top priority to the programmes of industrial
development as soon as planning process began in India. As a part of
planned efforts, a number of industries were setup in public sector. The
second Five Year Plan was referred to as industrial plan and number of
basic and heavy industries, including iron and steel, non-ferrous metal,
coal, cement, heavy chemicals and others were set up.

(c) Scarcity of Capital: - Accounting to the Central Statistical

Organisation (CSO) the Gross Domestic Saving (GDS) rate was just 8.95
in 1950-51. This rate was much below standard. The GDS rate did not
show much increase during the planning period in the initial phase. As a
result, India had to depend on external foreign aid for meeting its import
requirements. The country, however, failed to raise adequate funds from
foreign sources on account of certain political constraints. Besides the
low rate of saving, the other factor, which compelled the government to
seek foreign aid, was the persistent deficit in balance of payments. The
problem with foreign aid is that while giving loans, donor countries
taking advantage of the weak bargaining position of the capital recipient
country impose highly objectionable conditions which can affect the
autonomy of the decision making processes in the recipient country.

(d) Obsolete Technology:- India is an overpopulated country with ready

availability of efficient and cheap labor at hand. Unemployment is the
major problem, which country is facing even today, and as a result
capital-intensive methods of production are not suitable for our economy
Therefore, a very little attention was paid to the development of modern

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technology at home. At the same time, whatever technologies are being
utilized presently are obsolete and outdated technologies, are being
utilized presently are obsolete and outdated technologies, absorbed form
foreign economies, which hardly contribute to the economic development
of the country. As a result, in order to keep pace with world economy,
India had to import technology from outside. Some of which are not at all
suitable for Indian conditions. Taking this into consideration India needs
to develop its own technology, which can fulfill the needs of providing
job opportunities as well as help the economy in keeping with the modern
world.

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 2.6 PROGRESS TOWARDS SELF-RELIANCE

So far India is not a completely self-reliant economy, though its

progress towards self-reliance in foodgrains, capital equipment, science
and technology and capital formation is quite significant. The balance of
payments situation right now is not precarious, but the country’s
dependence on MNCS for setting up power projects and large oil imports
raise serious doubts about India’s capability to become completely self-
reliant in near future.

(a) Self Sufficiency in Foodgrains :- Self sufficiency in foodgrains has

always been considered and essential condition for India’s self reliance.
Consequent to the Withdrawal of PL-480 programme by the US and
subsequent launch of the Green Revolution strategy by India, agricultural
sector received a boost and due to assiduous efforts of more than a decade
India achieved the dream of self-sufficiency in the production of
foodgrains by 1977-78. During the 1980s the imports of food grins in
India reduced considerably. The reason not being a sudden rise in
production of foodgrains, but because the country had been able to build
up large buffer stocks of foodgrains from which supplies could be
released in the years of bad harvests to match the demand. In 1986-87 and
1987-88 the country experienced serious droughts. Yet the country
successfully handled the food problem without recourse to large imports.
In January 2002, buffer stocks of foodgrains were more than 50 million
tones. This level of buffer stocks was much larger than that was required
to sustain public distribution system and stabilize prices of foodgrains in
the open markets.

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(b) Self-Reliance in Capital Equipment:- The second Five Year plan
laid the foundation of industrial development in India. Since initially the
private sector did not come forth due to high investment and long
gestation period, majority of basic and heavy industries such as heavy
engineering, machine tools, iron and steel and some other capital goods
industries were set up in public sector. As a result of boost given by the
public sector and active participation of private sector later on, India
marched on the path of industrial development. Today, we are self-
sufficient in the production machinery, plant and other capital
equipments. Today, engineering goods constitute one of the biggest
export items. This shows that India’s capital base is reasonably strong.
India is capable of setting up big industrial units with indigenous
machines and technical know-how. This undoubtedly is a big
achievement of economic planning.

(c) Self-Reliance in Science and Technology:- Development of science

and technology plays a crucial role in the economic development of a
country. However, given the political environment at the international
level, it is not always possible to acquire the necessary technology on
commercial terms. Hence, there is a strong case for self-reliance in
science and technology. In fact, the country realized this quite early and
as a result, the country has make a considerable headway in various areas
of science and technology. Over the years agricultural research has
played a crucial role in raising the production of foodgrains and today we
are self-sufficient in the production of foodgrains. India’s competence in
industrial technology has grown so much that it has now emerged as a
leading Third World exporter of industrial know-how, technical
consultancy and turnkey projects. Even in the atomic energy programme,
a high degree of self-reliance has been attained in terms of design,

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fabrication and commissioning of nuclear power reactors and all
associated elements. In the space programme, capabilities relating to
design and fabrication of satellites and of satellite launch vehicles have
been developed which should lead in a few years to the possibility of
launching and utilizing operational satellite on an indigenous basis.

(d) Balance of Payments Deficit and Self-reliance:-Although India’s

balance of payment position has always remained unfavourable, there is
no doubt that the conditions since 1993-94 have been distinctly
favourable in comparison to the conditions prevailing in the period 1980-
81 to 1992-93. In 1993-94 the current account deficit was only 0.4% of
GDP. The foreign exchange reserves were equal to eight and a half
month’s imports. In this year while imports increased at a rate of 10.0%,
exports rose at an impressive rate of 20.2%. In 1996-97, the current
account deficit was 1.2% of GDP. Over the whole of the Eighth Plan
period (1992-93 to 1996-97), the current account deficit declined to an
annual average of 1.2% of GDP from 1.8% of GDP during the Seventh
Plan. In addition of these significant developments, a noteworthy feature
in India’s balance of payments in recent years has been improvements in
the invisible account due to mainly a spurt in tourism earnings and shift
of private transfers from illegal channels to banking channels. In 2000-01
India’s current account deficit declined to 0.5% of GDP as against 1.1%
in 1999-2000.

(e) Energy Crisis and Self Reliance:- At present India is facing a serious
energy crisis and until it is solved the country cannot hope to become
self-reliant. There is an acute shortage of power and energy resources in
the country. At the same time, transmissions and distribution losses are
high. The agricultural consumers are supplied power at very subsidized

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prices, which has led to inefficient use of electricity. The State Electricity
Boards are grossly overstaffed and are plagued with rampant corruption.
Under these circumstance India has to depend on foreign MNCs for
setting up power projects. These MNCss insist on exceptional rights and
privileges for making investments in [Link] production of oil has
stagnated for the last few years and our index of self-reliance in oil has
come down from 70% in 1984-85 to 32.5% in 2000-01. As a result,
imports of petroleum products in 2000-01 were as large as Rs. 71,497
crore.

As far as the power sector is concerned the problem is far more

serious. In this sector, until the State Electricity Boards are made
autonomous, the pricing policy is rationalized, inefficiencies in the use of
created capabilities are removed and rampant corruption is checked,
energy sector units will not be financially viable and the power sector will
remain starved of ingestible resources. Under these circumstances, the
country has no choice but to depend on MNCs for expanding the capacity
in the energy and power sector.

To sum up, over the years the goal of overall self-reliance has
proved to be elusive because of the balance of payments problems created
largely by oil imports and the serious crisis in the power sector which has
lately gripped the to attain this objective. Indications are that debt service
on borrowings will increase in the years ahead. Recently export growth
has accelerated, but imports have also increased. These trends are
expected to persist for some time at least. Hence, unless we make a
serious efforts solve all these obstacles, India’s advance towards the goal
of self-reliance in the near future is somewhat difficult.

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SELF ASSESSMENT QUESTIONS :
1. Evaluate the structure of Indian Economy
2. Explain the concept of self- Reliance and its progress.
3. Write an essay on Idea of Market and political economy.

References :
1. Ruddar Datt, and K.P.M. Sundharam, Indian Economy [Link] &
Compony Ltd, New Delhi: 2003
2. [Link], Indian Economy: Problems Policies and Development
Margham Publications, Chennai: 2003
3. Indian Economy Spectrum Books Pvt. Ltd. New Delhi: 2003.

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