Indian Economic Development

Chapter 2 - Economy 1950-1990

1. Define a plan.
Answer
o A plan specifies the set of objectives to be achieved within a specified period of time.
o It shows the means and ways to allocate available resources in an optimum manner in different
developmental activities of a country.
The duration of plans in India is of five years and is called a five-year plan. The five-year plan has been
adopted from the former Soviet Union, the innovator in economic planning. The first five-year plan was
introduced in April 1951
2. Why did India opt for planning?
Answer
1. At the time of independence, the Indian economy was in its worst stage.
2. The GDP, National and Per Capita income was very low and the unemployment was
very high.
3. The Industrial growth was insignificant also the Agricultural Sector was not doing well.
4. The resources were very limited. So India opted for planning because it helps in spelling
out how the resources of a nation should be used efficiently and economically, so that
rate of economic growth can be accelerated.

3. Why should plans have goals?

Answer
Every plan should have specified goals which it seeks to pursue. Goals are the ultimate targets the
achievement of which ensures the success of plans.
A plan specifies the means and ways to allocate scarce resources in an optimum manner so as to achieve
these desired goals. Without specific goals, a plan would be directionless and resources would not be
utilised in a proper manner without wastage.

Following goals are focused in every plan :

(i) Growth
(ii) Modernisation
(iii) Self-reliance
(iv) Equity

4. What are miracle seeds?

Answer
o Miracle seeds or High yielding variety (HYV) seeds are helpful in increasing the production of
food grains.
o The use of this seeds requires the use of fertilizers and pesticides in the correct quantities and
regular supply of water.

5. What is marketable surplus?

Answer
Marketable surplus refers to the difference between the total output produced by a farmer and his on-
farm consumption.
Or, we can say, the portion of agricultural produce which is sold in the market by the farmers is
called marketable surplus.
Marketable surplus = Total farm output produced by farmer - Own consumption of farm output.
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6. Explain the need and type of land reforms implemented in the agriculture sector.
Answer
Need for land reforms:
Land revenue system: The colonial government in India introduced various systems of land settlement.
The zamindari system was one such land settlement system. Under this system, zamindars were owners of
the land and collected rent from cultivators without any contribution to improvement of the farm.
Low productivity: The Indian agricultural sector was suffering from irrigation facilities and technology
advancement. As a result, the production of the agricultural sector was solely dependent on the monsoon.
This created an unfavourable situation for farmers and led to a low level of agricultural productivity.
Landholding size: Due to sub-division and fragmentation of agricultural holding, the adoption of
advanced technology in the agricultural sector was very difficult. 

Types of Land reforms:

1. Abolition of intermediaries: The prime focus of land reforms was to abolish intermediaries like
Zamindars, Jagirdars, etc. There were many steps undertaken to make the tillers, the owners of
the land because ownership of land enables the tiller to make profit from the increased output.

2. Consolidation of landholdings: As the land holdings were small and also fragmented, so it was
very necessary to consolidate the land holdings for the use of modern and advanced technology.
The farmers were given consolidated holdings equal to the total of the land in their various
fragmented plots. This enabled them the benefits associated with the large scale production.

3. Land Ceiling: This means fixing the maximum size of land which could be owned by an
individual. The purpose of land ceiling was to reduce the concentration of land ownership in a
few hands. This policy also helped to reduce inequality in the agricultural sector. By fixing a
ceiling, surplus land can be redistributed among landless cultivators and small farmers. 

7. What is Green Revolution? Why was it implemented and how did it benefit the farmers? Explain in
brief.
Answer
The term Green Revolution refers to the large increase in production of food grains resulting from the
use of high yielding variety (HYV) seeds especially for wheat and rice.

It was implemented
o Because at independence, about 75% of the country’s population was dependent on
agriculture. But the productivity in the agricultural sector was very low because of the use
of old technology and the absence of required infrastructure for the vast majority of
farmers.

o India’s agriculture extremely depends on the monsoon and if monsoon fell short the
farmers were faced innumerable problems in farming activities

o Indian farmers were dependent on landlords and rural money lenders to meet their credit
requirements. Landlords and lenders exploited farmers.

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benefit the farmers
By the use of HYV seeds the productivity of food grains increased remarkably and a good proportion of
the rice and wheat produced during the green revolution period was sold by the farmers in the market.
o India achieved self-sufficiency and self-reliability in food grains.
o Availability of inputs: It enabled farmers to use HYV seeds, pesticides, fertilisers and well-
developed agricultural methods in areas where the supply of water was regular.
o Scientific rotation of crops: It allowed the farmers to harvest more than two crops in a year
through the initiation of short-term HYV seeds for major crops.
o Credit facility: It provided farmers with sufficient credit facilities and package of inputs before
the sowing season through government programmes.
o Minimum support prices: It ensured farmers with reasonable prices for their produce through
minimum support prices and prevented income fluctuations

8. Explain 'growth with equity' as a planning objective.

Answer
One of the important objectives of planning is to get stable growth with equity in the economy.
Growth refers to an increase  in the level of national income over a period of time and equity refers
to equitable distribution of the national income.
For every nation, it is very important to have growth along with equity. If there is only growth (without
equity) in the economy, then it means that everyone is not enjoying the benefit of growth. In this regard,
planners have to ensure that the prosperity of economic growth should reach all the people. Every
individual should be able to fulfil his/her basic needs of food, house, education and healthcare.
So, the government should ensure appropriate allocation of wealth among the people to reduce economic
inequality in the economy. Therefore, ‘growth with equity’ is a more rational and desirable objective of
planning for a nation.
9. Does modernization as a planning objective create contradiction in the light of employment
generation? Explain.
Answer
No, modernization as a planning objective does not contradict employment generation.
In fact, both modernization and employment generation are positively correlated.

By modernization
o we mean adoption of new technology to increase the production of goods and services. For
example, a farmer can increase the output on the farm by using new seed varieties instead of
using the old ones.
o Similarly, a factory can increase output by using a new type of machine. This does not cut down
the employment generation opportunity rather this facilitate the manpower in their works. Only
thing we need to train our human resources.
o The use of modern technology and input will raise the productivity and, consequently, the
income of the people that will further raise the demand for goods and services.
o In order to fulfill this increased demand, there will be more job opportunities that will lead
more people to be hired and, hence, more employment opportunities will be generated.
o Hence, both modernization and employment generation are not contradictory but are
complementary to each other.

10. Why was it necessary for a developing country like India to follow self-reliance as a planning
objective?
Answer
ᴥ Self-reliance is reducing or eliminating the dependency on other nations, i.e. preventing import of
goods from other nations and encouraging producing those goods domestically.
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ᴥ It is essential for a developing nation like India to follow self-reliance as a planning objective. This is
because at the time of independence, India was completely dependent on foreign countries for food,
technology and capital goods which affected India's sovereignty adversely.
ᴥThis led to foreign government interference in Indian internal policies.
Hence, India adopted the following ways to became self-reliant:
ᴥMaintained self-sufficient food grains and increased the share of the industrial sector in gross domestic
product.
ᴥThe growth of domestic production led to a fall in foreign aid and dependency on import of goods.
ᴥTherefore, there was strong emphasis on self-reliance in the first seven five year plans.
11. What is sectoral composition of an economy? Is it necessary that the service sector
should contribute maximum to GDP of an economy? Comment.
Answer
The GDP of a country is derived from the different sectors of the economy. Namely the agricultural
sector, the industrial sector and the service sector. The contribution made by each of these sectors makes
up the structural composition of the economy.

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 the economy's dependence on
the agricultural sector will decrease to the minimum level and the share of the industrial and service
sectors in the total GDP will increase over the years. The growth in the performance of the service
sector with higher contribution to the total GDP is an indication of economic development. 

12. Why was public sector given a leading role in industrial development during the
planning period?
Answer
Lack of capital: Private entrepreneurs lacked capital for setting industries as a huge amount was
required. Thus, the government took the responsibility of developing industries in the economy.
Lack of incentive: The Indian market was comparatively small which discouraged Indian industrialists to
invest in major projects (even though they had sufficient capital to invest). Thus, the government
promoted the industrial sector.
Development of India on socialist base: Indian planners wanted to develop the Indian economy on a
socialist base, so they focused on government-funded major projects.
Social welfare: In India, there were certain projects in which the profit margin was negligible. Thus, the
private sector was not interested in such projects, and it was only the public sector which could bring the
balanced regional growth with the establishment of government units in the backward areas. This move
could increase the employment and income of the people.
13. 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.
Answer
ᴥ 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 product per farm land.
ᴥ in addition, the spread of marketing system, abolition of intermediaries Easy availability of credit has
enabled farmers with greater portion of marketable surplus.
ᴥ All these factors enabled the government to attain sufficient food grains to build the buffer stock and to
provide cushion against the shocks of famines and shortages.
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14. 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 fact.
Answer
It has been rightly said that subsidies encourage farmers to use new technology but they are also a huge
burden on government finances.  
Points for usefulness of subsidies:
ᴥSubsidies help in encouraging farmers to use new and innovative technology.In India, more than 50%
of the farmers are very poor and cannot afford new technology in their farming activity. In this regard,
the government can help them by providing subsidies.
ᴥThe abolishment of subsidy will break up the goal of equity because it raises differences between poor
and rich farmers in India.
ᴥThe application of new technology in farming will increase the total output of agricultural products in
developing nations. However, the subsidy is helpful for farmers to cope with advanced technology and
higher productivity level.
ᴥGovernment planning is required to target farmers who really need financial assistance and avoid the
wastage of resources which increase the burden of the government. 
Points against subsidies:
ᴥSome economists are of the view that once technology is widely accepted, the government should stop
providing goods at subsidised rates.
ᴥSubsidies are provided to benefit farmers, but it has been observed that the fertiliser industry has
benefited more than farmers.Also, farmers from prosperous regions benefited from subsidies more than
farmers from poor areas.
ᴥHence, it has been argued that the fertiliser subsidy should not be continued as it failed to serve the
target group. However, other economists were in favour of continuing the subsidy as farming is the most
important business in India

15. Why despite the implementation of green revolution, 65% of our population continued to
be engaged in the agriculture sector till 1990?
Answer
ᴥImplementation of the Green Revolution in the agricultural sector resulted in a significant increase in
agricultural output, but the same output could have been increased with fewer workers in the
agricultural sector. India was not able to attain structural transformation related to growth and
development of an economy.
ᴥDuring 1950s, the contribution of agriculture to the GDP was 59%; which decreased largely to 35% by
1990.
ᴥContribution of other sectors in the GDP increased sharply during this period. But employment
generation in secondary and tertiary sectors did not increase at the same pace.
ᴥAs a result, even after about four decades of the planned economy, contribution of agricultural sector in
employment generation remained more or less same. 65% of the total population still continued to be
engaged in agriculture till 1990.

16. 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.
Answer
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Although, the inefficiency and low productivity in Public Sector Undertakings (PSUs) may lead to
wastage of the scarce resources and result in huge losses forming a check on economic resources of
the country, they do have some advantages, (i) Social Welfare The basic objective of the PSU was to
provide goods and services that add to the welfare of the society without looking for profits.

ᴥPublic welfare facilities such as school’s hospitals, railways, electricity etc are necessary to be
provided at reasonable cost to the people of the country.

(ii) Heavy Investment and Long Gestation Projects ᴥ Projects like heavy and basic industries, power
generation, railways, etc need a very huge initial investment and have long gestation period.
ᴥ Hence, government is the most appropriate to invest in these projects under public sector as private
sector is reluctant to enter such ventures due to the high risk involved.

(iii) Reduce Exploitation It is believed that In public sector units the labour is not exploited as it Is
protected by the government. The consumers are also not exploited by charging high prices or
serving low quality goods as PSUs do not operate with profit motive.

(iv) Generate Employment Private sector does not have the Inducement to invest and create
employment opportunities during periods of low demand i.e., during economic recession. During
such phases, PSUs are needed to generate employment opportunities with the help of government
investment. Apart from this job security is also provided by the PSUs to their employees.

17. Explain how import substitution can protect domestic industry.

Answer
Import substitution is also known as an inward looking trade strategy which implies discouraging the
imports of those goods that could be produced domestically.

ᴥImport Substitution Strategy not only reduces an economy's dependence on the foreign goods but also
provides motivation to the domestic firms.
Methods
ᴥGovernment provides various financial encouragements, incentives, licenses to the domestic
producers to produce domestically the import substituted goods.
ᴥ Tariffs i.e., a tax on imported goods to make imported goods more expensive and discourage
their use 
ᴥ Quotas specify the quantity of goods which can be imported. The policy of import substitution
provides protection to domestic industries from foreign competition

18. Why and how was private sector regulated under the IPR 1956?

Answer
Under IPR 1956 the private sector was kept under state control through a system of licenses. No new
industry was allowed unless a license was obtained from the government.

This policy was used for promoting industry in backward regions; it was easier to obtain a license if the
industrial unit was established in an economically-backward area.

In addition, such units were given certain concessions such as tax benefits and electricity at a lower
tariff. The purpose of this policy was to promote regional equality.

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Even an existing industry had to obtain a license for expanding output or for diversifying
production. This was meant to ensure that the quantity of goods produced was not more than what
the economy required.

19. Match the following:

1 Prime Minister A. Seeds that give large proportion of output

.
2 Gross Domestic B. Quantity of goods that can be imported
. Product
3 Quota C. Chairperson of the planning commission
.
4 Land Reforms D The money value of all the final goods and services produced within the
. . economy in one year
5 HYV Seeds E. Improvements in the field of agriculture to increase its productivity
.
6 Subsidy F. The monetary assistance given by government for production activities.
.

Answer
1 Prime Minister C. Chairperson of the planning commission
.
2 Gross Domestic D The money value of all the final goods and services produced within the
. . economy
Product in one year
3 Quota B. Quantity of goods that can be imported
.
4 Land Reforms E. Improvements in the field of agriculture to increase its productivity
.
5 HYV Seeds A. Seeds that give large proportion of output
.
6 Subsidy F. The monetary assistance given by government for production activities.
.

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