CHAPTER – 2
INDIAN ECONOMY (1950-1990)
(ALL PARTS IN ONE PAGE)
PART - 1
ECONOMIC SYSTEM AND TYPES OF ECONOMY
1. Economy – Refers to an organization in which people engaged in economic activities and earn means of living.
1.1 Economic System – Refers to a system which solves the central problems of an economy. There are three central Problems –
(i) What To Produce - To decide the final goods and services to be produced. It involves selection of goods and services and the quantity of each that economy should produce.
(ii) How To Produce – To decide the Choice of technique of production. Whether goods to be produced with more labour and less capital (Labour Intensive Technique) or with more capital and less labour (Capital Intensive Technique).
(iii) For Whom to Produce – How distribution of goods will take place. It involves selection of the category of people who will ultimately consume the goods.
1.2 Types of Economy –
Market or Capitalist Economy –
* Factors of production owned and operated by individuals.
* Main motive to earn profit.
* Market demand and supply decides what, how and for whom to be produced in economy.
What to produce – Only those goods will be produced that can be sold profitably in domestic market as well as foreign market.
How to Produce – Goods are produced using cheaper technique. If labour is available at cheap rate then labour Intensive Technique will be used and If capital is available at cheap rate then Capital Intensive Technique will be used in production.
For whom to Produce – Goods produced are distributed among people not on the basis of their needs but in the basis of their purchasing power or income.
Socialist of Planned Economy –
* Factors of production owned and operated by government.
* Main motive is social welfare.
* Government decides what, how and for whom to be produced.
What to produce – The government will decide what to produce as per need of yje society.
How to Produce – Govt. will decides how to be produced.
For whom to Produce – Goods produced are distributed among people on the basis of their needs not on the basis of their purchasing power or income.
Mixed Economy –
* Government and private individuals owned and operated factors of production;
* Govt. and the market forces decide together what, how and for whom to be produced.
As a result India adopted Mixed Economy System with best features of both capitalist and socialist economy. Now India would be a socialist economy, with a strong public sector, but also with private property and democracy.
(For more data please watch video)
VIDEO REFERENCE
1. Indian Economy (1950-90) - PART 1
(Central Problems, Types of Economy)
PART - 2
COMMON GOALS OF FIVE YEAR PLAN
1. Meaning of Planning - Planning is a technique and a means to attain goals. These pre-determined goals are specially formulated by the central planning authority.
2. Characteristics of Economic Planning –
l. Organisation system,
2. Maximum utilization of Resources,
3. Applicable on the whole economy,
4. Central planning Authority,
5. Interference by the state,
6. Changes in the economy,
7. Long term process,
8. Pre-determined objectives,
9 Existence of valuation mechanism,
10. Achievement of objectives.
3. Plan period in India - India has completed 12 Five Year Plans. Time Period of 12th Plan was 2012-2017.
4. Indian Planning Commission - The Planning Commission of India was established on 15th March 1950, to evaluate the physical, capital and human resources and on this basis programmes for the Plan Development and its evaluation.
The Planning Commission of India has now been dissolved in 2015 and replaced with National Institution for Transforming India (NITI) Aayog.
5. National Development Council (NDC) - As an apex body to planning, it was constituted on 6th August 1952. No plan was implemented without its approval.
6. Objectives of Planning in India –
6.1 Economic growth – Increase in country’s capacity to production of goods and services. Primary, Secondary and Tertiary sector contribute in GDP. Contribution of agriculture was nearly 50 percent pre 1991 and after reforms tertiary sector contribution increases nearly 42 percent which is a good indicator of structural transformation.
* A larger stock of productive capital;
* A larger size of supporting services like infrastructure;
* An increase in the efficiency of productive capital and services.
6.2 Modernisation – To adopt new technology with change in social outlook i.e. women also have same rights as men.
* Adoption of New Technology
* Change in Social Outlook
6.3 Self-reliance – Non-dependency on foreign for factors of production and new technology as well as self reliance in food grain production.
* Overcoming from the external assistance;
* Development through domestic resources;
* To promote economic growth and modernization;
This policy was adopted because of two reasons-
* To reduce foreign dependency; and
* To avoid foreign interference.
6.4 Economic equity – Every Indian should have meet basic needs. Improve standard of living of weaker section of society and reducing regional inequalities.
* It is important to ensure that benefits of economic prosperity are availed by all sections of society;
* Every Indian should be able to meet his or her basic need.
* Ensure reduction in inequality in income and wealth.
Equity aims to raise standard of living of all people and promote social justice.
7. Achievements of Indian Plans -
7.1 Growth-Oriented Development Strategy (1951-65) - In first plan, actual growth rate was higher than targeted. But in second and third plans, it was less than targeted.
7.2 Equity Oriented Development Strategy (1966-90) - There are two big achievements in the field of self-reliance.
(i) India attained almost self-sufficiency 1n the field of food grains, and
(ii) Due to development of heavy engineering, machinery equipment, iron and steel and other capital goods industries, India become self-sufficient in machinery equipment and other capital goods.
8. Failures of Economic Planning –
1. Slow progress in per capita and national income,
2. Unemployment,
3. Increase in economic disparity,
4. Economic instability,
5. Failure in agriculture sector,
6. Failure in industrial sector,
7. Failure in resource mobilisation,
8. Dependence on foreign aid,
9. Defective regulatory policy.
9. Suggestions for the Success of Plans –
1. Widespread mass participation,
2. Control on prices,
3. Co-ordination between public and private sector,
4. Integration between long term and short term programmes,
5. Physical achievements should be basis of success,
6. Encouragement of saving and investment,
7. Control on population growth,
8. Job oriented economic planning,
9. Coordination between capital intensive and consumption oriented industries,
10. Utilization of human power,
11. Clean administration.
(For more data please watch video)
VIDEO REFERENCE
2. Indian Economy (1950-90) - PART 2
(Plan, Goals of Indian Plans, Five Year Plan)
PART - 3
AGRICULTURE FEATURES, PROBLEMS AND POLICIES
LAND REFORMS
During the colonial rule, there was neither growth nor equity in agriculture sector. The policy makers of independent India had to address these issues which they did through land reforms and promote the use of High Yielding Varieties of Seeds which ushered revolution in Indian agriculture.
1. Importance of Agriculture in Indian Economy –
1. Main source of employment – Over fifty percent of working population in India engaged in agricultural sector. Implying that agriculture is the principal source of subsistence for the people in India.
2. Contribution in National Income – Highest contribution of agriculture sector was at the time of planning started. Contribution of agriculture was raging between 51% in 1950-51 to 17.4% in 2016-17.
3. Base of Industrialisation – As a supplier of raw material (cotton for textiles industries, Oil seeds for oil industries and sugarcane for sugar industries), agriculture sector is of primary significance for the growth of the industrial sector in the economy.
4. Supply of food grains – Wage goods are necessity of life such as wheat, rice, pulses, maize, bajra, oil seeds etc. Agriculture sector provides wage goods to all its countrymen.
5. Importance in Foreign Trade – India exports many agricultural products like tea, jute, cashew nuts, tobacco, coffee and spices.
6. Dependence on trade and transport – Agricultural sector supports to transport industries as both railways and roadways are the bulk carrier of farm products.
7. Wealth of Nation – In terms of fixed assets, land occupies the highest rank in India.
8. Contribution to Domestic Trade – India has a huge expenditure on the farm product needed by billions of people.
9. Capital formation,
10. Rainbow of revolution.
11. Contribution in revenue,
12. Base of economic development - ,
2. Characteristics of Indian Agriculture –
1. Disguised and seasonal unemployment – Disguised employment refers to a situation of hidden unemployment. It is a distinct characterized of the Indian agriculture.
2. Excess dependence of agriculture on Monsoon – Indian agriculture is heavily dependent on rainfall. Good rainfall means good crop and vice-versa.
3. Small size of land holdings – Due to small size of holding, mechanism of farming becomes difficult and marginal farmers continue to view farming as a source of subsistence rather than an enterprise for profit.
4. Low level of productivity – Productivity refers output per hectare of land. It was extremely low as compared to other neighboring countries.
Crop
|
Country
|
Productivity (tones of output per hectare of land)
|
Rice
|
India
China
Vietnam
World Average
|
3.6
6.8
5.8
4.5
|
Wheat
|
India
China
Vietnam
World Average
|
3.1
6.5
9.0
3.3
|
Maize
|
India
China
Vietnam
World Average
|
2.6
5.8
10.7
5.6
|
5. Old and defective agricultural production – Modern inputs like chemical fertilizers, insecticides and pesticides are not judiciously used. It leads to low productivity and therefore, backwardness.
6. Main source of livelihood.
7. Labour intensive agriculture.
8. Pre-dominance of food crops.
9. Backward technology.
3. Land Reforms - Land reforms, primarily, refer to change in the ownership of holdings. It was done with the purpose of increasing agricultural production, the direct intervention of government in agrarian structure.
3.1 Need for Land Reforms –
1. Retrograde agrarian structure and agrarian relation; and
2. Small and fragmented agricultural holdings.
3.2 Land Reform Measures –
1. Abolition of Intermediaries – Intermediaries, popularly known as Zamindars have been abolished. Ownership rights have been referred to the actual tillers. This has been done with a view to stopping exploitation by the zamindars.
2. Regulation of rent – Now rents have been fixed by the government which is not generally exceeds to 1/3 of the crop value.
3. Cooperative Farming – This was encouraged to enhance to bargaining power of small farmers. Together they can by inputs at lower rates and can sell their products at a high price.
4. Tenancy Reforms.
However, the goal of equity was not fully served by abolition of zamindars because of the following reasons –
* In some areas former zamindars continued to have large land holdings.
* In some cases tenants were evicted and zamindars claim to be self cultivators.
* Even after getting the ownership of land, the poorest of the agricultural labourers did not benefit from land reforms.
RE-ORGANISATION OF AGRICULTURE-
3.3 Land Ceiling - It was the policy which recommended the fixation of maximum size of land which would be owned by an individual. The purpose of land ceiling laws has been to take away land in excess of prescribed ceilings from the landlords and distribute it among landless labourers. Thus, the concentration of land ownership in a few hands can be reduced.
However, the progress was very slow and highly unsatisfactory due to poor enforcement of land ceiling law. Data show that only less than 2% land has been declared surplus and only 1% of the total cultivated area actually has been distributed among landless labourers. The reason behind the failure of land ceiling law was:
* A large number of exemptions were granted from land ceiling law.
* Zamindars and big landlords succeeded to transferring a larg area of land under the control of their relatives.
* State delayed its implementation.
3.5 Consolidation of Land Holdings (Chakbandi) – Under this policy, a farmer is given one consolidated land holding equal in area to all his split land holdings.
(For more data please watch video)
VIDEO REFERENCE
Indian Economy (1950-90) - PART 3
(Agricultural development, Land Reforms, Land Ceiling)
PART - 4
RNEW AGRICULTURE STRATEGY
GREEN REVOLUTION
New Agricultural Strategy : Green Revolution - Green Revolution implies the strategy related to improving production technique and productivity in agriculture by using modern technology and inputs like HYV seeds, pesticides and insecticides etc.
This strategy aimed at improving agricultural productivity by means of:
* Rapid technology modernization based on ne HYV seeds
* Irrigation
* Chemical fertilizers and pesticides
* Deliberately concentrating investment crop wise and region wise.
The NAS was put into practice for the first time in India in the kharif session (in July – October) of 1966 and was termed as High Yielding Varities Programme. This program was introduce as a package programme since it depended crucially on regular and adequate supply of agricultural inputs like water, fertilizers, HYV seeds, pesticides and insecticides.
4.1 Features of Green Revolution –
1. High Yielding Varieties of seeds,
2. Extensive use of fertilizers,
3. Expansion of Irrigation facilities,
4. Plant protection,
5. Establishment of different institutions,
6. Agro-service centers,
7. Multiple cropping programme,
8. Mechanization,
9. Scientific method of agriculture,
10. Development of agricultural land,
11. Improvement of animal husbandry,
12. Fixation of Minimum Support Prices.
4.2 Achievements of Green Revolution –
1. Rise in Production and Productivity – As a result food grain production increased from 81.0 million tonnes in third five year plan to 118.1 million tonnes in fifth five year plan.,
Crop
|
1951
|
2016-17
|
Rice
|
665 Q / Hectare
|
2550 Q / Hectare
|
Wheat
|
660 Q / Hectare
|
3216 Q / Hectare
|
Maize
|
704 Q / Hectare
|
2664 Q / Hectare
|
2. Increase in Income / Marketable Surplus – Green revolution resulted in marketable surplus. It refers to that part of agricultural produce which is sold in the market by the farmers after meeting their own consumption requirements. After selling a part of their product, farmers are earning income which they can use in purchasing other useful things required in agriculture.
3. Change in Farmer’s Outlook – Commercialization of agriculture has caused a change in outlook of the farmers. Now farmers are considering agriculture as a source of earning instead of subsistence.
4. Buffer Stock of Food Grains – India is able to procured sufficient amount of food grains to build a stock which can be used in tough times. At present India had the following buffer stock.
Crop
|
Stock in M.T.
|
Wheat
|
275.21
|
Rice
|
309.76
|
Unmilled Paddy
|
287.08
|
5. Decrease in the price of food grains –
6. Benefit to low Income Group – As a result in the decrease in the price of food grains, those people, who were spending a large proportion of their income on food grains, now had to spend less.
7. Rural prosperity,
8. Industry and agriculture relationship,
9. Innovation.
4.3 Shortcomings of Green revolution –
1. Increase in disparities between small and big farmers – The gulf between poor and rich farmer has substantially risen over time. Poverty is widespread and indebtedness was extremely high. Green revolution increases the economic inequality.
2. Risk of pest attack – The HYV crops are more prone to attack by pests. So, there was a risk that small farmers who adopted this technology could lose everything in a pest attack.
3. Limited crops – Revolutionary rise in output is stick mainly with production of food grains. There has been no similar rise in production of pulses and commercial crops like jute, cotton, tea etc.
4. Regional imbalances – It was not uniform across all regions. In states like Tamilnadu, Harwana, Maharashtra, Punjab, it made a remarkable impact. But in eastern UP, Bihar, MP and Odisha, its impact was relatively insignificant.
5. Limited Farming Population – The benefits of green revolution eluded the marginal and small farmers as inputs are beyond the reach of these farmers.
05. Economic Subsidies - To assure availability of fertilizers to the farmers at reasonable price government is providing subsidy. India has been providing two types of subsidies – (a) subsidy in agricultural inputs, (b) subsidy on food supplies to PDS. A current debate is should subsidy continue or we may go without subsidy. Arguments are put forward both in favour and against subsidy.
5.1 Favour –
1. Agriculture is a risky business.
2. Farmers are poor and can’t afford new technology and seeds.
3. Eliminating subsidy will increase income inequality.
4. Encourage use of new technology and HYV package.
5. Steps should be taken to reach out the needy farmers instead of eliminating subsidy.
5.2 Against –
1. Main benefit is taken by big farmers.
2. Technology is now adopted by all so it should be eliminated.
3. It does not benefit the target group and creating a huge burden on government
4. More benefit given to the industries, who, produced inputs.
Points to remember
Dr. Norman E Borlaug – Inventor of Green revolution
Dr. M. S. Swaminathan - Inventor of Green revolution (In India)
Food Corporation of India – 1965
Agricultural Price Commission – 1965
Commission for Agricultural Cost and Price - 1985
CRITICAL APPRISAL OF AGRICULTURAL REFORMS
GAINS
1. Land reforms and Green revolution are great achievements of India.
2. Substantial increase in agricultural productivity between 1950 to 1990.
3. India is now self sufficient in food grain production.
4. Abolition of Zamindari system.
LOSS
1. Population depends upon agriculture is not decreased significantly.
2. Output Increases but workforce engaged in agricultural sector was not decreases. 3. Industry and service sector failed to absorb agriculture sector workforce.
(For more data please watch video)
VIDEO REFERENCE
Indian Economy (1950-90) - PART 4
(Agricultural Development, Green Revolution)
PART - 5
INDUSTRIAL POLICY
FEATURES, PROBLEMS AND POLICIES
In the Pre-British period, India was an industrially advanced country. But the British rule systematically destroyed the Indian industries. As a result, at the time of independence, India had a weak industrial base, poorly developed infrastructure and a stagnant economy. The variety of industries were very limited. Cotton and textile industries were mainly developed in India. In addition to this, only two well managed iron and steel firms – one in Jamshedpur and other in Kolkata.
IMPORTANCE OF INDUSTRIES
1. Epicenter of Growth – As GDP rises there is a structural transformation in the economy. Industries, with a variety of goods, started replacing agriculture as the engine of growth. Rise in demand for agricultural goods consequent upon a rise in income.
2. Source of Employment – With a rise in agricultural productivity, farming sector has released a large supply of labour force. It can be gainfully absorbed by industrial sector.
3. Source of Mechanized Means of Farming – Use of machine like tractors, threshers, harvesters in farming has become possible only owing to the growth of industry.
4. Infrastructural Growth – The industrial growth and infrastructural growth are interlinked. The growth of one escalates the growth of other.
5. Growth of Civilization – Urbanization has led to the growth of civilization. People become conscious of their quality of life. Culturally diverse societies are getting closure to each other.
Basic features of India's industrial development during Plan Period –
1. Increase in industrial growth rate
2. Increase in contribution of industrial sector in GDP
3. Rapid development of basic industries
4. Strong infrastructural base
5. Import substitution
6. Establishing enterprises with foreign assistance
7. Increase in export of industrial products
8. Establishment of financial Institution
9. Development of information technology and electronics industries
10. Development of small and cottage industries
11. Dis-investment in public sector
12. Development of food processing industry and
13. Emergence of consultancy services.
Problems of Industrial Development in India –
1. Problem of Energy,
2. High cost,
3. Shortage of capital,
4. Shortage of foreign exchange,
5. Lack of able entrepreneurs,
6. Irregular rate of industrial growth,
7. Unemployment problem ignored,
8. Industrial Unrest,
9. Small and medium sector neglected,
10. Problem of industrial sickness,
11. Less utilization of installed capacity,
12. Regional disparity,
13. Increase in concentration of economic power,
14. Failure of public sector enterprises.
Measures to Encourage Industrial Development –
1. Creation of economic and social infrastructure,
2. Development of entrepreneurial skill,
3. To ensure availability of capital,
4. Financial stability,
5. Rehabilitation of sick units,
6. Removal of control,
7. Human capital formation,
8. Modernization,
9. Improvement in industrial relation,
10. Professionalization of management,
11. Industrial Research.
4. INDUSTRIAL POLICY
It refers to such formal declaration made by the Government which describes the general policies which will be adopted by the Governments towards the industries. After independence IPR – 1948, IPR-1956, IPR-1977 and IPR-1980 have been announced. Industrial (Regulation and Development) Act 1951 also came in to effect after independence.
INDUSTRIAL POLICY RESOLUTION – 1948
IPR-1948 was announced on 06th April 1948. This policy had adopted importance of both public as well as private sector. In this policy industries were divided in to 4 categories –
1. Public Sector – Arms and ammunition, atomic energy, Railway transport was given under exclusive control of government. Private sector was prohibited from participating in these industries.
2. Public cum Private Sector – Under these category 6 industries was placed.
3. Controlled by Private Sector – Under these category 18 industries was placed.
4. Private and Co-operative Sector – All other industries not covered under category 1, 2 and 3, placed under this category.
This policy also accepted the importance of small scale and cottage industries.
INDUSTRIAL (DEVELOPMENT AND REGULATION) ACT 1951
To control and regulate the process of industrialization in India, an act was passed by the parliament in October, 1951. This act came in to force from 08 may 1952. The main objectives of this act was –
1. REGULATION - Regulation of industrial investment and production according to plan and priorities targets.
2. PROTECTION - Protection to Small Scale Industries against competition from large industries.
3. PREVENTION - Prevention of monopoly and concentration of ownership of industries.
4. BALANCE - Balanced regional development with a view to reducing disparities in the level of development of different regions of the economy.
WHY PUBLIC SECTOR GIVEN LEADING ROLE
Direct participation of State in industrial growth was considered essential in view of the following reasons –
1. Shortage of Capital with Private Sector – Industrial development in India needed a big push. It is implying a large amount of capital expenditure. At the time of independence Tatas and Birlas were the only well known private entrepreneurs.
2. Objective of Social Welfare – The objective of equity and social welfare could be achieved only though direct participation of government.
3. Lack of Incentive for Private Sector – Due to limited size of market, there was low level of demand for the industrial goods. So, private entrepreneurs never undertake any major project.
INDUSTRIAL POLICY RESOLUTION, 1956
Industrial policy is a comprehensive package of policy measures which covers various issues connected with different industrial enterprises of the country.
On 30th April, 1956, a second Industrial Policy Resolution was adopted in India. IPR-1956 has the following objectives:
* Development of machine building industrialization.
* Increase in rate of industrial development.
* Reduction in income and wealth inequality.
* Classification of industries into public and private sectors,
* Stress on the role of cottage and small scale industries,
* Reduction in regional disparities,
* Foreign Capital,
* Facilities for labourers.
CLASSIFICATION OF INDUSTRIES
According to IPR-1956, the industries were reclassified in to three categories.
Schedule A – In this schedule, 17 industries were included. (like Arms and Ammunition, Atomic Energy, Railway Transport, Air Transport, Heavy and Core Industries, Oil Industries, Shipping Industries, Iron and Steel Industries, Coal, Aircraft, Electricity Generation and Distribution).
In the above 17 industries, Arms and Ammunition, Atomic Energy, Railway Transport, Air Transport, Govt. will have its monopoly. New units of rest industries will be established by govt., whereas old privately owned units will operate.
Schedule B – In this schedule, 12industries were included. (like Road Transports, Sea Transport, Machine Tools, Fertilizers, Synthetic Rubber, Chemical Pulp, Aluminum, Minerals, Carbonizations of coal, Antibiotic Drugs etc.) These industries will be established by govt. but if private sector wants to establish unit, will be allowed.
Schedule C – Rest all industries, which have not been placed under schedule A and B, open for private sector. This will be controlled by the government through licensing system under Industrial (Development and Regulation) Act – 1951.
OUTCOME OF IPR-1956
* Scope of the public sector in India got widened.
* A clear cut classification of industries done first time.
* Provision of compulsory licensing was enacted.
* The policy paved the way of development of public sector in India.
INDUSTRIAL LICENSING
Industrial license is ‘A written permission from the government to an industrial unit to manufacture goods.’ In India it was started in 1952. The basis of this policy was Industries (Development and Regulation) Act 1951. Industrial licensing was necessary for –
* To set up new industries;
* To expansion of existing one;
* To diversification of products.
As per under licensing system:
* No new industry was allowed to setup unless a license is obtained.
* Easy to obtained license for industrial setup in backward regions. These types of setups have also given certain concession like tax benefits, water and electricity at low tariff etc.
* License to expand production or diversification of products was given only if the govt. was convinced that there is a need of large quantity of goods in economy.
SMALL SCALE SECTOR IN INDIA
In 1955, the Village and Small Scale Industries Committee (Karvey Committee) recognized the importance of above said industries in rural development.
Cottage Industry - These industries are mostly traditional, producing traditional products by employing traditional methods. (up to 5 crore annual turnover – since 08th February 2018)
Small Scale Industries - These are defined in relation to capital investment in machines and buildings. Presently, this limit is was 5 crores. Since, 08th February 2018, classification of industries based on the annual turnover of the industries. (Annual turnover between 5-75 crore rupees.) Some examples of small scale industries are – Bakery products, school stationary, water bottle, belt, paper bags, small toys, beauty products etc.
Features of small Scale Industries
1. Ownership is in single hand;
2. Management involved in activities;
3. Labour intensive;
4. Flexibility;
5. Limited reach area; and
6. Utilisation of locally available resources.
Role of Small Sector in Indian Economy
1. Provide Economic equality;
2. Production of artistic goods;
3. Protection from clan-struggle;
4. Need less technology;
5. Protection from bad effects of urbanisation and industrialization;
6. Less dependency on imports;
7. Important place in country’s exports.
Problems of Small Sector –
1. Shortage of Capital,
2. Undeveloped production system,
3. Problem of raw material,
4. Lack of organised market,
5. Competition from large scale units,
6. Lack of education,
7. Lack of standardization,
8. Export neglected,
9. Dis-interest of consumers,
10. Non-Receipt of payments in time.
Important points related to Small Scale Industries
* Government reserved a large number of products (836 in many steps) for small scale industries to protect them from large scale industries.
* Various types of concession given to the SSIs such as lower excise duty, bank loan at a lower rate, tax benefits, water and electricity supply at a lower rate etc.
* Small Industries Development Organisation (SIDO) – 1954
* National Small Industries Corporation Ltd. (NSIC) – 1955
* District Industry Centre (DIC) – 1979
* Small Industries Development Bank of India (SIDBI) – 1989
PRINCIPAL FEATURES OF THE STRATEGY OF INDUSTRIAL GROWTH DURING 1950-90
* Public sector were plays a crucial role in industrialization.
* Private sector were plays a secondary role.
* Focused on Import substitution and self reliance target achievement.
* Domestic industries were to be protected.
* Large scale industries were developed with a view to develop infrastructure.
* Small Scale industries were developed with a view to achieve objective objectives of equity and employment.
CRITICAL APPRAISAL OF INDUSTRIAL DEVELOPMENT (1950-90)
POSITIVE /GOOD EFFECT / GAINS
1. Economic Growth – Contribution of industrial sector in GDP increases from 11.8% in 1950-51 to 24.6% in 1990-91. The 6% annual growth rate of industrial sector with structural reforms during the period is also admirable.
2. Diversification – There is diversification of industries with Industrial development. Indian industries are now included a wide range of consumer as well as engineering goods.
3. Establishment of large scale industries.
4. Promotion of small scale industries – It gave opportunity to people with small capital to get in to production process. SSI made substantial achievement to achieve growth with social justice and equity in addition to employment generation.
NEGATIVE / BAD EFFECTS / LOSS
1. Monopoly of Public Sector – Industries, which can be handles with the private operators (like telecommunication, hotel industry etc.) also given to the public sector which channelize precious fund to these industries.
2. Inward Looking Trade Strategy – This policy stopped industries to develop a strong export sector.
3. Lack of Competition – Due to excessive protection to the domestic industries and restrictions on imports, domestic industries failed to achieve international standard of product quality.
4. Licensing Policy – It was misused by some industrial houses to get license not for production but for to prevent competitors from starting new firms.
Public Sector Enterprises - A public sector enterprise is that enterprise which is owned and managed by the government.
Characteristics of Public Enterprises –
1. Public ownership,
2. Socio-economic objective,
3. Accountability towards public,
4. Financing from government funding.
Role of Public Sector in Industrialisation –
1. Contribution in National Income,
2. Contribution in Employment generation,
3. Contribution in Export,
4. Development of small scale sector,
5. Development of backward area,
6. Expansion of Technological base,
7. Help in achievement of self-sufficiency.
Problems of Public Sector –
1. Bureaucratic Delays,
2. Lack of Technical efficiency,
3. Discriminating policy of organisation,
4. Lack of incentives,
5. Inadequate control of Parliament,
6. Lack of mutual co-operation,
7. Over capitalisation,
8. Operational and Managerial inadequacies,
9. Under utilisation of Production capacity,
10. Over-sized plants,
11. Takeover of sick units,
12. Long gestation period.
Suggestions for Reforms of Public Sector
1. Appropriate Pricing Policy,
2. Test of Efficiency,
3. Full utilisation of Production Capacity,
4. Quantitative determination of objectives,
5. Use of latest techniques,
6. Precautions in appointment of employees,
7. Competition,
8. Other suggestions.
Disinvestment in Public Sector - It refers to the dilution of stake (claims) of the government in the equity of public sector undertaking so as to transfer the ownership rights to private hands.
(For more data please watch video)
VIDEO REFERENCE
Indian Economy (1950-90) - PART 5
(Industrial Policy, I.P.R. 1948 & 1956, I.D.R.A. 1951, S.S.I.)
PART - 6
FOREIGN TRADE OF INDIA : FEATURES AND POLICIES
|
What is Foreign Trade – Export and import of goods and services cross different countries is called international trade.
· Domestic Production > Domestic Consumption = Exports
· Domestic Production < Domestic Consumption = Imports
· International trade is based on international specialization and specialisation based on principle of comparative cost advantages;
· International trade facilitates exports of goods to rest of the world at a higher price than domestic market.
· International trade facilitates imports of goods from rest of the world at a lower price than domestic market.
· By offering much wider size of market, international trade enhances opportunities of investment for trading partners.
· Higher investments lead to higher GDP growth. Thus, it can be said that international trade serves as an engine of growth.
India’s Foreign Trade at the Time of Independence –
· Colonial govt. exploited through using natural resources and raw material.
· They used Indian market for the British industrial goods.
· On the eve India’s Balance of Trade (BoT) was favorable.
· In 1946-47 export surplus was Rs. 31 Crores.
· Nearly 50 percent international trade was restricted with Britain.
· Composition of trade indicates backwardness. (Exporter of raw material and importer of finished goods)
India’s Foreign Trade After Independence –
Volume of Foreign Trade during different plan periods- (Cr. Rs.)
Plan (Year)
|
Imports
|
Exports
|
Total
|
1st Plan (1951-56)
|
3651
|
3109
|
6760
|
2nd Plan (1956-61)
|
5402
|
3063
|
8465
|
3rd Plan (1961-66)
|
6119
|
2735
|
8854
|
4th Plan (1969-74)
|
10035
|
9426
|
19461
|
5th Plan (1974-79)
|
20882
|
17937
|
38819
|
6th Plan (1980-85)
|
17134
|
11744
|
28878
|
7th Plan (1985-90)
|
35412
|
27681
|
63093
|
8th Plan (1992-97)
|
470445
|
420351
|
890796
|
9th Plan (1997-2002)
|
1175975
|
859530
|
2035505
|
10th Plan (2002-07)
|
2658294
|
1952041
|
4610335
|
11th Plan (2007-12)
|
7868723
|
4944356
|
12813079
|
12th Plan (2012-17)
|
13189647
|
9001485
|
22191132
|
Source – Economic Survey 2017-18
· India’s exports and imports have tended to rise, but India’s share in global trade has tended to decline. It declined from 1.8% in 1950-90 to 0.5% in 1991.
· After economic reforms, India’s share in the world trade has tended to rise. In 2015-16, India’s share in export trade was 2.0% and in import trade it was 2.4%.
COMPOSITION OF FOREIGN TRADE
Decline in the percentage share of agricultural products – (i) India started using its farm product as raw material for its industrial base; (ii) Rise in the population, raised the domestic consumption of farm products.
Decline percentage share of conventional items – As there is a rise in demand for conventional items like jute, coffee, cotton, spices, food grains, minerals etc., their share in total exports tended to fall.
Increase in percentage share of manufactured goods – Presently Gems and jewellery is India’s highest exporting category of goods.
Direction of Trade – It refers to the countries to which a country exports its goods and services and the country from which it imports.
India’s Top trading partners till 1991-
Exports
|
Imports
|
U.S.A.
|
16.35%
|
Unspecified
|
10.78%
|
Japan
|
9.24%
|
U.S.A.
|
9.69%
|
Soviet Union
|
9.18%
|
Germany
|
7.95%
|
Germany
|
7.11%
|
Belgium
|
7.15%
|
U.K.
|
6.37%
|
Japan
|
6.99%
|
Source – RBI Publication
INWARD LOOKING TRADE STRATEGY /
(IMPORT SUBSTITUTION STRATEGY)
In the first seven plans, trade was characterised by what is commonly called an inward looking trade strategy. Technically, this policy is called Import Substitution Policy.
Import Substitution - It refers to a policy of replacement or substitution of imports by domestic production. In other words, it is a process to produce the alternate or close substitute of imported goods in the country itself.
Export Promotion – It is a strategy to earn foreign exchange by promoting domestic exports and making domestic industry competitive in the international market.
Need for Import Substitution –
1. Scarcity of foreign exchange,
2. Un-favourable balance of Trade,
3. Devaluation of rupee,
4. Scarcity of foreign aid,
5. Shortage of essential commodities,
6. Need for industrial development,
Objectives of ILTS - The three definite objectives of this policy was:
1. Savings of Foreign Exchange Reserve;
2. Increase in self-sufficiency.
3. Utilisation of Foreign Exchange Reserves in importing developmental goods.
Protection from imports through Tariffs and Quotas –
Tariffs – It refers to taxes imposed on imported goods. The basic aim for imposing heavy duty on imported goods was to make them more expensive and discourage their use.
Quotas – it refers to fixing maximum limit (quantity) on the imports of a commodity by a domestic producer.
Impact of Inward Looking Trade Strategy -
Good Impact –
1. High rate of industrial growth with structural reforms – Contribution of industrial sector in GDP rises from 11.8% in 1950-51 to 25% in 1991.
2. Diversification of industrial growth – India’s modern industries was no longer restricted to cotton and jute. Now India is producing a variety of engineering goods and wide range of consumer goods. Electronic industry (then sunshine industry) noticed remarkable growth.
3. Opportunities of investment – Protection to Small Scale Industries opened new opportunities of investment for those who do not have much money.
Bad Impact –
1. Growth of inefficient public monopolies –
2. Lack of competition implied lack of modernization – In absence of competition PSEs never tried to update themselves.
3. Indiscriminate spread of public sector enterprises – Those sectors, where private industrialist can be given responsibility, PSUs started production. It was the misuse of public resources.
4. Economically unviable state enterprises – Due to political influence, many industries were continue in operation with great loss.
Role and Importance of Foreign Trade –
1. Advantage of advance technology,
2. Increases consumption capacities,
3. Benefits to participating countries,
4. Increases production capacity,
5. Serves as a transmission belt for capital,
6. Creates fair competition.
Features of India’s Foreign Trade –
1. Increase in the value and volume of trade,
2. Increasing share in the gross national product,
3. Increasing share in the world trade,
4. Changes in the composition of exports,
5. Changes in the composition of import,
6. Export-Import ratio,
7. Changes in the direction of foreign trade,
8. Adverse balance of trade.
Problems of India’s Foreign Trade –
1. Adverse balance of trade,
2. Rapid increase in imports,
3. Comparatively lower growth in exports,
4. Increase in domestic demand,
5. Rising Prices,
6. Increasing foreign debt.
(For more data please watch video)
VIDEO REFERENCE
Indian Economy (1950-90) - PART 6
(Foreign Trade)
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Dr. Asad Ahmad
KV IIM, Lucknow
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