NABARD Grade-A Exam : Notes on Economic & Social Issues| INDIAN ECONOMY 1950-1990

INDIAN ECONOMY 1950-1990

Nehru and many other leaders and thinkers combined the best features of socialism without its drawbacks. In this view, India would be a socialist society with a strong public sector but also with private property and democracy; the government would plan for the economy with the private sector being encouraged to be part of the planning effort.

The ‘Industrial Policy Resolution’ of 1948 and the Directive Principles of the Indian Constitution reflected this outlook. 

In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson. The era of five-year plans had begun.

What are the types of Economic Systems?

Every society has to answer three questions

a) What goods and services should be produced in the country?

b) How should the goods and services be produced? Should producers use more human labour or more capital (machines) for producing things?

c) How should the goods and services be distributed among people?

1. In a market economy, also called Capitalism, only those consumer goods will be produced that are in demand, i.e., goods that can be sold profitably either in the domestic or in the foreign markets. In a capitalist society, the goods produced are distributed among people not on the basis of what people need but on the basis of Purchasing Power—the ability to buy goods and services. That is, one has to have the money in the pocket to buy it. Low-cost housing for the poor is much needed but will not count as demand in the market sense because the poor do not have the purchasing power to back the demand.

2. In a Socialist society, the government decides what goods are to be produced in accordance with the needs of society. It is assumed that the government knows what is good for the people of the country and so the desires of individual consumers are not given much importance. The government decides how goods are to be produced and how they should be distributed. In principle, distribution under socialism is supposed to be based on what people need and not on what they can afford to purchase. Strictly, a socialist society has no private property since everything is owned by the state. 

3. Most economies are Mixed Economies, i.e. the government and the market together decides what to produce, how to produce and how to distribute what is produced. In a mixed economy, the market will provide whatever goods and services it can produce well, and the government will provide essential goods and services which the market fails to do.

Note: Prasanta Chandra Mahalanobis: the Architect of Indian Planning

The Second Plan, a landmark contribution to development planning in general, laid down the basic ideas regarding goals of Indian planning; this plan was based on the ideas of Mahalanobis. In that sense, he can be regarded as the architect of Indian planning.

Agriculture Sector during 1950-1990

The policy makers of independent India address the issues in this sector through land reforms and promoting the use of ‘High Yielding Variety’ (HYV) seeds which ushered in a revolution in Indian agriculture.

Land Reforms

At the time of independence, the land tenure system was characterised by intermediaries (variously called zamindars, jagirdars etc.) who merely collected rent from the actual tillers of the soil without contributing towards improvements on the farm. 

Equity in agriculture called for land reforms which primarily refer to change in the ownership of landholdings. Just a year after independence, steps were taken to abolish intermediaries and to make the tillers the owners of the land. The idea behind this move was that ownership of land would give incentives to the tillers to invest in making improvements provided sufficient capital was made available to them.

Land ceiling was another policy to promote equity in the agricultural sector. 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. The ownership conferred on tenants gave them the incentive to increase output and this contributed to growth in agriculture. However, the goal of equity was not fully served by the abolition of intermediaries.

The Green Revolution: 

At independence, about 75 percent of the country’s population was dependent on agriculture. 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. 

The stagnation in agriculture during the colonial rule was permanently broken by the green revolution. This 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. 

The green revolution enabled the government to procure sufficient amount of food grains to build a stock which could be used in times of food shortage.

INDUSTRY AND TRADE

At the time of independence, the variety of industries was very narrow— largely confined to cotton textiles and jute. There were two well-managed iron and steel firms — one in Jamshedpur and the other in Kolkata.

Public and Private Sectors in Indian Industrial Development

At the time of independence, Indian industrialists did not have the capital to undertake investment in industrial ventures required for the development of our economy; nor was the market big enough to encourage industrialists to undertake major projects even if they had the capital to do so.  It is principally for these reasons that the state had to play an extensive role in promoting the industrial sector. 

In addition, the decision to develop the Indian economy on socialist lines led to the policy of the state controlling the commanding heights of the economy, as the Second Five Year Plan put it. This meant that the state would have complete control of those industries that were vital for the economy. 

Industrial Policy Resolution 1956 (IPR 1956): 

In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society. This resolution classified industries into three categories. 

The first category comprised industries which would be exclusively owned by the state; the second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units; the third category consisted of the remaining industries which were to be in the private sector.

Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses.

No new industry was allowed unless a license was obtained from the government. 

Even an existing industry had to obtain a license for expanding output or for diversifying production (producing a new variety of goods).

Effect of Policies on Industrial Development

The achievements of India’s industrial sector during the first seven plans are impressive indeed. The proportion of GDP contributed by the industrial sector increased in the period from 11.8 percent in 1950-51 to 24.6 percent in 1990-91. 

The six percent annual growth rate of the industrial sector during the period is commendable.

CONCLUSION

The progress of the Indian economy during the first seven plans was impressive indeed. Our industries became far more diversified compared to the situation at independence.

India became self- sufficient in food production thanks to the green revolution. Land reforms resulted in the abolition of the hated zamindari system. 

Excessive government regulation prevented the growth of entrepreneurship.

Our policies were ‘inward oriented’ and so we failed to develop a strong export sector.

Source: NCERT