INDIAN ECONOMY 1950-90
The leaders of Independent India had to decide, the type of Economic system suitable for India, among other things. A system which promotes welfare of the all rather than only a few.
1. Types of Economic Systems
Capitalist Economy: In a capitalistic society, the goods produced are distributed among the people, not based on people's needs but based on Purchasing power to buy goods and services. Low-cost housing for the poor is much needed but it will not considered as a demand in the market sense because the poor do not have the ability or the Purchasing power to support that. So, as a commodity, it will not be produced and distributed as per the market terms.
Socialist Economy: In a socialistic society, the government decides what to produce by the needs of society. It is assumed that the government will be aware of what is good for the society (People) of the country and the desires of the individual customers will not given any importance. So, the government decides what goods to produce and distribute. Distribution under a socialist society is on what people need not on what they can afford to purchase. Socialistic society will not have private property because everything is owned by the State. Examples: Cuba, China.
Mixed Economies
- Most of the economies in the world are mixed economies. Both the government and the market decide on what to produce, how to produce, and how to distribute.
- In a mixed economy, markets will produce whatever goods and services they can and the government produce the essential goods which the market fails to do.
- Nehru and other leaders of newly independent India sought an alternative to the extreme versions of Capitalism and Socialism. The economy with the private sector being encouraged to be part of the plan
- The Industrial Policy Resolution of 1948 and the Directive principles of the Indian Constitution reflected the above-said Outlook. In 1950, The Planning Commission was established and the Prime Minister was the Chairman of it.
2. The Five-Year Plans
Many distinguished thinkers contributed to the formation of five-year planning. Among them, a statistician Prasanta Chandra Mahalnobis Stands Out.
Structure of a Plan
A plan should have some specified goals, the goals of the five-year plan are: Growth, Modernisation, Self-reliance and Equity. All plans will not have the same equal importance to all these goals, due to limited resources a choice has to be made about each plan about which of the goals is to be given primary importance.
The goals of the Planning
- Growth: It refers to an increase in the country’s capacity to produce the output of goods and services within the country. A good indicator of growth in terms of economics is a steady increase in the Gross Domestic Product (GDP).
- Modernisation: To increase the Production of Goods and Services producers have to adopt new technology. Modernization does not mean only the use of new technology but also changes in social outlook such as the recognition that women should have the same rights as men.
- Self-Reliance: A nation can promote economic growth and modernization by using its resources or by using resources imported from other nations. The first five-year plans gave importance to self-reliance which means avoiding imports of those goods which can be produced in India Itself.
- Equity: Growth, modernization, and self-reliance may not change the life that people are living. A country can have high growth, the most modern technology developed in the country itself and also have most of its people living in poverty. It is important to ensure that the benefits of the economy reach the poor people. In addition to growth, modernization, and self-reliance equity is also important.
- Agriculture: The policymakers of Independent India had to address issues like land reforms and promoting the use of high-yield variety (HYV) which explored a revolution in Indian Culture.
- Land reforms: At the time of Independence, the land tenure system was characterized by intermediaries who merely collected rent from the actual tillers of the soil without contributing towards improvements on the form. The low productivity of the agricultural sector forced India to import food from the USA. Equity in agriculture is called Land reforms which primarily refer to changes in the ownership of the landholdings.
- Land Ceiling was another reform to promote equity in the agricultural sector. The purpose of the land ceiling was to reduce the concentration of land ownership among a few people. The ownership conferred on tenants gave them the incentive to increase output and this contributed to growth in agriculture.
The green revolution
- At the time of Independence, 75% of the population was dependent upon agriculture. Productivity was very low because of the old techniques and the absence of the required infrastructure for the majority of the farmers.
- Indian agriculture heavily depended upon monsoons and if the monsoons did not happen fully, then they were in trouble.
- The stagnation created in British colonial times was completely replaced with the green revolution.
- Productivity has increased brilliantly by using High Yield Varieties (HYV).
- The farmers who could benefit from HYV seeds required reliable irrigation facilities and financial resources to purchase fertilisers and pesticides.
- The spread of green revolution technology enabled India to achieve self-sufficiency in food grains.
- Growth in agricultural output is important but it is not enough because if most of the proportion that they produce is consumed by themselves and nothing is there to sell it in the markets then it is not a sustainable idea.
- The portion of agricultural produce which is sold in the market by the farmers is called Marketed Surplus.
3. Industry and Trade
The industry provides more employment and this employment is more stable than agriculture and it promotes modernity. Five-year plans place a lot of emphasis on Industrial Development.
Industrial Policy Resolution 1956.
With the goal of the state controlling the commanding heights of the economy, Industrial Policy Resolution 1956 was adopted. Industrial policy for Resolution was the basis for the Second Five Year Plan. The resolution classified industries into three categories.
| Category I | Industries exclusively owned by the State |
| Category II | Industries in which private sector could supplement the efforts of State Sector |
| Category III |
Private Sector Industries |
No new Industry was allowed unless you had a license from the Government; it is used for promoting Industry in backward regions.
This policy is to promote regional Equality: Even an existing Industry had to take a license to expand its Production.
Karvee Committee
- In 1955, a village or scale Industries committee also called the Karvee Committee constituted.
- The Karvee committee noted the possibility of using small-scale industries to promote rural development.
- Small-scale industries can be distinguished from others in the form of Investments.
- In 1955, a small-scale industry that invested 5 lakh rupees.
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Previous Year Questions 1. With reference to the Indian economy, consider the following statements: (upsc 2022) 1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee. 2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness. 3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER. Which of the above statements are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 Answer: C 2. With reference to the Indian economy, consider the following statements: (upsc 2022) 1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. 2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. 3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars. Which of the statements given above are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 Answer: B
1. Government can reduce the coupon rates on its borrowing by way of IIBs. 2. IIBS provide protection to the investors from uncertainty regarding inflation. 3. The interest received as well as capital gains on IIBs are not taxable. Which of the statements given above are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 Answer: A
1. Farmers harvesting their crops 2. Textile mills converting raw cotton into fabrics 3. A commercial bank lending money to a trading company. 4. A corporate body issuing Rupee Denominated Bonds overseas. Select the correct answer using the code given below: (a) 1 and 2 only (b) 2, 3 and 4 only (c) 1, 3 and 4 only (d) 1, 2, 3 and 4 Answer: A Mains 1. Distinguish between ‘care economy’ and ‘monetized economy’. How can care economy be brought into monetized economy through women empowerment? (upsc 2023)
2. Do you agree that the Indian economy has recently experienced V-shaped recovery? Give reasons in support of your answer. (upsc 2021)
3. Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and a private entity. (upsc 2020)
4. Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (upsc 2019)
5. How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers?(upsc 2015)
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