Indian Economy 1950–1990 – Class 11 Economics Chapter 2 Notes & NCERT PDF

Introduction

On 15 August 1947 India began the job of nation building. Leaders had to choose an economic system that would promote the welfare of all. Jawaharlal Nehru was attracted to socialism, but not to the Soviet model where the state owned all factories and farms and there was no private property. India chose an alternative: a socialist society with a strong public sector, but also with private property and democracy, where the government plans the economy and the private sector is encouraged to be part of the plan effort. This is the mixed economy.

"The central objective of Planning in India... is to initiate a process of development which will raise the living standards and open out to the people new opportunities for a richer and more varied life." — First Five Year Plan

The Industrial Policy Resolution of 1948 and the Directive Principles reflected this outlook. In 1950 the Planning Commission was set up with the Prime Minister as its Chairperson.

Key Concepts

Types of Economic Systems (Box 2.1)

Every society must answer: what to produce, how to produce, and how to distribute.

What is a Plan? (Box 2.2)

A plan spells out how a nation's resources should be used, with general goals and specific objectives for a set period. India's plans lasted five years (idea borrowed from the former Soviet Union). Plan documents up to 2017 also set goals over twenty years — the perspective plan. Plans are specific only about sectors where the government plays a commanding role (e.g., power and irrigation).

2.2 Goals of Five Year Plans

Goals may conflict — e.g., modern technology may reduce the need for labour and thus employment.

Box 2.3 — P.C. Mahalanobis, born 1893 in Calcutta, is the architect of Indian planning; planning in the real sense began with the Second Five Year Plan, based on his ideas. He founded the Indian Statistical Institute (ISI) and the journal Sankhya, and became a Fellow of Britain's Royal Society in 1945.

Box 2.4 — Service sector: by 1990 its share of GDP was 40.59 per cent, more than agriculture or industry.

2.3 Agriculture

Land reforms (equity):

Green Revolution: large increase in food-grain production from HYV (high yielding variety) seeds, especially wheat and rice, needing fertiliser, pesticide and regular water in correct proportions.

Debate over subsidies: needed to encourage adoption of new technology; but critics say subsidies benefit the fertiliser industry and prosperous farmers and burden government finances. Supporters say farming is risky and most farmers are poor. (Box 2.6: prices as signals — subsidies stop prices signalling scarcity, encouraging waste.)

Failure: the share of population in agriculture barely fell — 67.5% in 1950 to 64.9% by 1990 — because industry and services did not absorb workers.

2.4 Industry and Trade

2.5 Trade Policy: Import Substitution

Effect on industry: industry's share of GDP rose from 13% (1950-51) to 24.6% (1990-91); about 6 per cent annual industrial growth; industry diversified; SSIs gave opportunities to people without much capital; protection helped electronics and automobiles.

Criticisms: public sector monopolies continued where no longer needed (telecom waits; Modern Bread, sold to the private sector in 2001); loss-making PSUs kept running; licences misused to block competitors — the "permit licence raj"; protection gave producers a captive market with no reason to improve quality; policies failed to build a strong export sector. These led to the new economic policy of 1991.

Key Facts & Figures

Exam Focus

Key Terms

Common Mistakes