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Class 11 Economics Chapter 2 Indian Economy 1950 – 1990 Notes

Please carefully read the Indian Economy 1950 – 1990 Notes for Class 11 Economics provided below. Use them prior to your exams as this will help you to revise the entire chapter easily. We have also provided MCQ Questions for Class 11 Economics which will be asked in the upcoming exams.

♦Before independence, Indian economy was stagnant in nature

♦ India was an under-developed country

♦ Hence to eliminate the existing problems and to promote economic development the first and foremost task of the government was to decide the most feasible ‘Economic system’ for the economy
♦ In order to remove the problems and to grow the exonomy, the government adopted the technique of Progressive economic planning.

♦ Indian government with the prime minister as a chairman forme d the planning commission (which is now known as Niti Aayog) on march 1950

and adopted five year plans for the development of the country.

Economic problem/Central Problem of the economy:-

It is a problem which every economy has to face in the path of its development.

♦ Basic Reasons:-

The reasons due to which a country faces economic problems are as follows:

1. Unlimited Wants (unlimited ends)

2. Limited resources (scarce resources)

3. Alternative use

1. Unlimited Wants:-

Human wants are unlimited regardless to the nature of available resources, if one of his want gets satisfied than anothe want crops up.
Example:- if a teenager wants a mobile phone for convenience and if his parents provided him so.

Then his wants doesn’t restricts after that,One of his new wants comes upon, such as regular rechargesm new bikem new laptop etc.

2. Limited Resources:-

♦ In order to fulfil unlimited wants of human, the resources are limited.

♦ That is the resources are scarce in relation to our wants, so we should get best out of what we have.

3. Alternative use:-

The scarce resources are used alternatively. And hence it becomes important to decide the allocation/distribution of rsources effectively and efficiently.
General example:- the salary of an individual is to used in different sectors such as home expenses, medicine, installment of house, child fee and son on. Hence it should be carefully decided how much resource should be devoted for each purpose in order to get maximum possible benefit.

Standard example:- Coal, petroleum etc.

The above 3 reasons creates different economic problem in an economy which are as follows:-
What to produce How to produce Whom to produce

1. What to produce:-The first and foremost problem that is faced by an economy is ‘What to produce’, that is what type of goods is to be produced more than the other. Due to scare resources, the economy can’t produce unlimited goods and hence the quantity and priority of goods must be decided.
Wants for those goods which society decided not to produce will remains unsatisfied,Generally, the economy has 2 types of goods. i.e., consumer goods or producer goods.

If the country starts producing more quantity of producer of producer goods with less quantity of consumer goods, then the demand for consumer goods will increase and vice versa.

2. How to produce:-It is related to choice of technique of production.

The goods must be produced in such a way that it gives most efficient output to the economy Basically there exist 2 types of techniques of production which are as follows:-

♦ Labour Intensive Technique {LIT}
(Use of labour more than machines in the process of production)

♦ Capital Intensive Technique{CIT} (Machines are used to maximize the output)

If a country selects LIT then the units of labour employed will be greater than the units of goods produced as a result, the employment opportunities will increase but the total production of the economy will goes down.
And if CIT is selected then the production goes up lacking behind the employment opportunities which results the introduction of problem of unemployment and poverty.

3. Whom to produce:-

It is related to the distribution of national product in the economy.

♦ Personal distribution

Under this the distribution of output depends upon the ownership of the property.

The one who owes more gets more share of output in the economy than the one who has less amount of property.

♦ Functional distribution

In personal distribution the total output of the country will be distributed among all the individuals in the country according to their share of ownership. Whereas in functional distribution the total output is distributed between the factors of production.
Such as:-

Land will be paid by rent           Labour will be paid wages.
 Capital interest                      Organiser will be paid profit

The economy has the problem to allocate its scare resources, so as to get maximum possible satisfaction of wants of individuals (Economising Problem).

♦ Market economy:- It is a type of economy in which the total allocation of resources is made by private capitalist or businessman for producing goods and services. As they are basically guided for making profit hence the central problem of the economy will not solved by the market economy. Under such economy, the prices of the product are determined by the demand and supply of goods and services, government does not play any role to control market economy.

♦ Mixed economy:- It is a type of economy in which both private and public sector are participating in production activities. The allocation of resources is made by the government for removing the central problem of economy with the help of private sector. Since, Private sector is guided for maximizing their profit.

♦ Central planned economy:- It is a type of economy in which the total allocation of resources is made by central government of the country. The government is basically guided for Solving the central problem of the economy. Hence it promotes social welfare with minimum cost.”

After independence, Jawarharlal Nehru and other leaders decided to adopt ‘Mixed economy’ 

Economic Planning

According to planning commission of India, “Economic planning refers to the utilization of country’s resources in different development activities in accordance to the national priorities.”

Goals of Planning of India

The planning commission of India has adopted Five year plans strategy for the development of the economy.
India launched its first five year plan on 1st April 1951 for the period 1951-1956. Since then we have completed 12 five year plans (recent 5 year plan was in operation from 1st April 2012 for the period of 2012-2017)

The planning commission decided 2 type of goals

1. Long term goals (objective of planning)

It refers to the goals which are to be achieved over a period of 20 years.

They are common to all the five year plan and hence they are studies as common goals of five year plans

2. Short term goals (objective of plan)

It refers to the goals that are to be achieved in a specific plan (plan-specific goals)

It differ according to the need and requirement of the economy

Main Objectives of Five year plans are as follows:-

1. Economic Growth

During colonial period Indian economy was stagnat in nature so the first and foremost objective of economic planning is economic growth.
Economic growth refers to the increase in productive capacity of the economy The basic criteria of measuring economic growth is the change in level of GDP (Gross domestic product)

2. Modernization:-

It refers to both adoption of modern technology in the process of growth and also to put forth changes in social outlook and ancient meaningless rituals For examples- girls are not allowed to take education, child marriage etc.

3. Full employment:-

It doesn’t refer to zero unemployment, but it refers to a situation when all those who at able and willing to work at the market wage rate get work.
The objective of full employment is to make people participate in the process of growth of the economy.

4. Equity:-

The concept of economic growth means nothing if the benefits of growth restricted to handful of people in the society.
It is important to ensure that the benefits of economic growth should reach the poor sections of society also, as that it will reduce the unequal distribution on income and wealth.

5. Self-reliance:-

It refers to more and more dependence on domestic goods rather than importing from rest of the world.
The concept of self-reliance emphasis on avoiding imports of such goods and services which can be produced domestically.
Promoting domestic production and industries will give rise to economic growth and prosperity in the economy.

Short term goals

They are those objectives which vary from plan to plan according to the need and requirement of the economy

EXAMPLE

1st plan (1951-1956)
 Increase in agricultual production
Equitable distribution of production, income and wealth

2nd plan (1956-1961)
 Increase in industrial production
Development of heavy industries

7th plan (1985-1990)
 Generation of employment opportunity
Increase in agriculture productivity

11th plan (2007-2012) 
Growth and poverty reduction
Generation of high quality of job

Protection of environment
Improving quality of education and public health services

Importance of Agriculture in Indian economy

India is an agricultural based economy; nearly 72% of working population id engaged in agriculture (at the eve of employment). The importance of agriculture sector in Indian economy is as follows:-

1. Contribution to GDP:-

Agriculture sector contributes a significant share in the GDP of the economy. However at the time passes the contribution of agriculture in GDP declines, in spite that agriculture plays a dominant role in economy GDP (15% in 2014 -2015)

2. Supply of food grains:-

India is one of those countries which is slef sufficient in food grains.

Indian agriculture sector is capable enough to meet almost the entire food requirement of the population.

3. Source of employment:- As stated earlier, India is an agriculture based economy so the main source of emplyment for the population comes from agriculture sector.
According to the survey of 2013, nearly 47 % of working population is engaged in agriculture sector.

4. Supply of raw materials:- Besides food grains production, agriculture sector also provides industrial raw material like cotton for textile, seed for oil, sugarcane for sugar mills.

5. Share of exports:- Due to the prime exporter of raw material, agriculture sector plays an important role as a earner of foreign exchange through export of commodities like tea, cotton, jute, coffee etc.

6. Source of revenue:- The government generates revenue from agriculture sector through land revenue and other taxes on the commodities produced.

7. Market for industrial sector:- Due to higher dependence of population on agriculture, the demand for industrial product use in agriculture is also high.

(Products like fertilizers, tractors, pesticides etc)

Problems of Indian agriculture

1. Lack of irrigation facility

The first and foremost problem of indian agriculture is the lack of irrigation facility. Farming in india was heavily dependent on rainfall. The criteria of rainfall decide the condition of crops, i.e., heavy rainfall means good harvest, whereas drought causes loss in output.

2. Small and scattered holdings:-

The backwardness of farming is mainly due to small holding of lands. Small farmers won’t be able to adopt modern technology which restricts them from increasing their productivity.

3. Deficiency of institutional finance:-

Institutional finance refers to the arrangement of finance by registered banks or any other financial institutes.
During that period, farmers are dependent upon non institutional sources of finance (such as zamindar, moneylenders, and mahajans) for fulfilling their requirement of money. They charge very high rate of interest from farmers. High cost of borrowing leads from farmers.

4. Conventional outlook:-

Despite innovative farming techniques, indian farmers still rely on traditional method of farming. Moreover, Indian farmer continues to consider farming more as means of subsistence and less as a business venture.

5. Lack of organised marketing system:-

Huge number of small farmers continues to sell their output in the local market at reduced rates due to unorganised marketing system for agriculture in the economy.
They are restricted to sell their output to mahajans and money lender at lower price in order to repay loans.

Reforms in Indian Agriculture

After analyzing the problems of indian agriculture, the next step is to cure them.
The government of india has taken a series of reforms for the development of agriculture sector in the economy. These reforms measures are popularly known as Agrarian reforms.

A. Land reforms (Institutional reforms)

It refers to change in the ownership of landholdings.

Land reforms basically focused upon the objective of equity in agriculture

♦ Abolition of intermediaries-

1. The first and the most important action taken by the government is the removal of intermediaries (Zamindars). As stated in the previous chapter, the colonial government appoints zamindars, who were the nominal head of the land and they collect land revenue from the tillers without making any initiative to improve the land.

2. The basic idea behind this step was that ownership of land would give incentives to the actual tillers to make improvements.

3. This policy brought 200 lakh tenants into direct contact with the government.

4. Also, this ownership right gives them the incentive the increase output (there is no zamindar in between who takes their share of profit) and

this contributes to growth in agriculture.

♦ Ceiling on land holding (land ceiling)

It refers to fixing the maximum amount of land, which could be owned by the individual.
In order to promote equity in the agriculture sector, the government specified the maximum limit of land that any individual can hold. Any excess land beyond that limit would be taken over by the government and will be alloted to the landless cultivators and small farmers.

♦ Consolidation of holdings:-

It refers to a practice to allot land to the farmer at one place as a replacement for his scattered holdings here and there. Moreover, small and scattered land is now converted into a big piece of land so that modern and innovative technology can be applied which will increase the productivity.

♦ Cooperative farming:-

Joint farming by small cultivators by polling their land and other resources to enjoy the benefits of large scale farming is known as cooperative farming. Together farmers can buy inputs at a lower price and sell their products at a higher cost.

B. General reforms:-

♦ Expansion of irrigation facility:-

In order to increse the productivity of agriculture, the government of india specially focused on providing proper and permanent irrigation facility.
In 1951, approx 17% of land was under permanent means of irrigation. According to World Bank, about 35% of total agricultural land in india reliably irrigated in 2012.

♦ Institutional credit:-

Regional rural banks have been set up by the government of india to fulfill the requirements of agricultural credit.
A national bank for agriculture and rural development (NABARD) has been set- up as an apex instituition in the field of rural credit in 1982.

♦ Support price policy

According to this policy, the government assured a Minimum support price

(MSP) to the farmers for their excess output.

The farmers are free to sell their products in the market at prevailing rate, but in case the market rate is lower than the MSP, then the government will purchase their output.

♦ Regulated markets and co-operative marketing societies

A regulated market or controlled market is a system where the government controls the forces of demand and supply, such as who is allowed to enter and what prices may be charged.
They are set-up by the government with the objective of offering a standardizes price to the farmers and protect them against the exploitation of middlemen. Cooperative marketing socities are also established to increase the bargainging power of farmers in the market. They ensure that farmers output is graded and

sold only when acceptable price is available.

Storage and warehousing facilities have been expanded to build up adequate buffer stocks.

C. Green Revolution or Technical Reforms:-

Green Revolution refers to sudden and spectacular increase in agriculture productivity due to the use of high yielding variety of seeds.
After independence, although around 72% of population was engaged in agriculture sector, but the level of productivity was very low.
The government initiated many technological measures, this continuous and intensive efforts breaks the stagnancy in agriculture sector which was regarded as green revolution.
It includes:-

1. Use of High yielding variety of seeds

2. Use of chemical fertilizers

3. Use of pesticides for crop protection

4. Scientific crop Rotation

5. Modernized means of cultivation

Achievements of Green Revolution

♦      Increase in production 
  ton=1000kg                                    1    

The basic and the fundamental achievement of green revolution is a massive increase in production and productivity of food grains in the economy.
It increases from 82 million tons in 960-1961 to 176 million tons in 1990-91

♦ Increase in national income

The economic condition automatically incresed with the increase in production

and level of productivity of food grains in the economy.

♦ Increse in Marketable surplus

It refers to the portion of agriculture production which is sold in the market by the farmers after self consumption.
Due to increase in the level of productivity, higher amount of food grains can be produced on the same amount of land, due to which farmers can now sell their food grains in the market even after self consumption.

♦ Benefit to low income groups:-

Due to availability of large amount of food grains in the market, their price declines a comparison to other items of consumption. The The low income group who spend large proportion of their income on food, benefited from this decline in relative price.

♦ Change in farmers outlook:-

Due to increase in production and productivity the outlook of farmers towards agriculture is now changed. Farming is no longer viewed as a source of subsistence, it is considered as commercial venture as well.

♦ Buffer stock of food grains

The green revolution enabled the government to produce sufficient amount of food grains to build a stock which could be used in times of food shortage in the market.
Failure of Green Revolution:-

♦ Limited crops only

Sudden rise in output due to green revolution mainly restricted to the production of food grains only (wheat and rice). There is no such increment in the production other crops like pulses, jute, cotton etc.

♦ Uneven benefits

The concept of using HIV seeds and modern technology comes with huge investment, whereas the majority of farmers in india are small and marginal. The gains of green revolution mainly attracted towards big farmers only. It ultimately leads to increase in income inequality between small and big farmers.

♦ Soil degradation

Intensive use of Pesticides and chemical fertilizers has negative effect on land. Production of wheat and rice requires huge amount of water, fertilizers and pesticides which results in alarming rate of groundwater depletion and soil degradation.

♦ Uneven spread

The concept of green revolution is not spread over the whole country, only few states like Punjab, Haryana, Tamil Nadu, Maharashtra had made a great impact.
While the impact on other states was relatively significance.

Industrial reforms

In the context of growth and development of a country, industrial sector always play a dominant role. In the economy like India, the growth of industrial sector is necessary for the economic and monetary prosperity of country.

Industrial sector provides

♦ More stable source of employment

♦ Promotes modernization

♦ Increases national income

♦ Boost the growth potential of an economy

♦ Increase the amount of exports

♦ Helps to modernize agriculture

At the time of independence, the industrial sector was in the immature stage, only few industries represent the whole sector. So, the government of india decides to put attention on the development of this sector.

Role of public/government sector in industrial development

The development of industrial sector or the process of industrialization cannot be left over solely in the hands of private entrepreneurs.
Direct involvement of public sector is also necessary for its development as

♦ Lack of capital

Handful of private industries won’t be able to arrange and invest capital up to the limit which is required for the development of whole economy.
Hence the involvement of government sector becomes mandatory for the process of industrialization.

♦ Lack of incentive

At the time of independence, the market of india was not much big enough to encourage private businessman to undertake huge investment.
Moreover due to limited size of market of market, the demand for industrial goods was at very low which restricts the industrialist to earn more.

♦ Social justice

A private industrialist always aims at maximizing wealth, whereas in order to grow the industrial sector along the growth of economy the main objective is to provide more and more employment opportunities rather than concentration of wealth in few hands.

♦ Development of infrastructure

Due to huge investment and low profitability, private sector does not undertake many infrastructural projects. So, it became mandatory for the public sector to involve in the process of industrial development.

Industrial Policy Revolution (1956)

According to the Industrial policy 1956, government of india increases the role of public sector in the industrial development of the economy. The main objective of this revolution is to accelerate the growth of industrial sector and prevent the concentration of wealth and income in the hands of few individuals only.

Features of IPR 1956

1. Three-tier classification of industries

According to this, the industrial policy 1956 divides total industries into 3 categories i.e.,Schedule A-17 industries Complete control by public sector Schedule B-12 industries Those which could be established both as a private and public sector enterprises.
However the role of public sector is more dominant than of private sector. Schedule C Remaining industries, which are to be left open for private sector.

2. Introduction of Industrial licensing

It refers to a written permission from the government for opening or for expansion an industrial unit. According to this policy, no new industry was

allowed to survive unless and until license is obtained from government. Moreover, license was also needed if an existing industry wants to expand or diversify production.

3. Industrial concession

Incentives like tax rebate and subsidized rate of power supply were offered to private entrepreneurs for establishing industries in backward and rural areas of the country. The basic motive behind this policy is to encourage equality in income.

Small Scale Industries (SSI)

A small scale industries is presently defined as the one whose investment does not exceed rupees 5 crore. (Earlier it was rupees 5 lakhs in 1951).
The government also focuses on developing and strengthening small industries as it plays an important role in the development and equitable distribution of income in the economy.

Role of Small Scale Industries or Characteristics of SSI

♦ Labour intensive

Small scale industries provide huge amount of employment in the economy as the amount of labour in such industries are proportionately high as comparison to big industries. i.e., SSI are labour intensive, whereas big industries are capital (machines incentive)

♦ Promotes balanced regional growth

These industries are locational friendly, unlike big industries which are required to be set up near the raw material hub in reduce the cost of transportation these industries can be easily set up at the door step of the owner. (Due to small requirements).

♦ Promotes equity

SSI requires less amount of investment as compared to big industries, which does not concentrate the power of economy in few hands. Moreover any one start a small scale industry (low investment) which will bring equal distribution of income and wealth in the economy.

♦ Source of raw materials

SSI are the source of raw materials for big industries. Majority of big industries get raw materials from them only.
It builds the eco-system of flow of income in the economy.

Foreign trade policy

During the colonial period India was the prime exporter of raw materials and the importer of finished goods. But after independence, india’s foreign trade undergo with a massive change.
In order to be self-sufficiant, India has followed a policy of imports substitution which is also known as inward looking trade strategy.
Import Substitution refers to a policy of replacement of imports by domestic production.
According to this policy, instead of importing foods from foreign country, domestic industries are encouraged by giving different incentives to produce them in India.
Government of India uses 2 ways to protect domestic goods from imports:-

1. Tariff

It refers to the taxes levied on imported goods. The goods can be imported in india after paying heavy amount of taxes on such goods; imposition of tax increases the price of such goods whixh automatically reduces its demand in the market.

2. Quota

It refers to the government imposed trade restriction that limits the number or monetary value. 

::Things to remember::

Impact of import substitution

♦ Saves foreign exchange

♦ creates protected market for domestic producers

♦ Build industrial sector

♦ Increases demand of domestic products

Bad impacts of import substitution

♦ Restricts growth

♦ Reduces efficiency of domestic producers

♦ Creates local monopoly (due to no other alternative)

♦ Low competition implies lack of development and modernization 

                                  Summary

♦ planning commission

♦ Economic problem

♦ What to produce

♦ How to produce

♦ Whom to produce

♦ Market economy

♦ Mixed economy
 
♦ Central planned economy

♦ Economic Planning

♦ Goals of Planning of India

♦ Long term goals

♦ Short term goals

♦ Objective of Five year Plans

♦ Economic Growth

♦ Modernization

♦ Full employment

♦ Equity

♦ Self-reliance

♦ Importance of Agriculture in Indian economy

♦ Contribution to GDP

♦ Supply of food grains

♦ Source of employment

♦ Supply of raw materials

♦ Share of exports

♦ Source of revenue

♦ Market for industrial sector

♦ Problems of Indian agriculture

♦ Lack of irrigation facility

♦ Small and scattered holdingd

♦ Deficiency of institutional finance

♦ Conventional outlook

♦ Lack of organised marketing system

♦ Reforms in Indian agriculture

♦ Achievements of Green Revolution

♦ Failure of Green Revolution

♦ Small scale industries and Foreign trade policy