Chapter 2: Indian Economy (1950 – 1990)

The proportionate contribution of each sector towards the Gross Domestic Product (GDP) of the country during a year is known as sectoral composition. It comprises shares from the industrial sector, agricultural sector and service sector. Out of all the three sectors, the service sector needs to be the one contributing the maximum for GDP at the later stages. A phenomenon called structural transformation implies a gradual shift of dependence from agriculture towards an increase in the industrial and service sectors.

Public sector was given a leading role due to following reasons:

1. The development project for a country which had recently gained independence was tough. There was no foreign investment and no fund support, so the government had decided to take the initiative as the projects were high-risk and had a long turnaround time. It was the public sector that had to step in to provide the framework of the future industries.

2. Indian economy was at a very nascent stage, and the level of income was very less for the majority of the people of the nation. As a result of that, the demand was less and for such a market, no one was willing to invest. The public sector was the only option by which the demands could be raised.

The green revolution helped in a substantial increase in food grain production and ended India’s reliance on imports from the USA for food grains. Importing HYV seeds from Mexico led to surplus food crop production and subsequently made India self-sufficient. The farmers also had easy access to credit, and were offered subsidies for buying fertilizers. Also, land reforms made life much easier for them. These farmers were able to save their surplus production and sell them to the Government of India, earning profit and also enabling the government to stock enough food grains for emergency situations like famines, droughts, etc.

Whenever a new technology is introduced, people are hesitant at first to try it out. The most common thinking is if someone invests in new technology and it backfires or doesn’t give the desired results, it will be a loss for the investor. Therefore subsidies were introduced. Economists believe that a technology, when found to be profitable, should not be subsidised. Subsidies meant for farmers will also benefit the fertilizer industry, and it will benefit those farmers who are from more prosperous regions. The government bears the burden by providing such subsidies. The proper way to provide subsidies is to determine which farmers are really in need of subsidy through a proper verification system. It will ensure that the needy get the subsidy, and the government doesn’t have to bear large expenses.

Indian agriculture witnessed tremendous growth in crop production which made India self-sufficient in food grain production. Still the number of people engaged in agriculture has not come down in the 40 years. It was 67.5 % of the total population in 1950, and the figure stood at 64.9% in 1990. Growth was hindered as people were not absorbed in the secondary and tertiary sector. Such a large number of people engaged in agriculture would have generated much more productivity, which it didn’t. It shows that technological advancement was lacking. Also it showed the short-sightedness of the economic policies that were in effect from 1950-1990. The result was that the contribution of agriculture to GDP was reduced to 44% in the 1970s while it was 51% in the 1960s.

Lack of proper planning and mismanagement led to the wastage of resources and also monetary loss in forms of revenue by the PSU’s. Still they are having some benefits which are as follows:

1. The main purpose of a PSU is to provide goods and services which are useful for the society and help in the country’s welfare in addition to paving the path for economic development. For instance, schools, hospitals, etc.

2. Projects that require high investment and long gestation periods are not undertaken by any private companies. Hence, PSUs are the best choice for such projects.

3. Public sectors form the basic framework of the nation with respect to industrialisation, which will provide assistance to private firms at the next stage of industrialisation

4. India followed a socialistic government which allowed for equal rights for everyone, therefore government-controlled businesses led to economic growth. PSU’s will produce goods as per the social needs of the country.

5. Inequalities in income will lead to a higher standard of living, eradicate the existing poverty. Therefore the government should invest in PSU’s.

Import substitution refers to the process of discouraging the import of goods that can be produced domestically. This strategy makes an economy less dependent on imported goods and at the same time, provides financial facilities, subsidies, know-how and licenses to produce those goods in the country, allowing the producers to sustain and develop. There will be no competition as international producers are out of the equation and this gives them monopoly status. By earning more profits, they can enhance their knowledge which will be beneficial in expanding to international markets.

IPR or Industrial Policy Resolution, 1956, was a resolution that was adopted by the Indian parliament for industrial development in India. This resolution aimed at creating a socialistic pattern of society. Under this rule there were three categories of industries which were:

Schedule A: Industries that are exclusive responsibility of the state

Schedule B: Industries that will be pre-dominantly owned by the public sector while private sector will be supplementing the efforts of the public sector

Schedule C: The remaining industry types that will be managed by private sector

Although the government wanted to define a separate category for the private sector, it wanted to keep the sector under state control and hence created a rule that in order to open a new industry or to expand an existing one, a license was required to be obtained from the government. If the industry was opened in a backward area, the government would offer subsidy and other facilities such as easy licensing. This step was taken to maintain regional equality. In order to increase production, a license was required so that no socially undesirable goods were produced.

The correctly matched answer are shown below:

• Introduction
• The goals of five year plans
• Modernisation
• Self-reliance
• Equity
• Agriculture
• Land reforms
• The green revolution
• Industry and trade
• The industrial policy resolution 1956 (IPR 1956)