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CHAPTER- 2: INDIAN ECONOMY 1950-1990
After studying this chapter, you will come to know:
- India’s five year plans: It’s goals.
- Development policies in different sectors from 1950-1990.
- Regulated economy: It’s merits and limitation.
- Note: NITI Aayogis neither a constitutional body nor a statutory body. It is a non-constitutional or extra-constitutional body because it is not created by the Constitution of India and also a non-statutory body as it is not created by an Act of the Parliament.
- GST: introduced from 1 July 2017
- 101 amendment (2016),
- 122 amendment bill introduced in LS – 2014
How bill covert to act?
Bill introduced in LS/RS-> if pass in one house then goes to 2nd (if any doubt, can refer to select committee)- report-> if passed both house-> Goes to ratification from states->assent from President-> notify in The Gazette of India
After independence, India became masters of our own destiny so now the job of nation building was in our own hands.
Among other things, India had to decide about:
Suitable type of economic system:
- Capitalist/Market Economy: In this, Central problems of economy solved by market forces.
What is:
- only those consumer goods will be produced that are in demand & gives profit.
- Labour-intensive methods vs machine-intensive methods; Production does based on its cost.
- Product distributed on the basis of Purchasing Power not on the basis of what people need.
- Nehru was not in favor of such society because…..
- Socialist Economy: In this, Government decides about the central problems.
- What to produce: accordance with the needs of society not give importance to individual consumers.
- How to Produce:
- For Whom to Produce: distribution based on what people need and not on what they can afford. Ex.- free health care to all its citizens.
- No private property, everything is owned by the state. For Ex. Cuba and China.
- Appealed to Nehu most however not in favor like Soviet Union because:
- all the means of production (factories, farms) were owned by the government & no private property.
- In democracy, not possible; changing ownership of land / properties was impossible unlike USSR.
- Mixed Economy: Government and the market together solve the economics problems.
- Market provides whatever it can produce well, Government provides essential goods/services which the market fails to do.
- Introduced by Nehru/thinkers of newly independent India as thinkers of the newly independent India.
- They combined the best features of socialism excluding its drawbacks.
- This define India as a socialist society with a strong public sector (Government will plan, Private sector be part of the plan effort) but also with private property and democracy; This outlook reflexed in- IPR-1948, DPSP, PC (1950), NDC(1952).
WHAT IS A PLAN?
- A plan spells out how the resources of a nation should be put to use.
- It have some goals (general, specific) to achieve within a specified period of time.
IN INDIA;
- Plans made for 5 years(borrowed from USSR[pioneer]) & 20 Years(long-term plan/perspective plan; to these base provided by 5 year plan) and some rolling plans.
- Different plans defined different goals. And had conflicted. For ex. introducing modern technology may be in conflict with the goal of increasing employment.
- India’s five year plans emphasize on those sectors (power generation, irrigation) which plays a commanding role not all like USSR (tried but failed)
THE GOALS OF FIVE YEAR PLANS (growth, modernisation, self-reliance and equity)
- GROWTH: Means increasing in the country’s capacity to produce G/S.
- larger stock of- productive capital, supporting services (transport, banking), increase- efficiency of productive capital and services.
- Best Indicator: GDP: Definition, GDP is cake & size of it is growth, structural composition-Derived from diff. sectors-agricultural, industrial, service, Quaternary & Quinary sector.
- STRUCTURAL COMPOSITION: When share of sector in GDP change; Generally with development share of agriculture declines, industry becomes dominant & at higher level; service sector contributes more. But:
- In India; Peculiar/Unique; 1950-Share of agriculture in GDP(App. 50%); 1990-Service sector’s contribution(40.59 %; like developed nations); After 1991-Accelerated.
- Why did India shift from primary sector to services sector and not secondary sector?
- diversification into services, with the services sector dominating GDP.
- success in software and IT-enables serviced (ITeS) exports, has made it a significant services exporter with its share in world services exports rising from 0.6 per cent in 1990 to 3.3 per cent in 2013.
- Well educated and immense human resources, Fluency in English and availability of cheap labour are other reasons for rapid growth of service sector in the country. On the other hand low growth in Secondary sector can be attributed to:
- The license Raj
- Restrictions on foreign investment
- Lack of measures to promote private industry
- Power Deficit
- Stringent Labour laws
- Lack of skilled labour
- Delays in Land Acquisition and environmental clearances
- Import of cheap manufactured goods etc
SECTOR-WISE CONTRIBUTION OF GDP IN INDIA
- Services sector is the largest sector of India. Gross Value Added (GVA) at current prices for Services sector is estimated at 92.26 lakh crore INR in 2018-19. Services sector accounts for 54.40% of total India’s GVA of 169.61 lakh crore Indian rupees.
- With GVA of Rs. 50.43 lakh crore, Industry sector contributes 29.73%. While Agriculture and allied sector shares 15.87%.
- Agriculture sector has maximum share by WORKING FORCE at near 53% while services and secondary sectors shares are near 29% and 18% respectively.
PRIMARY SECTOR/AGRICULTURE AND ALLIED SECTOR:
- Activities are undertaken by directly using natural resources. Agriculture, Mining, Fishing, Forestry, Dairy etc
- Forms the base for all other products.
- People involved in called: red-collar workers due to the outdoor nature of their work
SECONDARY SECTOR/INDUSTRIAL SECTOR
- Industries where finished products are made from natural materials produced in the primary sector. Ex. Industrial production, cotton fabric, sugar cane production etc.
- Manufactures goods, rather than producing raw materials.
- Blue collar workers.
Core Industries: 8: Electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.
monthly production index: The Index of Eight Core Industries consider as a lead indicator of the monthly industrial performance.
TERTIARY SECTOR/SERVICE SECTOR
- This sector’s activities (an aid/support for the production) help in the development of the primary/secondary sectors.
- Ex. Goods transported by trucks or trains, banking, insurance, finance etc.
- white collar jobs.
Quaternary Activities
- specialized tertiary activities in the ‘Knowledge Sector’.
- Personnel working in office buildings, elementary schools and university classrooms, hospitals and doctors’ offices, theatres, accounting and brokerage firms all belong to this category of services.
QUINARY ACTIVITIES
- Part of the economy where the top-level decisions are made; top decision-makers in industry, commerce and also the education sector, government which passes legislation.
- Focus on the creation, re-arrangement and interpretation of new and existing ideas; data interpretation and the use and evaluation of new technologies.
- ‘Gold collar’ workers.
- Special and highly paid skills of senior business executives, government officials, research scientists, financial and legal consultants, etc.
- Pink Collar Worker: female-orientated jobs. Ex. baby sitter, florist, day care worker, nurses etc
- Sunrise Industry: sector that is just in its infancy but shows promise of a rapid boom.
- Information Technology
- Telecom Sector
- Healthcare
- Infrastructure Sector
- Retail Sector
- Food Processing Industries
- Fisheries
- MODERNISATION:
- What is: Adopt new technology (new variety seeds; New machine), changes in social outlook (equality to women etc)
- Required For: More production.
- SELF-RELIANCE: Ability to depend on own self or resources.
- Economic growth and modernization can be achieve through: (1) Own resources (2) Imported resources.
- Up to 7th plan India avoided imports of those products which could be produced by India itself because:
- Necessity to reduce our dependence on foreign (especially food).
- Recently decolonized.
- foreign interference in our policies: If Dependence on imported food supplies, foreign technology and foreign capital.
- Fear of Sovereignty loss:
- EQUITY: The quality of being fair and impartial for economic prosperity/Minimizing the inequality in the distribution of wealth.
- Basic needs (food, shelter, education, healthcare etc) Should be available for all.
- Very important to improve the kind of life which people are living.
- Achieving high growth, modern technology don’t ensure – No poverty.
- Economic prosperity
- Due to limited resourcesall the plans hadn’t given equal importance. And contradictions among also managed by planners.
- MODERNISATION:
- What is: Adopt new technology (new variety seeds; New machine), changes in social outlook (equality to women etc)
- Required For: More production.
- SELF-RELIANCE: Ability to depend on own self or resources.
- Economic growth and modernization can be achieve through: (1) Own resources (2) Imported resources.
- Up to 7th plan India avoided imports of those products which could be produced by India itself because:
- Necessity to reduce our dependence on foreign (especially food).
- Recently decolonized.
- foreign interference in our policies: If Dependence on imported food supplies, foreign technology and foreign capital.
- Fear of Sovereignty loss:
- EQUITY: The quality of being fair and impartial for economic prosperity/Minimizing the inequality in the distribution of wealth.
- Basic needs (food, shelter, education, healthcare etc) Should be available for all.
- Very important to improve the kind of life which people are living.
- Achieving high growth, modern technology don’t ensure – No poverty.
- Economic prosperity
- Due to limited resourcesall the plans hadn’t given equal importance. And contradictions among also managed by planners.
- How the first seven five year plans (1950-1990) attempted to attain these four goals & succeeded in:
- AGRICULTURE:
- Situations of Agriculture after independence:
- While independence- land tenure system had intermediaries (zamindars, jagirdars) to collect rent from the actual tillers.
- No contribution to improve land.
- low productivity-> import food from USA
- During the colonial rule: neither growth nor equity so After independence, policy makers address these issues & tried to revolution in Indian agriculture through:
- LAND REFORMS: four components:
- ABOLITION OF ZAMINDARI SYSTEM:
- To change in the ownership of landholdings abolished intermediaries; approx. 200 lakh tenants came into direct contact with the government. freed from being exploit.
- Through this, released land from the clutches of a class who had less interest in agriculture.
- Goal behind this was to establish equity.
- reduced the capacity of the landlords to dominate politics
- To make the tillers the owners of land.
- To give incentives to the tillers to invest in farm.
- COULDN’T FULLY SUCCEED: Because:
- Former zamindars/jagirdars used of some loopholes in the legislation.
- Tenants evicted & landowners claimed to be self cultivators (the actual tillers).
- Agricultural labourers (sharecroppers, landless labourers) couldn’t benefited.