Class 12 Economics (Indian Economic Development) Chapter 2 Indian Economy 1950-1990 NCERT Solutions in English

Q. Define a plan.

Answer: A plan spells out how the resources of a nation should be put to use. It has some general goals as well as specific objectives which are to be achieved within a specified period of time. In India plans were of five years’ duration and were called five year plans.

Q. Why did India opt for planning?

Answer:

• After independence the leaders wanted an economic system that would promote the welfare of all rather than a few; Nehru favoured socialism, but Soviet-style total state ownership was not possible in a democracy.
• So India chose a mixed economy in which the government would plan for the economy and the private sector would be part of the plan effort.
• Agriculture was stagnant after colonial rule and industry was narrow; planning was needed to direct limited resources to priority sectors such as power generation and irrigation.
• Planning allowed growth, modernisation, self-reliance and equity to be pursued together, with a balance among them. For this the Planning Commission was set up in 1950 with the Prime Minister as Chairperson.

Q. Why should plans have goals?

Answer:

• A plan spells out how a nation’s resources are to be used; clearly specified goals tell planners where to direct those resources.
• Because resources are limited, each plan must choose which goal gets primary importance; without goals this choice cannot be made.
• Goals provide the yardstick to judge whether a plan has succeeded within its specified period.
• Goals may conflict (e.g. modern technology may reduce the need for labour), so stating them lets planners balance them and make sure policies do not contradict them. India’s plans had four goals: growth, modernisation, self-reliance and equity.

Q. What are High Yielding Variety (HYV) seeds?

Answer: High Yielding Variety (HYV) seeds are seeds that give a large proportion of output. Their use requires fertiliser and pesticide in the correct quantities and a regular supply of water; applying these inputs in correct proportions is vital. The Green Revolution came from the use of these seeds, especially for wheat and rice.

Q. What is marketable surplus?

Answer: The portion of agricultural produce which is sold in the market by the farmers is called marketable (marketed) surplus. During the Green Revolution farmers sold a good proportion of their rice and wheat, which lowered the relative price of food grains and let the government build a stock.

Q. Explain the need and type of land reforms implemented in the agriculture sector.

Answer: Need:

• At independence the land tenure system was dominated by intermediaries (zamindars, jagirdars) who merely collected rent without improving the farm.
• Low agricultural productivity forced India to import food from the USA.
• Equity required a change in the ownership of landholdings; ownership gives tillers the incentive to raise output and invest.

Types:

• Abolition of intermediaries: just a year after independence, steps were taken to make the tillers the owners of land. Some 200 lakh tenants came into direct contact with the government and were freed from exploitation.
• Land ceiling: fixing the maximum size of land an individual could own, to reduce the concentration of land ownership.

Their limits: loopholes, evictions, no benefit to sharecroppers and landless labourers, and court challenges to ceiling laws. Land reforms were successful in Kerala and West Bengal, where governments were committed; other states lacked the same commitment.

Q. What is Green Revolution? Why was it implemented and how did it benefit the farmers? Explain in brief.

Answer: Meaning: the Green Revolution refers to the large increase in production of food grains resulting from the use of HYV seeds, especially for wheat and rice.

Why implemented:

• At independence about 75% of the population depended on agriculture, but productivity was very low (old technology, no infrastructure).
• Agriculture depended on the monsoon and very few farmers had irrigation; food had to be imported from America.

Benefits to farmers:

• Output rose and farmers sold a good proportion of it in the market (marketed surplus).
• The government gave small farmers loans at low interest and subsidised fertilisers, so small farms’ output equalled that of large farms in time.
• Government research institutes reduced the risk of pest attack. So small as well as rich farmers benefited, and India became self-sufficient in food grains by the late 1960s.

Q. Explain ‘growth with equity’ as a planning objective.

Answer:

• Growth is an increase in the country’s capacity to produce, indicated by a steady increase in GDP. If GDP is a cake, growth is the cake getting bigger.
• Growth alone is not enough: a country can have high growth and the most modern technology and still have most of its people living in poverty.
• Equity means the benefits of prosperity reach the poor as well, not only the rich: every Indian should meet basic needs such as food, a decent house, education and health care, and inequality in the distribution of wealth should be reduced.
• So the objective was a bigger cake that is also fairly shared. Land reforms and subsidies for small farmers are examples.

Q. Does modernisation as a planning objective create contradiction in the light of employment generation? Explain.

Answer: Yes, modernisation can contradict employment generation.

• Modernisation means adopting new technology to raise output, such as new machines in a factory.
• If the new technology reduces the need for labour, output may rise while fewer workers are needed, which conflicts with the goal of increasing employment. The book gives this as an example of goals in conflict.
• Planners therefore have to balance the two goals, a very difficult job. Promoting labour-intensive small-scale industries was one way of protecting employment.

Q. Why was it necessary for a developing country like India to follow self-reliance as a planning objective?

Answer:

• Self-reliance means avoiding imports of goods that could be produced in India itself; the first seven plans gave it importance.
• It was necessary to reduce dependence on foreign countries, especially for food; at independence food was imported from the USA.
• People recently freed from foreign domination naturally gave importance to self-reliance.
• It was feared that dependence on imported food, foreign technology and foreign capital would make India’s sovereignty vulnerable to foreign interference in its policies.

Q. What is sectoral composition of an economy? Is it necessary that the service sector should contribute maximum to GDP of an economy? Comment.

Answer: Sectoral composition: the GDP of a country comes from the agricultural, industrial and service sectors. The contribution made by each of these sectors makes up the sectoral (structural) composition of the economy.

Comment: No, it is not necessary.

• In some countries growth in agriculture contributes more to GDP growth, in others the service sector does; the path differs.
• The usual pattern is that agriculture’s share declines and industry becomes dominant first; only at higher levels of development does the service sector contribute the most.
• India’s structural change was peculiar: by 1990 services had 40.59% of GDP, more than agriculture or industry, though industry never became dominant and about 65% of people were still in agriculture.
• So a largest service sector is not by itself proof of development; what matters is that all sectors grow and people find productive employment.

Q. Why was public sector given a leading role in industrial development during the planning period?

Answer:

• Lack of capital: at independence Indian industrialists did not have the capital to undertake the investment industrial development required.
• Small market: the market was not big enough to encourage industrialists to take up major projects even if they had the capital.
• Socialist lines: the decision to develop the economy on socialist lines meant the government would control the commanding heights of the economy, as the Second Five Year Plan put it.
• Industry was narrow (cotton textiles, jute, two iron and steel firms), so the state had to build a diversified industrial base; private sector policies were to be complementary to the public sector’s.

Q. Explain the statement that green revolution enabled the government to procure sufficient food grains to build its stocks that could be used during times of shortage.

Answer:

• HYV seeds sharply raised the production of wheat and rice.
• Farmers sold a good proportion of the extra output in the market instead of consuming it themselves, i.e. marketed surplus rose.
• With enough grain in the market, the government could procure it and build a stock.
• This stock could be used in times of food shortage (such as a failed monsoon), so India no longer had to be at the mercy of America or any other nation for food.

Q. While subsidies encourage farmers to use new technology, they are a huge burden on government finances. Discuss the usefulness of subsidies in the light of this fact.

Answer: In favour of subsidies:

• Farmers look upon any new technology as risky; subsidies were needed to encourage farmers, especially small farmers, to test and adopt HYV technology.
• Farming in India continues to be risky; most farmers are very poor and cannot afford inputs without subsidies.
• Eliminating subsidies would increase inequality between rich and poor farmers and violate the goal of equity.

Against subsidies:

• Once the technology is profitable and widely adopted, subsidies should be phased out since their purpose is served.
• A substantial part of fertiliser subsidy benefits the fertiliser industry and farmers in prosperous regions; it does not benefit the target group and is a huge burden on government finances.
• Subsidised or free inputs lead to wasteful use, which can harm the environment (Box 2.6).

Conclusion: supporters argue that the correct policy is not to abolish subsidies but to take steps to ensure that only poor farmers enjoy the benefits.

Q. Why, despite the implementation of green revolution, 65 per cent of India’s population continued to be engaged in the agriculture sector till 1990?

Answer:

• As a nation becomes more prosperous, both agriculture’s share of GDP and the share of the population working in it decline considerably.
• In India, between 1950 and 1990, agriculture’s share of GDP declined significantly (59.0% to 34.9%), but the population depending on it fell only from 67.5% to 64.9%.
• The main reason: the industrial and service sectors did not absorb the people working in agriculture; not enough jobs were created outside farming.
• Agricultural output could have grown with far fewer people. Many economists call this an important failure of the policies of 1950-1990.

Q. Though public sector is very essential for industries, many public sector undertakings incur huge losses and are a drain on the economy’s resources. Discuss the usefulness of public sector undertakings in the light of this fact.

Answer: Usefulness:

• At independence private industrialists lacked capital and a big market; the government had to play an extensive role in promoting industry.
• By 1990 the industrial sector was well diversified, largely due to the public sector; industry’s GDP share rose from 13% to 24.6%.
• A few economists argue that the public sector is meant to promote the welfare of the nation, not to earn profits, so it should be judged by its contribution to welfare.

Problems:

• State enterprises continued in areas where they were no longer required: telecommunication (long waits for telephones), Modern Bread (sold in 2001), hotels.
• Loss-making undertakings are difficult to close even when they drain the nation’s limited resources; a loss-making private firm would not waste resources this way.

Conclusion: PSUs are useful, but some scholars argue that the state should get out of areas the private sector can manage and concentrate its resources on important services the private sector cannot provide, such as national defence.

Q. Explain how import substitution can protect domestic industry.

Answer:

• Import substitution aims at replacing imports with domestic production, e.g. producing vehicles in India instead of importing them.
• The government protects domestic industries from foreign competition in two forms:
  • Tariffs: a tax on imported goods, which makes them more expensive and discourages their use.
  • Quotas: a limit on the quantity of goods that can be imported.
• Both restrict imports, so domestic firms get the market and are protected from foreign competition.
• The idea was that industries of developing countries could not yet compete with developed economies, and would learn to compete under protection. Indigenous electronics and automobile industries developed this way.

Q. Why and how was private sector regulated under the IPR 1956?

Answer: Why:

• The state aimed to control the commanding heights of the economy and build a socialist pattern of society; IPR 1956 formed the basis of the Second Five Year Plan.
• It also aimed to promote industry in backward regions (regional equality) and to keep output in line with what the economy required.

How:

• Industries were classified into three categories; the third was left to the private sector, but kept under state control through a system of licences.
• No new industry was allowed without a licence from the government.
• Licences were easier to obtain in economically backward areas, with concessions such as tax benefits and electricity at a lower tariff.
• Even an existing industry needed a licence to expand output or to diversify, given only if the government was convinced that the economy required more.

Q. Match the following:

Answer: 1-C, 2-D, 3-B, 4-E, 5-A, 6-F