Indian Economy (1950-1990): Economic System adopted by Independent India

An economic system is a medium through which the government allocates and distributes the available resources, goods & services across the country and geographical boundaries. Economic systems act as a regulatory system to manage the elements of production, labour, physical resources, and business people. Also, economic systems generally follow the specimen of use and consumption that formulates the structure of society & communities.

Types of Economic Systems

The three types of economic systems are:

1. Capitalist Economy

Capitalism or Capitalist Economy is an economic system in which private individuals and businesses own and control property, especially in the industrial sector to fulfill their interests. The main aim of this economy is to make a profit. The production of goods & services depends on the demand and supply in the general market, which is known as the market economy. The purest form of a capitalist economy is the free market. Here all the private individuals and businesses are free to decide where to invest, what to trade(produce or sell), and at what prices.

Features of Capitalist Economy

1. Private Property: This is one of the important features of the capitalist economy, where private individuals and businesses own private properties like machines, factories, and equipment.

2. Profit Motive: The main aim of the capitalist economy is to earn maximum profit by selling goods & services at fixed prices.

3. Free Trade: The capitalist economic system consists of low tariff barriers, which promote international trade. 

4. Government Interference: There is no government interference in the daily business activities of the capitalist economy.

5. Price Mechanism: In the capitalist economy, the demand and supply in the market determine the production level and the price of the products without any government interference.

6. Freedom of Enterprises: In the capitalist economy, both the producers and consumers has the right to make their own economic decisions.

7. Freedom of Ownership: In a capitalist economy, any individual can purchase any amount of property, and can use it according to his choice, and after his death, his property would be passed on to his successor according to the law of inheritance.

Advantages of Capitalist Economy

• The capitalist economy is more efficient as all the products are produced according to the customers’ demand.

• There is very less or no interference from the government.

• The companies aim to obtain a major part of the market through their offerings; therefore, there is a better scope for innovation.

Disadvantages of Capitalist Economy

• Capitalism results in income inequality.

• The high profit-earning motive of a capitalist economy leads to various environmental problems, as they use the resources in such a way that it disturbs the natural balance of the environment.

•  A firm can get a monopoly over consumers & workers in a capitalist economy.

2. Socialist Economy

A Socialist Economy is the exact opposite of a capitalist economy. In this economy, all the factors of production are owned by the state government, therefore, all the factories, capital, plant & machinery are owned and controlled by the state government. 

In a socialist economy, private individuals and businesses are not allowed to produce the goods & services of their own choice, but according to the needs of the society and at the command of the state government. Unlike a capitalist economy, the prices of goods & services are set by the government, not by market forces and the factors of supply and demand. All the citizens get equal rights and enjoy the benefits from the production of goods and services. Therefore, this economy is also known as a Command Economy.

The main aim of the socialist economy is to maximize the wealth of the whole country, and the equal distribution of wealth among its citizens, not just the welfare of rich individuals & companies. 

Features of Socialist Economy

1. Ownership of Resources: In a socialist economy, all the major factors of production are owned by the state and only small trading firms & farms are kept under private ownership.

2. No Consumer Choice: In a socialist economy, every citizen gets necessities, like food, clothing, shelter, etc., but they do not have the absolute freedom to get the product they want. They have to choose from the products manufactured by the state.

3. Income Distribution: The main aim of the socialist economy is to provide every citizen equal opportunities and facilities, like health care, education, etc. It tries to narrow the gap between the rich and the poor so that one person cannot accumulate a lot of wealth. It promotes equality in income distribution.

4. Pricing Mechanism: In a socialist economy, the price of goods & services are set by the government so that every citizen can afford them. Therefore, market forces or demand and supply factors do not affect the prices of goods under a socialist economy.

Advantages of Socialist Economy

• It promotes social welfare and equal distribution of income.

• It ensures that all the citizens get basic necessities.

• It helps in minimizing unemployment.

Disadvantages of Socialist Economy

• A Socialist Economy is a ground for corruption, favoritism, and red-tapism, as most of the authority lies with the government.

• The prices are fixed by the administration; therefore, they are not efficient as they are not fixed by the market forces.

• In a Socialist Economy, consumers do not get the freedom to get the product they desire, and have to select from the products manufactured by the state.

3. Mixed Economy

A Mixed Economy system is a combination of both capitalist and socialist economic systems. It incorporates the benefits of both systems and avoids their drawbacks. In a mixed economy, both the public and private sector coexists, and the private & public sector collaborates to achieve social objectives within an economic framework. India is the biggest example of a mixed economy.

Different types of mixed economy systems are:

1. Partial State Control: In this type of economy, the factors of production like factories, plants & machinery are owned by private firms, but regulated by the government.

2. Total Government Control: The government directly affects the functioning of the firms, and invests its own money in the business and is solely responsible for its activities. It also bears the losses and owns the profits of the company.

3. Public-Private Control: There is a joint venture between the public and private sectors, and
they jointly carry out the business activities.

Features of Mixed Economy

1. Multiple Sectors: In a mixed economy, major sectors like public, private and mixed sectors work together in peace. The mixed sector is operated by both government and private companies where the government holds more than 50% of the rights.

2. Freedom of Choice: In a mixed economy, the public is free to choose the type of goods & services they want to produce, buy capital assets, select professions, etc. But the government maintains state control over the market just to check the monopolistic forces.

3. Social Welfare: Social welfare is one of the main aims of the mixed economy. It tries to reduce the gap between the rich and the poor by providing various job opportunities and reducing poverty.

4. Economic Administration: In a mixed economy, there is a central planning authority, and all sectors of the economy are required to work according to the economic plan to achieve the set targets.

5. Co-operative Sector: In a mixed economy, there is a cooperative sector whose responsibility is to provide financial support to the cooperative societies.

Advantages of Mixed Economy

• A mixed economy tries to reduce the income gap by providing equal opportunities for jobs and education.

• In a mixed economy, there is always a scope for research & development.

• A mixed economy provides fair distribution and pricing of goods & services as the government owned firms regulate the market.

• A mixed economy promotes consumer sovereignty, as the goods are produced according to the needs and wants of the consumers.

• A mixed economy promotes social welfare and also protects individual rights.

Disadvantages of Mixed Economy

• The market equilibrium is tough to maintain in a mixed economy because of public and private interests.

• There can be the problem of corruption, black market, and nepotism due to the interference of government.

• Due to excessive control of the government in a mixed economy, the growth of the private sector industries suffer.

Economic Planning during 1950-1990

On 15 August 1947, India gained Independence from the two hundred years of British rule. Finally, India became the master of its destiny, and the job of building the nation is now in the hands of the people of India. After Independence, it was necessary to rebuild the stagnant economy into a journey of a developing country. Therefore, the Indian leaders had to decide on an economic system that would be most appropriate for the nation and that would facilitate public welfare. 

Central Problems of the Economy

1. What to Produce: It includes deciding which goods and services and in what quantity must be produced in a country. A country has limited resources like land, labour, and capital. Thus it is essential to decide what goods must be produced and in what quantity.

2. How to Produce: It includes deciding the techniques of production. There are two types of techniques (i) labour-intensive, and (ii) capital-intensive. Labour-intensive goods are produced with more labour and less capital involvement; whereas, capital-intensive goods are created with more capital and less labour involvement. The selection of techniques depends upon the cost of technology and the amount of the goods required.

3. For Whom to Produce: It involves deciding which goods are to be produced and for which section of society, i.e., who will consume the goods. For example, all sections of society require essential goods like wheat and rice, but there is a demand for luxury goods by a few sections of society. So the government creates a balance between the two.

Types of Economic Systems

Three different types of economic systems can be used to address the central issues. 

1. Market/Capitalist Economy: An economic system in which the private sector owns, controls, and utilizes the means of production is known as a Market Economy. An example of this system is the USA. Here, the market forces of demand and supply, play an essential role in determining the price of goods and services. The primary purpose of production in this economy is to earn profits.

2. Socialist Economy: An economic system in which the government owns, controls, and utilizes the means of production is known as a Socialist Economy. An example of this system is in China. The government of China plays a vital role in determining the price of goods and services. The primary purpose of production in this economy is to promote public welfare.

3. Mixed Economy: An economic system that includes the best features of the socialist and capitalist economy is known as a Mixed Economy. Simply put, it is a mixture of capitalist and socialist economies.

Indian leaders (like Jawaharlal Nehru) adopted this model (Mixed Economy) in India in which both the public and private sector perform their roles in solving the central problems of the country. After adopting Mixed Economy, the next step for the government was to plan for the future, i.e., Economic Planning. 

What is Economic Planning?

Economic Planning refers to the system in which the central authority sets targets, programs, and policies to achieve those specified targets and policies within a specific period. The primary purpose is to achieve optimum utilisation of the resources. With this, social welfare, along with growth, can be maximised.

Features of Economic Planning

1. In the public sector, the Industrial Policy Resolution of 1948 and the Directive Principles of the Indian Constitution reflected a leading role. Moreover, the private sector was also promoted to be a part of the plan.

2. The government set up the Planning Commission of India under the chairmanship of Prof. Mahalanobis in 1950. With this, the idea of economic planning became the reality.

3. The Commission mainly aims to evaluate the country’s human and physical resources and make plans for the effective utilisation of the resources.

4. The Planning Commission fixed five year period for Economic Planning which set the era of the Five-Year Plan (borrowed from the former Soviet Union).

5.  In the Indian Constitution, economic and social planning exists in the concurrent list of the Seven Schedules.

Necessity/ Importance of Economic Planning in India

Economic planning is vital in developing countries like India due to various reasons:

1. Optimum Utilisation of Resources: 

The resources (human and physical) are limited in nature. Due to its scarcity, it is crucial to use the resources effectively. Economic planning provides a rational basis and plans for the optimum utilisation of resources. An economic plan helps in determining which resources are required and where. The authorities, with this determination, will bring the best possible use of resources.

2. A Roadmap for Action:

The decision-making process needs guidance and direction. The economic plan directs the government’s action in a coordinated manner toward the set of economic objectives. Simply put, it provides a vision to pursue its objectives in both the short and long term. Hence, it provides a direction to achieve economic stability. 

3. Scope of Cooperation and Participation:

Economic planning helps make institutional changes by highlighting the need for social progress. The scope of public cooperation and engagement is expanded by planning and implementation.

4. Improvement in Standard of Living:

The quality and the quantity of goods and services available to the given population is called the Standard of Living. The standard of living in India is far below the required level. As a result, planning is essential in addressing social evils and improving the low level of per capita income. It ultimately raises the standard of living of people.

5. Equitable Distribution of Income and Wealth:

There is an unequal distribution of income and wealth in the economy of a developing nation like India. It means that a small portion of the population is rolling in luxuries while the masses of people can not even fulfil their basic needs. Planning is, therefore, necessary to minimise the level of poverty in the country.

6. Balanced Economic Development:

An industrial plan mainly focuses on the production of consumer products, whereas the primary industries are neglected. This may lead to unbalanced development. For this purpose, economic planning is needed as it may be helpful in balanced economic growth.

7. Employment Generation:

The economic plans put efforts into generating employment opportunities by encouraging the development of small and cottage industries. It will also reduce the pressure of the population on agriculture.

8. For Self-Sufficiency:

Economic development requires the investment of huge capital. Economic planning is used to ensure that resources are used as efficiently as possible for the welfare of the nation.

It can be summarised that no country has ever developed a planned economy in a day or a year. Planning has a history of development and change throughout several decades. The history of economic growth in various countries shows that planning has undergone evolution and its development or modification is related to several variables that have made planned economies more prevalent in many nations. Moreover, the requirements of the economy are ever-changing, and there is a need for improvement. Thus planning plays a vital role in the economy. 

India’s Five Year Plan

Right after the approval of the new constitution on 26 January 1950, a planning commission was set up and constituted in March 1950 by the Indian government. The late Prime Minister Pandit Jawahar Lal Nehru was its first chairman.

Broad functions of the planning commission include:

1. Assessment of capital, material, and human resources.

2. Allocation of resources & determination of priorities.

3. Formation of a plan for its balanced and most effective utilization.

Five Year Plan

The planning commission proposed that India should formulate a plan for a period of 5 years for its development and economic growth, known as the Five Year Plan. Till now, twelve five-year plans have been completed in India. Under the influence of then Prime Minister Pt. Jawahar Lal Nehru, India established its first five-year plan inspired by the Soviet Union.

Till now, India has established twelve five-year plans. The first eight plans in India were focused on growing the public sector, but since the launch of the Ninth Plan, The focus has shifted towards making the government a growth facilitator.

Goals of Five Year Plan

The main aim of the five-year plan is to remove the economic backwardness of the country and make India a developed economy. It also ensures that the weaker sections of the population benefit from economic progress.

The basic goals of five-year plans are:

• Growth

• Modernisation

• Self-Reliance

• Equity

1. Growth

The primary and foremost objective of any economic plan is economic growth. The growth implies:

• Either a large size of supporting services like banking and transport;

• Or a larger stock of productive capital;

• Or an increase in efficiency of productive capital & services.

Economic growth can be measured by the increase in the Gross Domestic Product(GDP) of the nation or country. GDP is the market value of all the goods & services produced in a country during a particular year. Higher GDP indicates that the general public can avail more benefits from the nation’s economic policies. 

This economic growth takes place due to an increase in the production capacity of goods & services or due to an influx of capital into the economy. The GDP of the country is derived from various sectors, the basic sectors of an economy are: Agriculture, Industrial, and Service sector, and every sector contribute to the composition of GDP. In some countries, the agricultural sector contributes more to the GDP, while in some countries, the service sector contributes more to the GDP. 

2. Modernisation

Modernisation refers to the incorporation of technology into the economy. It helps in raising the standard of living of people in society. Inventions, advancements, and innovations in technology play a vital role in the growth of our economy and increasing its output. Modernisation includes:

• Adopting New Technology: The main aim of modernisation is to increase the production of goods & services by using new technology. For example, the introduction of technology in agriculture resulted in increased output, and over the years, the Indian economy has also witnessed a rise in the IT sector due to modernisation.

• Change in Social Outlook: Modernisation also needs changes in social outlooks, such as women empowerment or providing equal rights to women. A society can be more prosperous or civilised if it uses the talent of women employees in the workplace.

3. Self-Reliance

Post-independence Indian economy became too reliant on imports, Therefore, for seven editions of the five-year plan government encourages self-reliance. Self-reliance means anything that India is capable of manufacturing domestically will not be imported, especially food and agricultural products. In nutshell, Self-reliance means development through domestic resources.

Self-reliance was encouraged due to two reasons:

• To reduce Foreign Dependence: As India recently got freedom from foreign control, it was necessary for India to become independent or self-reliant and reduce its dependency on foreign countries, especially for food or agricultural items.

• To avoid Foreign Interference: The government of India was afraid that dependency on foreign countries for food supplies, capital, & technology may increase foreign interference in the economic policies of the country.

4. Equity

The previous goals focus on the development of the economy only. But only economic development is not sufficient. The five-year plan must focus on the development of society also. It is necessary to make sure that all the members of society equally enjoy these benefits from the economy. This is where equity comes in. In addition to the previous three goals (growth, modernisation, and self-reliance), equity is also important. Equity concentrates on ensuring that all citizens of the nation have their basic needs for clothing, food, and shelter properly met. It also tries to reduce the inequality and wealth gap in society. In short, equity aims at raising the standard of living of people and promoting social justice.

Evaluation (Achievements and Failures) of Economic Planning till 1991

What is Economic Planning?

Economic Planning refers to the system in which the central authority sets targets, programs, and policies to achieve those specified targets and policies within a specific period. The primary purpose is to achieve optimum utilization of the resources. With this, social welfare, along with growth, can be maximised.

Evaluation of Economic Planning

The evaluation of economic planning consists of the success and failures of the policy.

Success of Economic Planning

1. Increase in National Income: 

The rise in national income signifies economic growth. 

Observation:

• India’s national income expanded at a mere 0.5% annual rate in the years before planning. As a result, the Indian economy was in decline.

• During the First Plan, national income increased by 4.6% annually instead of the desired 2.1% annually.

• The target was to raise the national income by 5% annually between the Second and Tenth Plans. However, it can be attained only between the Fifth and Tenth Plans.

• During the Eleventh Plan, the rise in the national income was 7.5% against the target of 9%.

• During the Twelfth Plan, national income increased by 6.8% instead of the expected 8%. The projected rise in national income for 2018–19 is 6.9%.

As a result, during the plans, India was unable to reach the desired rate of growth. The Indian economy had been in a state of economic stagnation prior to independence, but that situation was broken.

2. Rise in Per Capita Income: 

A significant rise in per capita income has been recorded over time. 

Observation:

• The rate of rise in per capita income had only been theoretical, during the period preceding the planning.

• The rate of growth was gradual during the period of planning. It was just 2.7% during the First Plan. However, it subsequently increased.

• The rate of growth of 6% per annum was recorded in the Eleventh Plan.

• The Twenty-Fifth Plan predicted annual growth of 5.5%. The rate of increase in the per capita income was 5.7% and 5.6%.

A significant achievement is a rise in per capita income since it indicates that more goods and services are available per person in the nation. However, this is just an average increase and gives no indication that the quality of living for every person in the economy would improve as it does not take into consideration the distribution of income.

3. Increase in Savings and Investment: 

The main forces behind economic growth are saving and investment. The rate of saving and investment has significantly increased during the period of the five-year program. 

Observation:

• The savings rate was 9.5% of the National Income in 1950-51.

• By the end of the Eleventh Plan (2011-2012), it was increased to 31.3% and was projected to be 30.5% in 2017–18.

• The rate of investment (gross capital formation) has also increased, rising from 9.3% of GDP in 1950–1951 to 32.3% in 2017–2018.

4. Institutional and Technical Change in Agriculture: 

Agricultural development has derived from five-year plans in two ways:

(i) Land reforms include:

• elimination of middlemen who come between the government and soil cultivators,

• regularisation and moderation of rent,

• Limits on land ownership and land allocation that maximise holding size by the consolidation of holdings.

The environment for farming has significantly improved as a result of these changes.

(ii) The advancement of technology results in an unexpected rise in agricultural outcomes and productivity. This change was characterised by self-sufficiency in food grains.

5. Growth and Diversification of Industry: 

Five-year plans promoted basic and capital goods industries like iron, steel, machinery, chemical fertilisers, etc. This fact is illustrated by the following points:

• The growth rate of industrial production during the planning period has been around 7% per annum.

• The growth rate in industrial production in the Eleventh Plan was 7.2%. It was 6.9% in 2018-19.

• To accomplish the level of self-sufficiency, the consumer goods industries have expanded significantly.

• The Indian economy is currently the tenth-largest industry in the world’s economy.

6. Economic infrastructure: 

The essential components of economic infrastructure include transport, irrigation facilities, communication, banking, and insurance facilities. There has been considerable growth in the economic infrastructure during the planning period. For example: 

• One of the largest railway networks in the world is now Indian Railways.

• India now enjoys the status of a major player in the global market because of the revolutionary expansion of its IT sector.

7. Social Infrastructure: 

The essential components of social infrastructure include health and educational facilities. There has been considerable growth in the social infrastructure. It is due to the expansion of health facilities that:

• There was a decline in the death rate from 27 per thousand in 1951 to 6.3 per thousand in 2017.

• The average life expectancy increased from 32 years in 1951 to 69.4 years in 2018. 

8. Employment: 

To increase employment options, substantial attempts have been made during plans. Moreover, the government has undertaken several employment generation schemes. It is important to mention that:

• The government has set the target of making 50 million job options in the Twelfth Five Year Plan.

• There has been a decrease from 8.3% in 2004-05 to 5.6% in 2011-12.

9. International Trade: 

The amount and value of India’s exports have steadily increased during plans. 

Observation:

• In the field of exports, the composition has undergone a visible difference.

• Currently, India is exporting engineering products. This demonstrates India’s shift to an industrialised country.

• The value of foreign trade was ₹792 crore to ₹59,02,036 crore in 2018-2019.

During the planning period, India had shown substantial growth, along with a significant structural shift. All economic sectors are experiencing transformation. The rising level of living of the populace is a reflection of the growth. However, there are a few dark spots that point to India’s inability to plan ahead.

Failures of Economic Planning

The reasons behind the failure of Economic Planning are: 

1. Poverty: 

The central theme of planning was to mitigate poverty. In India, 21.9% of the population continues to live below the poverty line. These are the people who lack even the necessities of life. Amazingly, India is home to nearly 50% of the world’s truly poor people.

2. High Rate of Inflation:

During the five-year plans, due to the high rate of inflation, people’s real income has been eroding. It also categorises the nation into two parts, haves and have-nots. The only exception when the price level dropped is the first plan; otherwise, in all other plans, the prices observed a substantial increase.

3. Unemployment Crises: 

Despite the fact that more and more employment options have been created, the problem of unemployment has not diminished. 53 lakh people were unemployed at the end of the First Plan. At the end of the Eleventh Plan, this number increased to 4 crores. This is becoming a significant source of social disturbance and harming the process of growth.

4. Inadequate Infrastructure: 

Despite 67 years of planning, the development of infrastructure is still inadequate which includes power, dams, roads, schools, colleges, and hospitals. As a result, the gap between actual and desired growth has increased. Power shortages, in particular, have been a significant barrier to growth and development.

5. Unequal Distribution: 

The primary goal of planning was economic and social equality. However, it has been the principal failure of planning in India. The government has been forced to provide employment preferences to those from economically and socially disadvantaged groups as a result of growing social and economic inequality.

In short, “The implementation and enforcement have been the principal shortcomings of planning in India” as observed by the expert team of UNO.

Agriculture during 1950-1990

Agriculture can be defined as “The art and science of growing plants and other crops and raising animals for food, other human needs, or economic gain”. It came from two Latin words, ‘Ager’, meaning field, farm, land, and ‘Culture’, meaning cultivation. Thus, agriculture is the art or the practice of cultivating soil, producing plants, and raising livestock.

The agricultural practices began thousands of years ago, and it has been a literal part of the Indian economy, both before and after independence. Before 1947, the Indian agriculture sector contributed more than 90% of the total national income of India. Agriculture was the primary source of livelihood in India, as a large portion of the country’s population resided in rural areas. The pre-colonised India was sustainable and self-sufficient even with the production of two crops; namely, rice and wheat.

Due to the invasion of the British government, the Indian economy, especially the agricultural sector suffered a lot and had a downfall. And, on the eve of independence, the most remarkable sector of India was suffering from stagnation and constant degradation.

Role and Importance of Agriculture

Agriculture is often considered the backbone of the Indian Economy. Though the industrial sector plays a major role in the development of the Indian economy, the contribution of the agricultural sector cannot be denied as well.

1. Contribution to National Income

The contribution of the agricultural sector towards maintaining the national income of the country has been observed from the very beginning. In the year 1950-1951, the contribution of agriculture was 59% of the total national income of the country. Although there has been a decline in the share of the agricultural sector with the growth of other sectors, it is still high in comparison to the share of other developed countries. 

2. Source of Livelihood 

More than half of the Indian population is engaged and dependent directly on agriculture for livelihood. According to a survey, around 66% of the working population in India is engaged in the farming sector as compared to 3% in U.K. and U.S.A., 6% in France, and 7% in Australia. 

3. Source of Food

The agricultural sector is the only major source of the food supply that is providing food to a huge population of India. Around 60% of the daily household consumption needs are met by the agricultural sector.

4. Source of Government Revenue

The government is getting a major part of its revenue from the agricultural sector, as this sector plays a major role in generating revenue for both, the Central government and the State government. It also generates revenue from the sectors like railways or the transportation sector as the movement of agricultural goods takes place.

5. Role of Agriculture in Industrial Development

Agriculture is the major source of supply of raw materials such as raw cotton, raw jute, tea leaves, raw rubber, etc., to the industries. More than 50% of the income generated by the manufacturing industries comes from agro-based products.

6. Contribution to Trade

Both the internal as well as external trade is highly influenced by the agricultural sector. Around 70% of India’s exports originated from agricultural products, like tea, coffee, tobacco, spices, cashew nuts, manufactured jute, cotton textiles, sugar, etc. Further, agriculture also helps in earning precious foreign exchange to meet the required import bill of the country.

7. Source of Employment

Agriculture and other agro-based industries employ farmers, farm-workers, and other people who engage in the cultivation of the soil, growing of crops, raising livestock, and even in the sector of agriculture finance, and marketing. All these activities provide employment to a huge population of people.

Features of Indian Agriculture

1. The pressure of the population on Agriculture

The rapid increase in the population of India, and the shifting of people from rural to urban areas has increased the demand for land, which resulted in the destruction of fertile lands. 

2. Subsistence Agriculture

In subsistence agriculture, the farmer owns a small piece of land on which he grows crops with the help of his family members and consumes almost the entire farm produce after which, they are left with little or no produce to sell in the market. This type of agriculture has been practised in India for over hundreds of years and still prevails.

3. Seasonal Employment

Some crops can only be grown in a particular season. This results in farmers getting unemployed during the off-season of such crops. This hampers them as their work capacity is not fully utilised.

4. Monsoon Dependency

In India, the agricultural process is mainly dependent on the monsoon. If it rains more than what is required, or if it rains less than what is required, in both cases the crops get destroyed.

5. Variety of Crops

India is a country that has both tropical and temperate climates; hence, crops of both climates are found in India. This differentiates India’s agriculture from other countries, as there are only a few countries in the world that have a variety of agricultural production. 

6. The Predominance of Food Crops

The first priority of Indian farmers is the production of food crops, as they have to feed a large population of people. To achieve the desired production amount, more than two-thirds of the total fertile area is devoted to the cultivation of food crops.

7. Seasonal Pattern of Crops

There are namely three distinct agricultural/cropping seasons in India:

• Kharif: From monsoon till the beginning of winter (Crops of Kharif- rice, maize, jowar, bajra, cotton, sesame, groundnut, and pulses such as moong, urad, etc.)

• Rabi: From the beginning of winter till the end of winter or the beginning of summer (Crops of Rabi- wheat, barley, jowar, gram, and oil seeds such as linseed, and mustard)

• Zaid: In summer (Crops of Zaid- rice, maize, groundnut, vegetables, and fruits)

Problems of Indian Agriculture

1. Instability

The biggest problem faced by Indian agriculture is the instability in the monsoon season. The production of crops fluctuates as the monsoon keeps on fluctuating. This leads to a shortage of food all around the country, which further leads to a rise in price and employment fluctuations.

2. Cropping Pattern

In India, there are namely two types of crops grown: food crops and non-food crops. Food crops include sugarcane, food grains, and beverages, whereas non-food crops include oilseeds and fibres. Due to the imbalanced cropping patterns of the farmers, the fertility of the soil gets hampered. It can however be improved by growing food and non-food crops alternatively.

3. Ownership of Land

The ownership of land in India is extremely unequal. A major chunk of the cultivable land is owned by rich landlords, farmers, and moneylenders, whereas, only a small piece of land comes under the ownership of small farmers. If the farmers were not able to make a profit within a year, then they had to borrow money at a high-interest rate from moneylenders, and then get caught into the never-ending debt trap, which ultimately resulted in a loss of their lands.

4. Poor Quality of Seeds

As the yielding of crops depends largely on seeds, it is important to use high-quality seeds. But, due to the high prices of such seeds, the farmers cannot afford them. This results in a poor yield of crops and a debt trap for farmers. Several measures have been taken by the government to eliminate this problem, but cereals/staples like rice, pulses, and millet are grown mainly from unimproved seeds.

5. Improper Irrigation Facilities

The lack of proper irrigation facilities in India has hampered the agricultural sector. The lack of adequate supply of water as well as the over-irrigation of fields can result in poor or less production of crops.

6. Soil Erosion

One of the basic problems of Indian agriculture is the deterioration of soil due to water and wind. This removes the fertile layer of the soil leaving the land to be not fit for the cultivation process.

7. High Cost of Farm Inputs

Farm inputs, such as fertilizer, insecticide, pesticides, HYV seeds, farm labour costs, etc., are very expensive because of which small farmers cannot afford them, which further results in poor quality of produce.

Policies for Growth of Agriculture

There were various policies undertaken by the government to promote the growth of Indian agriculture. It can be classified into two categories namely, Land Reforms and Green Revolution.

Land Reforms

Land Reforms refer to the change in the ownership, tenancy, and management of landholdings.  It refers to the growth in the agro-economic organisation. Land Reforms include measures and policies relating to redistribution of land, regulation of rent, improving the conditions of tenancy, agricultural education, etc. The Land Reforms were found to be successful in Kerala and West Bengal, as they were committed to this policy. Other states; however, did show the same level of improvement. The measures of this policy are:

• Abolition of intermediaries to make the farmers the owner of the land.

• Tenancy regulation to improve the contractual terms, including the security of tenure.

• A ceiling on landholdings to redistribute surplus land to the landless.

• Attempts to consolidate disparate landholdings.

• Encouragement of cooperative joint farming.

• Settlement and regulation of tenancy.

Green Revolution

The concept of the Green Revolution was introduced by M.S. Swaminathan (the Father of the Green Revolution) in India, in the year 1965. It refers to a period when India had a tremendous increase in agricultural production with the usage of high-yielding seeds, techniques, and modern tools such as tractors, pesticides, fertilizers, improved irrigation facilities, etc. The Green Revolution mainly focused on three elements. They were: 

• The expansion of agricultural land

• The practice of double-cropping system, i.e., growing two crops in a year 

• Usage of high-yielding crops and seeds with improved genetics

Disputes over Subsidies to Agriculture

1. Usually, subsidies are made by the government to prevent the decline of industry or to simply encourage the industry to hire more labour. In reference to agriculture, subsidy means the supply of inputs to the farmers at prices lower than the market rates.

2. It is generally agreed that the use of subsidies to provide an incentive for the adoption of the new technology by farmers in general and small farmers, in particular, was necessary.

3. Some economists believed that subsidies should be phased out once the purpose of adopting them has been served, i.e., the technology has been found profitable and has been widely adopted.

4. The subsidies were taken into measure in consideration that they will benefit the farmers but, a substantial amount of fertilizers subsidy also benefits the fertilizer industry.

5. Hence, it is argued that there is no use in continuing the fertilizer subsidies as it is not benefiting the target group, i.e., small farmers, and is creating a huge burden on the government’s finances.

6. On the other hand, some economists believe that the government should continue the agricultural subsidies because most farmers in India are poor, and it will be difficult for them to afford the required inputs without subsidies.

7. Along with this, it is also believed that removing the subsidies will increase the inequality between the rich and the poor farmers, which will further violate the goal of equity. 

Policies or Measures to Solve Agricultural Problems during 1950-1990

Agriculture can be defined as “The art and science of growing plants and other crops and raising animals for food, other human needs, or economic gain”. It came from two Latin words, ‘Ager’, meaning field, farm, land, and ‘Culture’, meaning cultivation. Thus, agriculture is the art or the practice of cultivating soil, producing plants, and raising livestock.

The agricultural practices began thousands of years ago, and it has been a literal part of the Indian economy, both before and after independence. The land tenure system at the time of independence was characterized by middlemen (such as zamindars) who only collected rent from the actual soil tillers. Due to the agriculture sector’s low output, India was compelled to import food from the United States of America. The First Five-Year Plan put a strong emphasis on the growth of agriculture. Thus, it necessitates several measures that can solve agricultural problems.

Institutional Reforms or Land Reforms

Land Reforms mean change in the ownership of landholdings. Several underdeveloped and developing nations have implemented land reform strategies to achieve equitable land allocation and a sustainable farming system. 

• In a nation like India, where the majority of the population still relies on agriculture, there was a critical need for land reforms. 

• To realise the goal of agricultural equity, there is a need to bring land reforms.

(I) Abolition of Intermediaries:

The Indian government made several actions to eliminate middlemen and convert tillers into landowners. This action was taken with the hope that having land ownership would encourage the actual tillers to bring improvement and increase land output. The tenants do not have any incentive from which they can make improvements on the land. It is so because the land owners are the ones who get benefits from the higher output. Giving ownership of land will enable the tiller to make a profit from the increased output. 

The removal of intermediaries put 200 lakh tenants in touch with the government directly. Tenants were given ownership rights, which gave them incentives to produce more and help in the expansion of agriculture.

The abolition of intermediaries did not, however, fully achieve the equity goal for the following reasons:

• Former zamindars remained to own significant areas of land in some locations by exploiting legislative loopholes.

• In certain cases, zamindars pretended to be self-cultivators while evicting tenants.

• The lowest agricultural labourers did not benefit from land reforms even after obtaining land ownership.

(II) Land Ceiling:

Land ceiling means fixing specified limits of the land, which could be owned by an individual.

1. A ceiling on holding size has been imposed to encourage equality in the distribution of land.

2. The ceiling on holdings refers to the maximum size of cultivable land that a person or family may own.

3. The government has reclaimed the extra land and allocated it to small landowners or workers who lack access to the property.

4. The large landlords; however, challenged the land ceiling legislation. They postponed its implementation and took advantage of the delay to register the land in the names of close family members, which enabled them to avoid the law.

(III) Rent Regulation: 

Rents have been regulated to stop farmers from engaging in inappropriate and illegal extortion. These often do not exceed one-third of the crop’s value.

(IV) Consolidation of Holdings: 

Initiatives have been started for the consolidation of holdings to reduce fragmentation. It is common practice to give land to the farmer in one location to replace his scattered holdings here and there. The expense of cultivation is avoided. By 2004, land holdings had been consolidated over more than 1,663 lakh hectares.

(V) Co-operative Farming:

It is promoted to increase the bargaining power of small farmers. Collectively, they may save money on input purchases and make more money on selling products at higher prices.

Technological Measures

India adopted the new agricultural approach during the Third Plan in the 1960s. Modern technology and agricultural techniques eventually took the place of the old agricultural methods used in India. With the use of modern inputs like fertilizers, financing, and marketing facilities, this strategy aimed to increase agricultural production and productivity in a few key areas of the country.

Green Revolution

• Approximately 75% of the nation’s population was reliant on agriculture at the time of independence.

• India’s agriculture is critically dependent on the monsoon, and when it fails, farmers suffer several problems.

• Additionally, the agricultural sector’s performance was extremely low due to the usage of out-of-date technologies and a lack of necessary infrastructure.

Green Revolution means a large increase in the production of food grains because of the use of HYV (High Yielding Variety) or miracle seeds, especially for food grains like rice and wheat. The title of Father of the Green Revolution was given to an American agricultural scientist, Dr Norman E. Borlaug. For breeding higher-yielding varieties, he was awarded the Nobel Peace Prize in 1970. However, in India, it was majorly found by M.S. Swaminathan.

HYV Seeds: Main Reason for Agricultural Revolution

The miracle of new wonder seeds, which increased agricultural yield per acre to extraordinary heights, played a major role in the agricultural revolution.

• These seeds can be placed in locations with suitable drainage and water delivery systems.

• As compared to other conventional seeds, these seeds require substantial dosages of chemical fertilizers (four to ten times more fertilizer) to maximise production.

• So, for farmers to gain from HYV seeds, they needed to have:
  (i) Efficient irrigation infrastructure
  (ii) Monetary resources for the purchase of pesticides and fertilisers.

Indian Economy underwent the success of the Green Revolution in 2 phases:

1. The usage of HYV seeds was limited to more affluent states (like Punjab, and Tamil Nadu) in the first phase (during the mid-60s to mid-70s). Furthermore, only the wheat-growing regions benefited from the adoption of HYV seeds.

2. The HYV technology expanded to many states in the second phase (during the mid-70s to mid-80s), helping a wider range of crops.

Important Effects of the Green Revolution

India was able to become self-sufficient in food grains due to the introduction of Green Revolution technologies. India was no longer dependent on the United States or any other country for its food needs.

1. Achieving Marketable Surplus: 

The Green Revolution yielded a Marketable Surplus. Marketable or Marketed Surplus refers to that part of agricultural produce that is sold in the market by the farmers after meeting their own consumption requirements. The increase in agricultural production has an impact on the economy only when a significant amount of it is sold in the market. Fortunately, the farmers sold a significant amount of the rice and wheat they produced during the time of the green revolution.

2. Buffer Stock of Food Grains:

The government was able to acquire enough food grains because of the green revolution to create a stock that might be utilised in times of food crisis.

3. Benefit to Low-income Groups:

Farmers’ pricing decreased in comparison to other consumer goods since they sold a major share of food grains at the market. This decrease in relative pricing was advantageous to low-income groups because they spend a big portion of their income on food.

Risks involved in Green Revolution

Even though the country has greatly benefited from the green revolution, the technology used did not come without risks.

1. Pest Attack Risk: The HYV crops were more vulnerable to pest attacks. Small farmers that used this technique faced the risk of losing everything to a pest attack. However, this risk was reduced to a great extent by rendering services by the research institutes which was established by the Government.

2. Risk of Increasing Income Gaps: Since only large farmers could afford the expensive inputs required under the green revolution, there was a risk that this would increase the income gaps between small and large farmers.

However, due to the government’s proactive measures, these fears were not realised. Small farmers were given loans from the government at cheap interest rates so they could also acquire the necessary inputs. As a result of the small farmers’ ability to access the necessary inputs, their output eventually matched that of large farms. As a result, both small and wealthy farmers benefited from the green revolution.

Green Revolution: Impacts, Achievements and Shortcomings

The Green revolution happened due to the modernisation of Indian agriculture during the mid-sixties. Due to the increase in population during the late 1950s and 1960s, there appeared to be an extreme food crisis due to several food calamities and increased demand for food grains. The incapacity of Indian agriculture to meet the demand for food was an important topic of concern. As a result of the increased population, the system of Indian agriculture based on traditional knowledge and practices began to fail to feed the growing population. Therefore, the government was compelled to start exporting food grains from other countries. The disgrace that the government felt due to the dependence of our country on other western developed countries and their system made them comprehend that the country needed to be self-sufficient in the production of food grains. Thus, it was essential to substantially increase the production of food grains by modernising agriculture. The main focus of the government in the 1960s was the success of the program Green Revolution. Agriculture in India mainly depends on the monsoon season. If there is a shortage of monsoons in India, it affects agriculture to a large extent. Also due to the traditional techniques, the productivity in the agricultural field was very low and the farmers had to face a lot of difficulties. There was no strong infrastructure present.

What is Green Revolution?

The large increase in the production of food grains because of the use of HYV or miracle seeds, especially for wheat and rice is known as Green Revolution. The term ‘green revolution’ was used in the context of consequential advancement in the field of production, especially wheat and rice, in India after the 1960s with the help of new agricultural practices and technologies and thus replacing the old traditional agricultural methods. The traditional methods and practices included the use of original inputs such as organic manures, seeds, simple ploughs, and other basic agricultural tools. Modern methods and practices comprise a high-yielding variety (HYV) of seeds, chemical fertilizers, pesticides, extensive irrigation, agricultural machinery, etc. This program was also known as modern agricultural technology, seed-fertilizer-water technology, or in simpler terms Green Revolution. The title of Green Revolution was given because this program happened and spread quickly bringing extraordinary results in such a short period. In the years 1998-1999, the Green Revolution covered a total area of 78 million hectares, that is, 55 percent of the net sown area. The leading cause that lead to the emergence of the Agricultural revolution was the new kind of seeds known as the High Yielding Variety(HYV) Seeds which led to a drastic increase in agricultural yield. These seeds are required to plant in those areas, which have suitable drainage and water supply. These seeds need chemical fertilizers and pesticides 4-10 times more than ordinary seeds to get a high-yield production.

Success of Green Revolution in two phases:

1. First Phase: The first phase was from the mid-60s to mid-70s, and in this phase, there was a restriction on the use of HYV seeds in more affluent states like Tamil Nadu, Andhra Pradesh, Punjab, etc. Besides, the use of HYV seeds primarily provided benefits to the wheat growing regions only.

2. Second Phase: The second phase of the Green Revolution was from the mid-70s to mid-80s, and in this phase, the technology of HYV spread to a large number of states and provided benefits to more variety of crops. 

Impacts of Green Revolution

The impact of the Green Revolution is as follows:

1. The most significant change brought down by the green revolution was the rapid increase in the production of food grains. From the year 1960-1961, the production of food grains increased from 82 million tonnes to over 126 million tonnes during the years 1990-1991. It attained a record of production of 273 million tonnes in 2016-2017.

2. The most important accomplishment of the green revolution is the fact that India has become self-sufficient in the production of food grains. 

3. There is a significant increase in land yield concerning food grains brought about by the use of new technologies. For example, the yield per acre of wheat grew by 3.7 times between 1960-61 to 2016-17.

4. The remarkable increase in the production activity and productivity of food grains resulting from the green revolution signifies that Indian agriculture is growing and that it is no longer stationary. This rise in Indian agriculture made the agriculture sector a part of economic development. Therefore, this development increased the income and enhancement of the economic conditions of the farmers.

5. The Green revolution also influenced the ecology and environment. The extensive use of modern tools in agriculture, such as pesticides and fertilizers has started to take effect. This includes the degradation of land fertility, harm to the environment, chemical contaminations, etc. The results of which are soil erosion, salinity, soil contamination, genetic erosion, etc.

Achievements or Benefits of Green Revolution

Achievements or Benefits of the Green Revolution are as follows:

• Reduction of the Number of Greenhouse Gas Emissions: The high-yield approach to agriculture has a considerable effect on how carbon cycles through the atmosphere. Thus, the green revolution controls emissions and the environment.

• Increase in Food Production: The use of modern techniques of production in place of the old traditional ones has helped in increasing the production of food by a considerable amount. 

• Consistent Yields during Uncooperative Seasons: By focusing on the production of those varieties of crops that have a high yield in different seasons, the green revolution can produce crops even in uncooperative seasons.

• Reduction in Food Prices for the Global Economy: The agricultural markets depend on supply and demand. The supply of food grains is more available when there is a consistent yield. High-yield crops produce more items for harvest, which means additional food is available to consumers. This enables the farmers to sell their products at a lower rate for the consumers. The farmers themselves gain additional profits by producing more on the same area of land.

• Reduces the Issues of Deforestation: Since the green revolution helps increase food production through its modern techniques, it lowers the need for the consumption of food for the people as they can meet their food requirements. There is enough food for the people to consume. Thus, reducing the need for deforestation and protecting the environment.

Shortcomings or Risks of Green Revolution

Shortcomings or Risks of the Green Revolution are as follows:

• Lack of Biodiversity: The dependence on high-yielding crops forces people to rely on only those kinds of crops; thus, reducing the need for other significant or wild diversities around the globe. This disadvantage leads to the loss of diversity in the agricultural field.

• Quality of Soil: Since the wild diversities are affected by modern methods, the same high-yielding crops are repeatedly grown on the same area of land. This leads to soil depletion and forces the soil to gradually lose all its nutrients, thus, degrading the quality of the soil.

• Impact on Health: Repeated consumption of food produced with the help of pesticides and fertilizers or even exposure of farmers to these chemicals might have a significant effect on health causing several health-related issues.

• Seed Sterility: Modern technologies of production enable seed producers to prevent future crop growth by collecting seeds from mature plants. 

• Promotes Monocropping: The green revolution leads to the same crop production in the same area instead of growing multiple crops on the same land. This prevents crop rotation leading to Monocropping in the area which results in several problems, such as degradation of soil, nutrient depletion in soil, soil erosion, etc.

• Risk of Pest Attack: The crops grown through HYV seeds were more likely to get destroyed by pests than normal crops. Therefore, small farmers are at a high risk of losing everything in a pest attack due to this technology.

• Increase in Income Inequalities: The inputs used in the green revolution, such as chemical fertilizers, pesticides, HYV seeds, etc., can be costly and may increase inequality between the small and big farmers. This is because only the big farmers might be the only ones who could purchase such inputs.

Debate Over Subsidies to Agriculture

Subsidy is a discount provided by the government to the general public in order to supply critical items at accessible costs across the country. The amount that the government grants to a unit/industry that sells subsidised items to the public is known as a Subsidy. Subsidies are a type of government non-planned spending in which the cost of the subsidy is significantly lower than the actual cost of production.

In the context of agriculture, subsidy means that the government provides farmers with inputs required for agriculture at a price lower than the price prevailing in the market. Simply put, a subsidy is a financial assistance given to the producers by the government, so it can accomplish its social welfare objectives. 

Debate Over Subsidies to Agriculture

During the initial phases of the Green Revolution, farmers thought that the new technology was risky. Therefore, the government had to grant subsidies to the farmers as an incentive for them to adopt new HYV technology. However, as time has passed, economists are debating over the subsidy amount granted by the government. Some of them are in favour of the grant of subsidies, while others are against it.

In Favour:

The economists who are in favour of subsidies believe that the government should continue to grant agricultural subsidies because, in India, farming is a risky business. Also, the majority of farmers are so poor that without subsidies they will not be able to afford the input required for farming. Therefore, if the government eliminates subsidies, it will increase the income inequality between the rich and poor farmers, which will ultimately violate the government’s final goal of equity. 

Hence, it can be said that in India subsidies for poor and small farmers is essential as it enables them to use modern agricultural techniques. Besides, it is vital to take the required steps to make sure that the benefits of subsidies are only enjoyed by the poor farmers and not the big farmers and fertiliser industry. 

Against:

The economists who are against subsidies believe that as the government grants subsidies to poor farmers as an incentive for them to adopt new HYV technology, then it should phase out subsidies once the new technology is widely accepted, and the purpose of granting subsidies has been fulfilled. They also believe that the poor and small farmers are not getting benefits from subsidies as the benefits from the substantial amount of subsidy go to big farmers and the fertiliser industry. 

Hence, it is suggested not to continue granting subsidies to the poor and small farmers as the target group (small and poor farmers) does not gain benefits from them. Besides, subsidies are a huge burden on the finances of the government.

Observation:

There are two observations made in context with the subsidies granted to the poor and small farmers.

1. Prices as Signals:

Price of goods acts as a signal about their availability. In simple terms, when a good becomes scarce, its price usually increases. Now the people who use this good will have to make an efficient decision regarding its use based on the new price. For example, during COVID, the price of infrared thermometers, masks, sanitisers, etc., increased because the supply of these goods was short, and they became scarce with respect to their demand. 

2. Subsidies may result in Wasteful use of Resources:

Some economists believe that because of subsidies it is difficult to indicate the supply of a good with its price. For example, when electricity is provided to the farmers at are subsidised rate or for free, then they will use it wastefully without thinking about it becoming scarce in the future. Also, when water is supplied to the farmers for free or at a subsidised rate, then they will cultivate water-intensive crops on their land even though the water resources are scarce in their region, resulting in the depletion of the already scarce resources. Therefore, to make sure that the farmers cultivate crops which is suitable to their region, it is necessary to price water to reflect its scarcity. Similarly, subsidies provided for fertilisers and pesticides result in the overuse of resources which can prove to be harmful to the environment.

Hence, in conclusion, it can be said that subsidies provide incentives to people for the wasteful use of resources.

Industries during 1950-1990

The economic activities concerned with the production of goods (steel energy), extraction of minerals (coal mining), and provision for services (tourism) are referred to as Industries. To be more specific, an industry is a group of organisations that are involved in the production/manufacturing or handling of the same product and service. All the industries come under secondary activity and deal in the conversion of raw materials into finished products.

A large population of people was dependent on agriculture for livelihood as there was a non-availability of employment opportunities. The introduction of industries in India was done to unfold the population with more employment opportunities and reduce the dependence on the agricultural sector. The industries are further classified based on the types of raw materials required, the size of the industry, and ownership.

Need or Role of Industrial Sector in India’s Development during 1950-1990:

The development of industries was considered essential as it played an important role in the development of India. It was estimated on the following grounds:

1. Self-reliant Economy

There were very few industries in India at the time of British rule as the development of modern industries in India was hampered or restricted by the British government. After gaining independence, India was required to develop or set up a variety of industries like iron and steel, fertilisers, chemical, power, and machine-making industries to establish a self-reliant, strong, and sound economy.

2. Balance Occupational Structure

It was necessary to establish new and modern industries in India as a major portion of the working population was dependent on the agricultural sector. This caused an imbalance in the occupational structure and to overcome this imbalance, industrialisation was considered important. Industrialisation was also considered necessary to reduce the burden on the agricultural sector.

3. Expansion of Employment Opportunities 

The expansion of new employment opportunities was needed as a large number of the population suffered the problem of disguised unemployment and under-employment due to the overcrowded agricultural sector. As the industrial sector is more stable than the agricultural sector, the expansion of this sector was necessary.

4. Increase in the Economic Growth Rate 

As the growth rate of the agricultural sector largely depends on nature, this sector’s productivity was far less compared with the industrial sector. Therefore, the development of industries was done to increase the economy’s growth rate and pave a way for the country’s modernisation and overall prosperity.

5. Development of infrastructure

We inherited a less-developed and imperfect infrastructure at the time of independence. The establishment of industries in India helped in the development and modification of infrastructures as our country needed to achieve rapid industrialisation. 

Role of Market and State in India’s Industrial Development

The Market (or Private Sector) and the State (or Public sector) were considered important factors for the development of industries in India. The private sector operated the mechanism or working of the market whereas the public sector operated through the mechanism of the state or the government.

The post-independence period in India considered the role of the public sector in industrial development to be of greater importance due to some very clear reasons which are:

1. The development of heavy industries was considered essential for creating a strong industrial base for the development of the country. The set-up or establishment of these heavy industries required a large amount of investment which could be fulfilled by the private sector. Hence, the state or the public sector helped establish its establishment. 

2.  The public sector or the state also helped in the prevention of the concentration of economic powers, exploitation, and redistribution of income. 

3. The expansion of the public sector also helped in maintaining the balance of growth in every region as a major portion of the public sector investment is directed towards the backward regions.

4. The public sector provided a modern technological base for a large segment of the industrial economy and also contributed to import substitution, export earnings, and social spheres of the country.

5. The public sector was designed to play a significant role in the development of Indian industries as the government was able to help, guide, and take control over the economy and attain its goals through the public sector.

6. And, the private sector was considered to play a secondary and complementary role to the public sector.

Role of Public Sector in Industrial Development

The leading role of the Public Sector was important due to the following reasons

1. Objective of Social Welfare

To achieve the Government’s objective of social welfare and equity, it was very important to involve the direct participation of the state or the public sector in the process of industrialisation.

2. Shortage of Capital with Private Sector

The Government had to start investing in the industries or the Public Sector Undertakings (PSUs) as the private entrepreneurs were not able to accumulate adequate capital that was required for the industrial investment. The Government started investing in the public sector as it was necessary for the development of the Indian economy.

3. Lack of Incentives for the Private Sector

The size of the Indian market was limited as there was not much emphasis laid on the private industrialists to undertake major projects. Due to this, the demand for industrial goods got very limited in the Indian market.

The Benefits of Industrialisation

The Industrialisation Policy came with various benefits for the Indian market. They were:

1. Increase in the Per Capita Income

The Industrialisation policy led to an increase in the per capita income of the country and it provided the Indian market with goods to meet the high-income demand.

2. Increase in employment

The introduction of the industrialisation policy led to an increase in the employment of a new and skilled labour force.

3. Diversified Market

This policy enabled the diversification of the Indian markets that were required at the higher stages of the development process.

4. Improvement in Infrastructure

The introduction of the industrialisation policy in India helped in the development of better infrastructure facilities like power generation, railways, etc., that were important for the further development of the Indian economy.

5. Generation of Foreign Exchange

The industrialisation policy helped increase the rate of earning foreign exchange as the demand for industrial goods in the international market was much higher as compared to that for agricultural goods.

Classification of Industries

According to the Industrial Policy Revolution, 1956, the industrial sector was divided into 3 categories:

1. Schedule ‘A’ Industries or Government Enterprises

In the scheduled category ‘A’ there are 17 industries. These industries are reserved for the public sector and are of basic and strategic importance. These are: a) Defense equipment, arms, and ammunitions; b) Atomic energy; c) Heavy plants and machinery; d) Heavy casting and forging of iron and steel; e) Iron and Steel; f) required for basic industries; g) Heavy electrical plants; h) Coal and Lignite; i) Mineral Oils; j) Mining of iron ore, manganese ore, gypsum, sulphur, gold, and diamond; k) Minerals for atomic energy; l) Mining and processing of copper; m) Aircraft; n) Air transport; o) Railway transport; p) Ship-building; q) Telephones and telephone cables.

2. Schedule ‘B’ Industries or Mixed Enterprises

The Schedule ‘B’ category includes 12 industries. These industries are owned by the states which will generally take the initiative in establishing new undertakings. These industries also give private enterprises a chance to flourish. Industries included under this schedule are: a) All minerals (except minor minerals); b) Aluminum and other non-ferrous metals (not included in Schedule ‘A’); c) Machine tools; d) Ferro alloys and tool steels; e) Basic and intermediate products required by chemical industries (like drugs, dye, and plastics); f) Antibiotics and other essential drugs; g) Fertilizers; h) Synthetic rubber; i) Carbonization of coal; j) Chemical pulp; k) Road transport; l) Sea transport.

3. Schedule ‘C’ Industries or Private Enterprises

All the industries that have not been included in Schedule ‘A’ and Schedule ‘B’ are included in the Schedule ‘C’ category. The development and establishment of the industries in this category had been left to the initiatives taken by the private sector.

Industrial Policy Revolution, 1956

A comprehensive package of different policy measures covering various issues that are connected with different industrial enterprises of the country is known as Industrial Policy. The country needs to devise various principles, procedures, rules, and regulations to control its industrial enterprise. 

After the Industrial Policy of 1948, the economy of India faced various economic and political changes because of which it became essential for the country to start a fresh industrial policy. Hence, the Industrial Policy Revolution of 1956 was taken into action by the Indian Parliament on 30^th April 1956. It is also known as ‘The Economic Constitution’ of India. The Industrial Policy was shaped by the Mahalanobis Model of growth, which suggested that emphasis on heavy industries would lead the economy towards a long-term higher growth path. It provided a comprehensive framework for the industrial development of the country. It aimed at improving the coordination between the public and the private sector to achieve the goal of rapid industrial development by working together. This revolution provided more powers to the governmental machinery and laid down the foundation for India’s second five-year plan. The Industrial Policy also helped in laying down the three categories of the industrial sector that helped in defining industries more sharply.

 Objectives of the Industrial Policy Revolution, 1956

The objective of the policies, according to the revolution was the establishment of the society’s socialistic pattern. Other than this, some of the major objectives of this policy were:

1. Rapid Development of Industries

The main aim of the industrial policy was to increase the speed of the development of industries in India. The government promoted industrial development in the country by creating a favourable investment atmosphere for the private sector enterprises and mobilising the resources for investment in the public sector enterprises.

2. Preventing the Concentration of Economic Powers

The industrial policy provided a framework of reservations, rules, and regulations for the public and the private sectors that aimed at lowering monopolistic tendencies. It also aimed at preventing economic powers from getting concentrated in the hands of a few big industrial houses. 

3. Balance of the Industrial Sector

The industrial policy was taken into action to correct the industrial structure imbalances so that the currently prevailing conditions of the industrial sector get balanced out. This was done by laying the emphasis on heavy industries and developing the sector of capital goods.

4. Balance of the Regional Sector

The aim behind the introduction of industrial policies was also to correct the regional imbalances in industrial development between states. The states like Maharashtra, Gujarat, etc., were considered to be advanced in terms of industrial development, while other states like Bihar, Orissa, etc., were considered to be industrially backward. Thus, the industrial policy took the initiative of launching programs and policies, which led to the development of industries in such states.

5. Incentives to Labours

The industrial policy recognised the role of labour in the development of the industrial sector. This emphasized improving the working conditions of the workers and providing adequate incentives to them. It was also stated that the workers should be associated with the management so that they can be enthusiastically involved in the development process.

Categories of the Industrial Policy Revolution, 1956

According to the Industrial Policy Revolution, 1956, the industrial sector was divided into three categories, namely:

i) Schedule A Industries or Government Enterprises;

ii) Schedule B Industries or Mixed Enterprises;

iii) Schedule C Industries or Private Enterprises.

It can further be elaborated as-

1. Schedule ‘A’ Industries or Government Enterprises

In the scheduled category ‘A’, there are 17 industries. These industries are reserved for the public sector and are of basic and strategic importance. These are: a) Defence equipment, arms, and ammunition; b) Atomic energy; c) Heavy plants and machinery; d) Heavy casting and forging of iron and steel; e) Iron and Steel; f) required for basic industries; g) Heavy electrical plants; h) Coal and Lignite; i) Mineral Oils; j) Mining of iron ore, manganese ore, gypsum, sulphur, gold, and diamond; k) Minerals for atomic energy; l) Mining and processing of copper; m) Aircraft; n) Air transport; o) Railway transport; p) Ship-building; q) Telephones and telephone cables.

2. Schedule ‘B’ Industries or Mixed Enterprises

The Schedule ‘B’ category includes 12 industries. These industries are owned by the states, which will generally take the initiative in establishing new undertakings. These industries also give private enterprises a chance to flourish. Industries included under this schedule are: a) All minerals (except minor minerals); b) Aluminum and other non-ferrous metals (not included in Schedule ‘A’); c) Machine tools; d) Ferro alloys and tool steels; e) Basic and intermediate products required by chemical industries (like drugs, dye, and plastics); f) Antibiotics and other essential drugs; g) Fertilizers; h) Synthetic rubber; i) Carbonization of coal; j) Chemical pulp; k) Road transport; l) Sea transport.

3. Schedule ‘C’ Industries or Private Enterprises

All the industries that have not been included in Schedule ‘A’ and Schedule ‘B’ are included in the Schedule ‘C’ category. The development and establishment of the industries in this category had been left to the initiatives taken by the private sector.

Industrial Licensing System

An Industrial License is a written permission given to the industrial units to manufacture goods. This written permission is issued to industries by the government. The introduction of theIndustrial Licensing System in India was done in 1948 as a part of the Industrial Policy Revolution. In India, Industrial Licensing is regulated by the Industrial Development and Regulation Act (IDRA), 1951, and is approved by the Secretarial of Industrial Assistance (SIA). 

Industrial licensing for manufacturing in India is required by:

a) Industries under compulsory licensing, and
b) Industrial undertakings attracting location restrictions. 

Advantages of Industrial Licensing

1. The costs of producing, promoting, packaging, or selling your product will not be incurred by the licensee. 

2. There will be little or no risk, as the licensee will already have the knowledge and know-how on how to break into an already established market.

3. The royalty payments can last a very long time depending on the terms of your agreement. 

4. Licensing creates self-employment opportunities, as it allows people to start their own businesses. They get to experience the advantages of self-employment, like setting their working hours, getting the benefits of having someone invested in your business, etc.

5. It helps a domestic company to enter foreign markets, as it helps in avoiding tariff barriers, which makes it easier for a local business to operate globally.

Small-Scale Industry

The industries in which the process of production, manufacturing, and servicing are done on a lower scale or small-scale basis are referred to as Small-Scale Industries. These industries make a one-time investment, which is mostly done on plants and machinery, and the investments made, however, do not exceed a total of ₹1 Crore. Small-scale industries are often referred to as the lifeline of an economy, and India being a labour-intensive industry, is very benefited from the establishment of these small-scale industries, as it has helped in creating employment opportunities for the population of the country. These industries are also considered to be a crucial part of the economy in the terms of finance, as they help in stabilising the per capita income of a country. 

Importance of Small-Scale Industry

1. Employment Generation: The small-scale industries are considered to be the finest source of employment generation in India, and since employment is the defining feature of a country’s growth, the promotion of such industries should be done. These industries increase the rate of employment, as a definite population of people would be required for the working of the industry.

2. Maintains Regional Balance: Since the large-scale industries are mostly concentrated in the big cities, people start migrating from their hometowns to these cities in search of employment. This results in overcrowding of the city and severe damage to the environment. With the establishment of small-scale industries, a large population of people would not have to shift from one city to another, as there will be employment opportunities in their areas too.

3. Short Production Time: Since the production is not done on a larger scale, the production time taken by small-scale industries is less compared to large-scale industries. This further results in the flow of money in the economy.

4. New Opportunities: The establishment of small-scale industries opens the population with new opportunities for investments and start-ups. Since these industries require less capital investment, they can easily receive financial support and funding. Besides, procuring manpower and raw materials is also relatively easier for small-scale industries, as the government’s export policies favour them heavily.

5. Reduced Dependence on Agriculture: More than half of the rural population is dependent on agriculture, which results in a burden on the agricultural sector. Establishment of the small-scale industries helps in overcoming this problem by providing employment opportunities to the rural population. This results in more paths for growth and more organised distribution of occupation in the country.

Reservations and other Concessions

The government had to take various steps to protect small-scale industries from big firms or large-scale industries. To achieve this and ensure the growth of these industries, the government of India took some steps. These were:

1. Reservation of Products: To ensure that small-scale industries are not being exploited, the government reserved the production of certain goods only for small-scale industries. This helped these industries from shutting down and staying on track. The reservation made was on the criteria of the ability of these units to manufacture the goods.

2. Various Concessions: To ensure and enhance the growth of the small-scale industries, the government also gave various concessions to these industries. The concessions given to these industries were lower excise duty, bank loans at interest rates, electricity tariffs, numerous fiscal incentives, like excise duty exemption, etc.

Foreign Trade during 1950-1990|Trade Policy: Import Substitution

What is Foreign Trade?

Foreign Trade refers to the exchange of goods & services between two or more nations or within boundaries. India has been one of the major trading countries since the time of independence, and primarily exports goods like cotton, silk, jute, indigo, wool, etc. India is also an importer of finished products like woollen clothes, silk, cotton & capital goods, like light machinery made in Britain, etc. 

During the colonial period, Britain held a monopoly over India’s imports & exports. However, in the 1950s India entered into a planned development era. At that time, Import Substitution was a major part of the Trade and Industrial Policy of India. In 1950, India’s portion of trade was 1.78% of the total world trade.

Trade Policy: Import Substitution

To be a self-reliant nation in some essential sectors, India adopted the strategy of replacing imports with domestic production. In the first seven plans of India, trade was characterised by an inward-looking Trade Strategy, technically known as Import Substitution. Hence, Import Substitution is a policy that replaces or substitutes imports with domestic production. For example, instead of importing machines from foreign countries, India can encourage its domestic industries to produce these machines in the country itself. Therefore, it can be said that the basic motive of Import Substitution was the protection of domestic industries from foreign competition. 

The Import Substitution policy can serve the following two definite objectives:

1. Achievement of self-reliance, and

2. Savings of precious foreign exchange.

Protection from Imports through Tariffs and Quotas:

To protect India from foreign countries or imports, the government used two ways, i.e., Tariffs and Quotas.

1. Tariffs: These are taxes levied on imported goods. By imposing a heavy duty on imported goods, the Government of India aimed at making them more expensive to reduce their use.

2. Quotas: These are the non-tariff barriers imposed by the Government of India on the number of imports and exports. Simply put, it means fixing a maximum limit on the import of goods by a domestic producer. 

Hence, tariffs on imported goods and fixing quotas helped domestic industries by restricting the import level and removing the fear of competition from the foreign market, which ultimately encouraged them in expanding their business.

Reason for Import Substitution:

1. One of the main reasons behind the implementation of Import Substitution is that various developing countries like India are not in a position to compete against more developed countries and the goods produced by them. However, with the protection of industries in these countries from foreign products, they will be in a position to compete with them in the due course of time.

2. Besides, because of imports of luxury goods from foreign countries, there was a risk of draining of foreign exchange reserves of the country. Therefore, restriction on imports was necessary. 

P.C. Mahalanobis and His Contribution

The architect of Indian economic planning, P.C Mahalanobis, is well-known. As a member of an independent India’s planning committee, he was instrumental in the drafting of a plan that would see India experience fast economic growth while also assisting in the eradication of the colonialists’ poverty.

An Indian scientist and applied statistician named Prasanta Chandra Mahalanobis (1893-1972) built the groundwork for India’s institutional economic planning. He was the first to apply statistical methods to anticipate, plan, analyze, and evaluate social and economic welfare operations in the country, as a member of the first Planning Commission of independent India. The Mahalanobis Model prioritized India’s fast industrialization in the Second Five Year Plan (1961–66). He was the founder of the Indian Statistical Institute (ISI) in Kolkata and the founder of the prestigious Sankhya Journal.

Architect of Indian Economic Planning

1. Role in Second Five Year Plan

P.C. Mahalanobis was also a key figure in the development of India’s second five-year plan (1956-1961), which laid the groundwork for the country’s industrialization and development. The heavy industries were emphasized in the Second FYP. It was written by a group of economists and planners led by P. C. Mahalanobis. If the first plan emphasized patience, the second aimed to achieve rapid structural transformation by making adjustments in all feasible directions at the same time. Before this strategy was finalized, the Congress party passed an important resolution at a meeting held in Avadi, near Madras at the time. According to the text, the goal was to create a “socialist design of society.”

To protect indigenous industry, the government levied hefty levies on imports. The growth of both public and private sector industries was aided by such a protected environment. Because savings and investment increased during this time, the public sector could build a large portion of these industries, such as electricity, railways, steel, machines, and communication. Such a push for industrialization was, in fact, a watershed moment in India’s history. The second five-year plan, based on a socialist model, aimed for a 25 percent rise in national income through rapid industrialization.

Critical Evaluation of the Second Five-Year plan

The second five-year plan was a significant step forward, with a strong focus on heavy industry. During this plan period, the Industry Policy Resolution was revised, and the Public Sector was given major responsibility for development. The private sector was largely limited to the consumer goods industry. During this plan, the small and cottage industries remained sluggish. Imports grew dramatically, exposing India’s sterling balances. India was compelled to devalue its currency twice during the third plan, as an outcome of this FYP.

2. Contributions to Statistics

Mahalanobis was a pioneering researcher in statistics and related fields, but he was also a polymath, planner, educator, and visionary, and one of the architects of India’s post-independence nation. In addition to his fundamental contributions in statistics, he made significant research contributions, thinking, and societal value in planning and economics, particularly in econometrics; our focus here is solely on his econometrics contributions. He was a founder of The Indian Econometric Society and the first Indian elected member of the Econometric Society, as well as the first fellow elected from India (1951).

Statistics and Mathematics

The main goal of the Econometric Society is “the advancement of economic theory in its relation to statistics and mathematics,” but we’ve narrowed the definition of econometrics to “the study of economic data aligned with economic reasoning and the advancement of the discipline of economics” for this special issue. As a result, we place a stronger focus on economic data measurement and statistical inference. This concentration is in line with Mahalanobis’ philosophy and Sankhya’s objectives. P.C. Mahalanobis created the Mahalanobis distance as a statistical theory for comparing data sets. He devised a technique of calculating agricultural production using random sample methods, and he used statistics to flood-control economic planning.

Mahalanobis Distance

The anthropometric research led to the development of the D2- Statistic, also known as Mahalanobis Distance in the statistical literature, which has shown to be a useful tool not only in taxonomy but also in other domains such as economics and geology. Sir Ronald Aylmer Fisher (R.A.Fisher) recognized this concept by naming it the ‘Mahalanobis D-square’ or ‘Mahalanobis distance,’ and so a rich field of research in multivariate analysis arose.

The Mahalanobis distance is a measure of comparison between two data sets created by Mahalanobis. He developed new methods for performing large-scale sample surveys and using the random sampling approach, he determined acreage and agricultural yields. He developed fractile graphical analysis, a statistical tool for comparing the socioeconomic circumstances of different groups of individuals. He also used statistics in flood control economic planning.

3. Role in the National Sample Survey

Mahalanobis organized India’s statistical efforts by establishing the National Sample Survey and the Central Statistical Organization in 1950. From 1955 until 1967, he was a member of India’s Planning Commission. The Second Five-Year Plan of the Planning Commission promoted heavy industrial growth in India and depended on Mahalanobis’ mathematical description of the Indian economy, which became known as the Mahalanobis model.