INDIAN ECONOMY- BEFORE AND AFTER INDEPENDENCE

INDIAN ECONOMY- BEFORE AND AFTER INDEPENDENCE

To prepare for INDIAN ECONOMY for any competitive exam, aspirants have to know about the INDIAN ECONOMY- BEFORE AND AFTER INDEPENDENCE. It gives an idea of all the important topics for the IAS Exam and the Economy syllabus (GS-II.). Important INDIAN ECONOMY- BEFORE AND AFTER INDEPENDENCE terms are important from Economy perspectives in the UPSC exam. IAS aspirants should thoroughly understand their meaning and application, as questions can be asked from this static portion of the IAS Syllabus in both the UPSC Prelims and the UPSC Mains exams.

• India had been conquered several times before the British conquest, but the invaders like Portuguese etc. settled in India.
• The differences of the British conquest lies in the fact that it led to the emergence of a new political and economic system whose interests were rooted in foreign soil and whose policies were guided solely by their own interest.
• The main motive of the Britishers was to exploit the Indian resources for their advantages. They shifted the trade with the rest of the world. They established the developed system of railways, telegraphs and legal systems.
• The British concentrated that the Indian economy, trade and commerce and industrialization should not flourish, and made it stagnant in the developmental process.
• In 1600, Indian GDP per capita was 60% of British GDP per capita. But Indian per capita GDP declined absolutely and relatively as shown in figure below.
• The Great Divergence began partly due to India’s decline and partly due to British Growth. Indian living standards declined in the 18th century and stagnated in the 19th century.

 

INDIAN ECONOMY – PRE INDEPENDENCE ERA (BEFORE 1947)

• India had an independent economy before the advent of British rule.
• India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and precious stone works, etc.
• Aim of the British colonial rule in India – To reduce the country to being a feeder economy for Great Britain’s own rapidly expanding modern industrial base.
• British Economic policies – concerned more with the protection and promotion of the economic interests of Britain than with the development of the Indian economy.

• A fundamental change in the structure of the Indian economy – India was transformed into a net supplier of raw materials and consumer of finished industrial products from Britain.
• The colonial government never made any sincere attempt to estimate national and per capita income of India.
• Notable estimators were – Dadabhai Naoroji (Poverty and Un-British Rule in India), William Digby, Findlay Shirras, V.K.R.V. Rao (considered very significant) and R.C. Desai

 

AGRICULTURE SECTOR

• Agrarian Economy – Indian economy under the British rule was fundamentally agrariane. about 85 per cent of the country’s population lived mostly in villages and derived livelihood directly or indirectly from AGRICULTURE.
• Stagnated agriculture sector – Reason being over-crowded with involvement of maximum population leading to a very low agricultural productivity, in absolute terms.
• However, the sector experienced some growth due to the expansion of the aggregate area under cultivation.
• Pertaining to systems of land settlement, the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators with no zamindars initiating to strive for the development of agriculture.
• Lack of agricultural inputs – Low levels of technology, lack of irrigation facilities and negligible use of fertilisers resulted in a dismal level of agricultural productivity and efficiency.
• India’s agriculture was starved of investment in terracing, flood-control, drainage and desalination of soil.
• The commercialisation of agriculture – could hardly help farmers in improving their economic condition as they were producing cash crops which were to be ultimately used by British industries back home.
• Partition of the country: A sizeable portion of the undivided country’s highly irrigated and fertile land went to Pakistan leading to an adverse impact upon India’s output from the agriculture sector especially, Jute industry (the whole of the area went away to East Pakistan)

 

INDUSTRIAL SECTOR

• India could not develop a sound industrial base even while carrying the legacy of churning out the best handicraft stuff in the world – it declined rapidly and no corresponding modern industrial base was allowed to take its place.
• Policy of systematic deindustrialisation – To reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain.
• To turn India into a sprawling market for the finished products of those industries so that their continued expansion could be ensured to the maximum advantage of Britain.
• Decline of the indigenous handicraft industries created massive unemployment and rural distress in india.
• Cotton and jute textile mills were mainly concentrated in the western parts of the country – Maharashtra and Gujarat (Indians).
• During the second half of the nineteenth century, modern industry began to take root in India but its progress remained very slow and stagnant.
• Iron and steel industries began to rise up – The Tata Iron and Steel Company (TISCO) was incorporated in 1907. Other industries like sugar, cement, paper etc. came up after the Second World War.
• Capital goods industry – Though necessary to help promote further industrialisation, this industry did not bloom.
• Growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained dismal and piecemeal.
• The industrial sector thus, was left out crying for modernisation, diversification, capacity building and increased public investment.
• Limited area of operation of the public sector—it remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.

Capital goods industry – means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.

 

FOREIGN TRADE

• India has been an important trading nation since
  ancient times.
• Restrictive policies of commodity production, trade and tariff made India an exporter of primary products (raw silk, cotton, wool, sugar, indigo, jute etc.) and an importer of finished consumer goods (cotton, silk and woollen clothes and capital goods like light machinery) produced in the factories of Britain
• Britain maintained a monopoly control over India’s exports and imports, leading to more than half of India’s foreign trade to be restricted to Britain while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia (Iran).
• The opening of the Suez Canal further intensified British control over India’s foreign trade (box)
• Several essential commodities such as food grains, clothes, kerosene etc. suffered acute scarcity in the domestic market.
• The expenses incurred by an office, set up by the colonial government in Britain and expenses on war fought by the British government were accrued from revenue generated from India.

 

 

DEMOGRAPHIC TREND

• First documentation of the population of British India was conducted through the 1881 (decennial) census. This census revealed the unevenness in India’s population growth. India’s stages of demographic transition:
  • 1st stage: Before 1921
  • 2nd stage: After 1921 – Neither the total population of India nor the rate of population growth at this stage was very high and the various social development indicators were also not quite encouraging.
• Overall literacy level: less than 16 per cent; (the female literacy level was at about seven per cent)
• Public health facilities: either unavailable to the larger population or, when available, were grossly inadequate.
• Rampant occurrence of water and air-borne diseases taking a huge toll on life
• The overall mortality rate was very high and the infant mortality rate was quite alarming – about 218:1000
• Life expectancy was also very low – 32 years
• Extensive poverty prevailed in India during the colonial period which contributed to the worsening profile of India’s population of the time.

 

OCCUPATIONAL STRUCTURE

• Occupational structure connotes the distribution of working persons across different industries and sectors
• Very little signs of changes in occupational structure witnessed during the colonial
• Largest share of the workforce is about 70-75 per cent witnessed in agriculture.
• Manufacturing and the services sectors accounted for only 10 and 15-20 per cent growth in regional variation respectively.
• The parts of the then Madras Presidency, Maharashtra and West Bengal witnessed a decline in the dependence of the workforce on the agricultural sector with a commensurate increase in the manufacturing and the services sectors
• Orissa, Rajasthan and Punjab experienced an increase in the share of workforce in agriculture during the same time.

 

INFRASTRUCTURE

• To sub-serve various colonial interests (not to provide basic amenities to the people), development of basic infrastructure (railways, ports, water transport, posts and telegraphs) took place in India.
• Roads–
• To mobilize the army within India
• To draw out raw materials from the countryside to the nearest railway station or to the ports to send these to far away England
• To reach out to the rural areas during the rainy season.
• Railways–
  • Introduced in 1850s by Lord Dalhousie
  • Enabled people to undertake long distance travel thereby breaking geographical and cultural barriers
  • facilitated commercialisation of Indian agriculture which adversely affected the comparative self-sufficiency of the village economies in India
  • Volume of India’s export trade expanded with benefits rarely being accrued to the Indian people
  • Social benefits outweighed the country’s huge economic loss with the ‘railways’ needing further upgradation, expansion and public orientation
• Electric telegraph served the purpose of maintaining law and order in remotest parts.

• Postal services were useful but remained inadequate.
• Development of the inland trade and sea lanes – Mixed reaction to the development of these as sometimes they proved uneconomical (Coast Canal on the Orissa coast)

 

TYPES OF ECONOMIC SYSTEMS

An Arrangement of Solving CENTRAL PROBLEMS of an Economy	What to Produce	Relates to Selection of goods to be produced
		According to Market Analysis
		As Per Consumer’s demand
	How to Produce	Relates to Selection of the technique of Production	Labour Intensive Technique Use of more Labour than Capital Labour>Capital
			Capital Intensive Technique Use of more Capital than Labour Capital>Labour
	For Whom to Produce	Relates to the part of the society for whom goods are to be produced	According to the distribution of Income
			According to the availability of resources

 

CAPITALIST (MARKET) ECONOMY SYSTEM

• In a capitalist system, the products manufactured are divided among people not according to what people want but on the foundation of Purchasing Power – which is the ability to buy products and services.
• Which means an individual needs to have the money with him to buy the goods and services.
• Example – The affordable housing for the underprivileged is much required but will not include demand in the market because the needy do not have the buying power to back the demand.
• Therefore, the commodity will not be manufactured and provided as per market forces.

FEATURES	MERITS	DEMERITS
Freedom of Enterprise- every individual is free to make his own economic choices	Increase in production	Leads to monopoly
Right to Private Property – Every individual can acquire any amount of property	Flexible system	Inequalities
Freedom of choice to the consumers	Optimum use of resources	Depression and unemployment
Competition among producers and sellers	Progress and prosperity	Insufficient production
More scope for innovation	Quality products at low costs	Class conflict

 

SOCIALIST ECONOMIC SYSTEM

• In a socialist society, the government determines what products are to be manufactured in accordance with the requirements of society.
• It is believed that the government understands what is appropriate for the citizens of the country, therefore, the passions of individual buyers are not given much attention.
• The government concludes how products are to be created and how the product should be disposed of.
• In principle, sharing under socialism is assumed to be based on what an individual needs and not what they can buy.
• A socialist system does not have a separate estate because everything is controlled by the government.

FEATURES	MERITS	DEMERITS
Co-existence of private and public ownership	Welfare state	Non-cooperation between the two sectors
Existence of economic planning	Better allocation of the resources	Inefficient Public sector
Conducive policies by govt. for private sector	Promotes the equitable distribution of wealth and social justice	Economic fluctuation and Administered prices are not the most efficient
Planned and definite economic role of govt.	Ensures that all citizens have the means to achieve a minimum living standard	Breeding ground for corruption, red-tapism, and favouritism.
Consumers do not have absolute freedom of choice.	It provides comprehensive social security to all its members	Socialism does not promote hard work or any creativity in its citizens.

 

MIXED ECONOMIC SYSTEM

• It is a golden combination of a command (Socialist) economy and a market (Capitalist) economy.
• For this purpose, the mixed economic systems are also called dual economic systems.
• However, there is no sincere method to determine a mixed system, sometimes the word represents a market system beneath the strict administrative control in certain sections of the economy.

 

GOALS AND POLICIES OF MIXED ECONOMIC SYSTEM

FEATURES	MERITS	DEMERITS
combination of a command economy and a market economy.	Healthy competition in the market.	The public sector gets maximum benefits whereas the private sector remains controlled.
Coexistence of All Sectors- In a mixed economy all three sectors coexist in harmony	Enjoys the advantages of central economic planning	Inefficient Planning – large sectors of the economy remain outside the control of the government.
Social Welfare- aims to reduce the wealth gap in the country and fight the inequalities.	Economic freedom to ownership of property and choice of goods and services.	Ineffectiveness of Sectors- private sector does not get full freedom, hence it becomes ineffective. This leads to ineffectiveness among the public sector.
Economic Planning – General guideline for economic growth and prosperity of the nation.	Existence of price mechanism. So the allocation of resources is more scientific and beneficial to the economy.	Constant fear of nationalisation of the private sector.
Existence of Cooperative Sector		Corruption and Black Marketing

 

DIFFERENCE BETWEEN CAPITALIST, SOCIALIST AND MIXED ECONOMIC MODELS

PARAMETER	CAPITALIST	SOCIALIST	MIXED
Ownership of Property	Private	public	Both public and private
Price Determination	determined by the market forces of demand and supply	determined by the central planning authority.	determined by central planning authority and demand & supply.
Motive of Production	Profit motive	Social welfare	The profit motive in the private sector and welfare motive in the public sector
Role of Government	No role	Complete role	Full role in the public sector and limited role in the private sector
Competition	Exists	No competition	Exist only in the private sector
Distribution of income	Very Unequal	Quite Equal	Considerable inequalities exist.

 

WHAT TYPE OF ECONOMY IS INDIA?

• India has a mixed economy. Nearly half of India’s working population is engaged in agriculture, the signature of a traditional economy.
• One-third of its workers are employed by the services industry, which contributes two-third of India’s output.
• The productivity of this segment is made possible by India’s shift towards a market economy.
• Since the 1990s, India has deregulated several industries. It has privatized many state-owned enterprises, and opened doors to foreign direct investment.

 

REASONS FOR ADOPTION OF MIXED ECONOMY

• To maintains a healthy balance between the public and the private sector. This ensures cooperation and competition between them which is conducive to attain high growth targets.
• Through its pricing mechanisms as well as freedoms of production, consumption, occupation and the presence of a profit motive, it ensures that there is an efficient allocation of resources in the economy.
• By working towards minimizing the inequalities of income, wealth etc.
• Eliminating unemployment and poverty.
• Mixed economy maximizes social welfare. It has all the main features of a welfare state.

 

MEANING OF “PLAN”

• A plan spells out how the resources of a nation should be put to use. It should have some general goals as well as specific objectives which are to be achieved within a specified period of time;
• In India plans are of five years duration and are called five year plans (we borrowed this from the former Soviet Union).
• Our plan documents specify the objectives to be attained in the five years of a plan and what is to be achieved over a period of twenty years (called as perspective plan)
• Five year plans of India do not spell out how much of each and every good and service is to be produced.

In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson and the era of five year plans had begun.

 

TYPES OF ECONOMIC PLANNING

Directional planning

• • Directional type of planning followed by countries which believe in socialism. The targets of plans are pre-determined and executed with the help of the government in power. In Directional type of planning all things are under control of the state including, financial institutions, industrial sector, transport, infrastructure, etc.

 

Planning by inducement

• • This planning is independent planning. In this type, the state regulates and controls the process of production, forming the enterprise and various patterns of consumption. The government formulates various monetary and fiscal policies to regulate the economy effectively.

Perspective planning

• • Perspective planning is long term planning for a time period of 20 to 25 years. It’s an outline of development to be undertaken over a longer period in a phased manner. They can further be divided into annual plans. These five-year plans generally maintain continuity.

 

Indicative Planning

• • Indicative planning is a comparatively flexible type (soft planning) of planning, as it is different from comprehensive or imperative planning. It works on decentralized principles in the completion of target plans. In this planning, the targets for the public sector are mandatory while for the private sector they are only indicative. It was initially used in countries like France and Japan.

Imperative Planning

• • In this, the government in power directs and controls all the economic activities and resources in the economy. All available resources are used with high efficiency to complete set targets of the plan. Since the government’s decision and policymaking is very rigid they are to be followed by the market players. Imperative planning is in use in Russia and China.

 

Democratic planning

• • The basic ideology in democratic planning is to form the democratic form of government. Plans are prepared according to the requirement and needs of the people. The discussion with various parties involved in the economy is the main principle of democratic planning. Aim of democratic planning is eradicating inequalities of income and wealth.

 

Fixed planning

• • Plans are prepared for a fixed period of time. The objectives and targets of a fixed plan are to be achieved within the plan period. Physical targets and spending on these targets are often not changed except during an emergency. Fixed planning is used in India.

 

Centralized Planning

• • The centralized authority plans and formulates all planning activities in the country in centralized planning. This authority fixes targets for all industries and fixes priorities for all sectors. It takes all the investment decisions according to the goals and targets set in the plan.

 

Decentralized Planning

• • In decentralized planning, the plans are executed at grass root level. In this, the plan is prepared by central authority along with discussion with all the administrative units in the country whether at state level or district level. Plans for industries are prepared with full discussion with all the major representative stakeholders in the industries.

INDIAN ECONOMY – POST-INDEPENDENCE ERA (1950-1990)

Planning in India
Pre Independence Planning	Post Independence Planning

1.PRE-INDEPENDENCE PLANNING IN INDIA

• • Visvesvaraya published his book “Planned economy in India” in 1934. In this book he presented a constructive draft of the development of India in 10 years. His core idea was to lay out a plan to shift labour from agriculture to industries and double up National income in ten years. This was the first concrete scholarly work towards planning.
  • The economic perspective of India’s freedom movement was formulated during the Karachi session of INC (1931), Faizpur session of INC (1936).
  • National Planning Committee (1938) – was the first attempt to develop a national plan for India. This committee was set up by Congress president Subhash Chandra Bose and was chaired by Jawaharlal Nehru. However the reports of the committee could not be prepared and only for the first time in 1948-49 some papers came out.
  • Bombay Plan – In 1944, Industrialists of Bombay including Mr. JRD Tata, GD Birla, Purshottamdas Thakurdas, Lala Shriram, Kasturbhai Lalbhai, AD Shroff, Ardeshir Dalal, & John Mathai working together prepared “A Brief Memorandum Outlining a Plan of Economic Development for India” which was popularly known as Bombay Plan. This plan envisaged doubling the per capita income in 15 years and tripling the national income during this period.
  • In August 1944, The British Indian government set up a “Planning and Development Department” under the charge of Ardeshir Dalal. But this department was abolished in 1946.
  • People’s Plan – Plan was based upon Marxist socialism and drafted by M N Roy. This plan was for a ten years period and gave greatest priority to Agriculture. Nationalization of all agriculture and production was the main feature of this plan.
  • Gandhian Plan (1944) – Put forward by Sri Shriman Narayan in 1944 who was principal of Wardha Commercial College. It was a modest kind of plan. Plan emphasized economic decentralization with primacy to rural development by developing cottage industries.
  • Sarvodaya Plan (1950) – Plan was drafted by Jaiprakash Narayan inspired by Gandhian plan as well as Sarvodaya Idea of Vinoba Bhave. It emphasized on small and cotton industries and agriculture as well. Plan also stressed upon land reforms and decentralized participatory planning.

2. POST-INDEPENDENCE

• • Economic Programme Committee (EPC) – formed by All India Congress Committee (AICC) with Nehru as its chairman. The aim of this committee was to make a plan which could balance private and public partnership and urban and rural economies. The EPC recommended in 1948 to form a permanent Planning Commission in India.
  • In March 1950 in pursuance of declared objectives of the Government, the Planning Commission was set up by a Resolution, with Jawaharlal Nehru as the first Chairman of the Planning Commission.
  • The Planning Commission was charged with the responsibility of making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities.

Democratic Socialism: Nehru was greatly influenced by the achievements of Soviet Planning; The philosophy was to not only check the growth of monopolistic tendencies of the private sector but also provide freedom to the private sector to play for main objective of social gain rather than economic gain.

 

THE GOALS OF FIVE YEAR PLANS

GROWTH

• • Growth refers to an increase in the country’s capacity to produce the output of goods and services within the country.
  • Good indicator of economic growth is the steady increase in the country’s Gross Domestic Product (GDP) – the market value of all the goods and services produced in the country during a year.
  • The GDP of a country is derived from the different sectors (Primary, Secondary and Tertiary) of the economy – the contribution made by each of these sectors makes up the structural composition of the economy.

 

MODERNIZATION

• • Steps taken by a factory to increase output by using a new type of machine and technology is called modernization.
  • Modernisation also leads to changes in social outlook such as the recognition that women should have the same rights as men.

 

SELF RELIANCE

• • A nation can promote economic growth and modernisation by using its own resources or by using resources imported from other nations.
  • The first seven five year plans gave importance to self-reliance which means avoiding imports of those goods which could be produced in India itself, in order to reduce our dependence on foreign countries, especially for food.
  • There was a fear that dependence on imported food supplies, foreign technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our policies.
  • Recently, PM stressed for a self-reliant India (Atma Nirbhar Bharat) in the backdrop of the Covid-19 outbreak.

EQUITY

• • To ensure that the benefits of economic prosperity reach the poor sections as well instead of being enjoyed only by the rich – every Indian should be able to meet his or her basic needs such as food, a decent house, education and health care; and reducing inequality in the distribution of wealth.

 

OBJECTIVES OF PLANNING

• Economic and social planning and ensuring pattern of the ‘welfare state’.
• Sustainable economic growth.
• Poverty alleviation
• Employment generation and self-employment
• Modernising the traditional economy was set as a foremost objective of planning especially the agriculture sector
• Accord due place and weightage to all the aspirations of the Preamble, the Fundamental Duties, the Fundamental Rights and the Directive Principles of the State Policy – adequate means of livelihood, opportunities for employment and a socio-economic order based on justice and equality.
• Self-reliance – an effort to strike against a subordinate position in the world economy.
• Ensuring economic equality

 

FINANCIAL RESOURCES FOR PLANNING

• Central budget and state budgets – revenue and capital receipt side
• Public Sector Enterprises (PSEs)
• Domestic private sector
• Gross Budgetary Support – This is an amount from the central budget which goes to fund the planned investment during the plan period.
• Foreign Direct Investment (FDI) in India

 

PRIME MOVING FORCE – AGRICULTURE VS. INDUSTRY

• The government of the time opted for industry to be India’s prime moving force of the economy.
• Given the available resource base it seems an illogical decision as India lacked all those prerequisites which could suggest the declaration of industry as its prime mover –
• Almost no presence in the infrastructure sector.
• Lack of robust infrastructure industries, i.e., iron and steel, cement, coal, crude oil, oil refining and electricity.
• Lack of availability of investible capital – either by the government or the private sector.
• Absence of required technology to support the process of industrialisation and lack of research and development.
• Lack of skilled and semi-skilled manpower.
• Lack of entrepreneurship spirit among the people.
• Lack of a market for industrial goods.
• Many other socio-psychological factors which acted as negative forces for the proper industrialisation of the economy.

 

The obvious choice for India would have been the agriculture sector as the prime moving force of the economy because:

• The country was having the natural resource of fertile land which was fit for cultivation.
• Human capital did not require any kind of higher training.
• Higher population in rural areas with involvement in agriculture
• Just by organising our land ownership, irrigation and other inputs to agriculture, India could have gone for better prospects of development.
• Once the masses were able to achieve a level of purchasing capacity through remunerative income from agriculture, India could have gone for the expansion of industries.

 

Following developments were in favour of industrialisation –

• By choosing industry as the prime moving force, India opted to industrialise the economy as well as modernise the traditional mode of farming.
• The dominant ideology around the world as well as in the WB (World Bank) and the IMF (International Monetary Fund) was in favour of industrialisation as a means to faster growth and development.
• The Second World War had proved the supremacy of defence power – which needs support not just of science and technology, but also of a robust industrial base.
• India also required a powerful defence base for herself as a deterrent force.
• By the time of independence the might of industrialisation was already proven and there were no doubts regarding its efficacy.
• A major shift took place in the Indian economic landscape, when the government announced in 2002 that from now onwards, in place of industry, agriculture will be the prime moving force of the economy.
• According to the Planning Commission such a policy shift will solve the following major challenges faced by the economy:
• Economy will be able to achieve food security with the increase in agricultural production.
• The agricultural surplus will generate exports in the globalising world economy benefiting out of the WTO (World Trade Organisation) regime.
• The challenge of poverty alleviation will be solved to a great extent as the emphasis will make agriculture a remunerative occupation and induce growth in the rural economy by generating more gainful employment.
• The situation of India as an example of ‘market failure’ will cease.

 

PLANNED AND MIXED ECONOMY FOR INDIA

• Post-independence, India was declared to be a planned and a mixed economy.
• India was not only facing regional disparities at the level of resources, but inter-regional disparities were also prevalent, since centuries.
• Deeply entrenched mass poverty could only be remedied once the government started the process of economic planning.
• The abject poverty of the masses made the government go for planning so that it could play an active role in the allocation of resources and mobilise them for equitable growth and development.
• Although, constitutionally India was declared a federation of states, but in the process of planning, the authority of regulation, directing and undertaking economic activities got more and more centralised in the Union government.
• Following factors made pressing points to opt for planned and mixed economy –
• Great Depression (1929) and the reconstruction challenges after the second world War favoured a state intervention in the economy
• In the 1950s and 1960s, the dominant view among policymakers around the world was in favour of an active role of the state in the economy – Soviet Union and the East European countries were notable examples.
• A dominant role of the State in the economy to neutralise market failure situations
• The dominant force behind planning in India, was Nehru himself who had strong socialist leanings.

 

WHY EMPHASIS ON PUBLIC SECTOR ?

• The state was to be given an active and dominant role in the economy, it was very much decided by the time India became independent.
• Naturally, there was going to be a giant structure of the government-controlled enterprises to be known as the PSUs.
• The reason behind the ambitious expansion of the PSUs was in the face of the following major requirements:
• Infrastructural Needs
• Industrial Needs
• Employment Generation
• Development of the Social Sector
• Emergence of the Private Sector

 

NEHRU – MAHALANOBIS MODEL OF GROWTH

• The turning point in India’s planning strategy came with the second five-year (1956- 61) plan.
• The model adopted for the plan is known as the Nehru-Mahalanobis strategy of development as it was articulated by Jawahar Lal Nehru’s vision and P.C. Mahalnobis was its chief architect.
• The Mahalanobis model of growth was based on the predominance of the basic goods (Capital goods or investment goods that are used to make further goods).
• It was based on the premise that it would attract all round investment and result in a higher rate of growth of output.
• That will develop a small scale and ancillary industry to boost employment generation, poverty alleviation, exports etc.
• Other elements of the model were –
• Import substitution – Protective barriers against foreign competition to enable Indian companies to develop domestically produced alternatives for imported goods.
• A sizable public sector active in vital areas of the economy including atomic energy and rail transport.
• A vibrant small-scale sector driving consumer goods production for dispersed and equitable growth and producing entrepreneurs.

 

Outcomes of the model –

• In terms of the core objective of rising up the rate of growth of industrial production, the strategy was successful.
• Rate of growth of overall industrial production picked up.
• The strategy laid the foundation for a well-diversified industrial structure within a reasonably short period and this was a major achievement.
• It gave the base for self-reliance.

 

Criticism –

• Visible imbalances between the growth of the heavy industry sector and other spheres like agriculture and consumer goods etc.
• It heavily relied on trickle-down effect benefits of growth will flow to all sections in course of time.
• Eradication of poverty is slow and incremental.

RAO-MANMOHAN SINGH MODEL OF GROWTH

Economic reforms since 1991 are based upon Rao-Manmohan model (Narsimha Rao – PM and Manmohan Singh – Finance minister)

Features of model

• Selectively dismantle controls and permits in order to permit the private sector to invest liberally.
• Reorient the role of state in economic management. State should refocus on social and infrastructural development.
• External sector liberalisation in order to integrate the Indian economy with the global economy to benefit from the resource flow and competition.
• Open up the economy and create competition for PSEs – for better profitability, productivity and efficiency.
• Forex reserves accumulation thus alleviating the BoP pressures and the foreign flows – FDI and FII increased. Indian economy became competitive.
• Its success is seen in the more than 6.5% average annual rate of growth of the economy during the 8th Plan (1992-1997). Forex reserves accumulated leaving the BOP crisis in history; taming of inflation; and the foreign flows- FDI and FII increased.

 

FYPs – PERIOD & PERFORMANCE

PLANs	DESCRIPTION
First Five Year Plan	Duration – from 1951 to 1956. Focus – Agriculture sector including irrigation and power projects. Targeted growth rate – 2.1 percent Achieved growth rate of 3.6% (more than its target) It was based on the Harrod-Domar model. About 44.6 percent of the plan outlay went in favour of the public sector undertakings (PSUs). Launching of Community Development Programme (2 oct 1952) Imperial Bank of India transformed into State Bank Of India (Gorwala Committee recommendations)
Second Five Year Plan	Duration – from 1956 to 1961 Focus – rapid industrialisation with a focus on heavy industries and capital goods Targeted growth rate – 7.5 percent Achieved growth rate of 4.1% (plan was successful ) It was based on the P.C. Mahalanobis Model. Second Industrial Policy, 1955 – divided industries into three schedules. Target of achieving “Socialistic pattern of society” in economic policies – failed to achieve
Third Five Year Plan	Duration – from 1961 to 1966. This plan is called ‘Gadgil Yojana’. Witnessed two wars, one with China in 1961–62 and the other with Pakistan in 1965–66 Severe famine – 1965 -1966 The main target of this plan was to make the economy independent and to reach the self-active position of take-off. For the first time, considered the aim of balanced, regional development. Established Food Corporation Of India (FCI) in 1965
Three annual plans (plan holiday) (1966-1969)	Duration – from 1966 to 1969. Reason – Indo-Pakistan war & failure of the third plan. Focus – Self reliance Green revolution was ushered in this period. (1966-67) During this plan, annual plans were made and equal priority was given to agriculture & its allied sectors and the industry sector.
Fourth Five Year Plan	Duration – from 1969 to 1974. Objectives – Growth with stability and progressive achievement of self-reliance. Targeted growth rate – 5.7 percent Achieved growth rate of 3.3% (plan failed to achieve targeted growth rate) During this plan, the slogan of “Garibi Hatao” was given during the 1971 elections by Indira Gandhi. Enactment of Foreign Exchange Regulation Act (FERA 1973), Monopolistic & Restrictive Trade Practices Act (MRTP 1969) Nationalisation of 14 banks in 1969
Fifth Five Year Plan	Duration – From 1974 to 1979. Focus – Top priority to agriculture followed by industry & mines Focus on poverty alleviation and self-reliance Targeted growth rate – 4.4 percent Achieved growth rate of 4.8% (plan was successful ) The draft of this plan was prepared and launched by D.P. Dhar. This plan was terminated in 1978. First population policy of india declared in 1976 Twenty-point Programme (1975) Integrated Child Development Scheme (ICDS) launched in 1975-76
Rolling Plan	Duration – From 1978 to 1980. “Rolling Plan” concept was envisaged and coined by Prof. Gunnar Myrdal in “India’s Economic Planning in its Broader Setting” The Food for Work programme was launched. Antyodaya scheme New lease of life to Panchayati Raj Institutions (PRIs) (i.e., the 2nd Phase of the revival of the PRIs);
Sixth Five Year Plan	Duration – from 1980 to 1985. Targeted growth rate – 5.2 percent Achieved growth rate of 5.7% (plan was successful) Objective – poverty eradication and Employment generation. It was based on investment Yojana, infrastructural changing and trend to the growth model. Launched – National Rural Employment Programme (NREP) on 2 Oct 1980 Integrated Rural Development Programme (IRDP) Nationalisation of six banks in 1980 (Second round of nationalisation) Establishment of NABARD in 1982 on recommendations of Sivaraman Committee
Seventh Five Year Plan	Duration – from 1985 to 1990. Objectives – emphasised on rapid food grain production, increased employment creation and productivity in general. Targeted growth rate – 5 percent Achieved growth rate of 6% (plan was successful) Indicative planning started for Sci & Tech. Launched Jawahar Rojgar Yojana (JRY) in 1989 – first decentralized scheme For the first time, the private sector get priority over the public sector. The Plan was not laid with a strong financial strategy, which put the economy into a crisis of unsustainable balance of payments and fiscal deficits
Two Annual Plans 1990-91 & 1991-92.	The Eighth Plan (1990–95) could not take off due to the ‘fast- changing political situation at the Centre Fiscal imbalances of the late 1980s were the other important reasons for the delay in the launch of the Eighth Plan. BoP(Balance of Payment) crisis and shortage of FOREX Uncontrollable fiscal deficit
Eighth Five Year Plan	Duration – from 1992 to 1997. Targeted growth rate – 5.6 percent Achieved growth rate of 6.8% (plan was successful) Objective – Development of human resources i.e. employment, education, and public health. Adoption of Indicative planning in totality Narasimha Rao Govt. launched the New Economic Policies of India Rao-Manmohan Model – LPG (Liberalisation, Privatisation, Globalisation) Constitution of Disinvestment Commission in 1996 Launching of – Mid Day Meal Scheme, MPLADS, National Social Asst. Programme Constitutional status to Panchayat Raj Institution in 1992 by 73rd and 74th Amendment acts. Statutory Status to SEBI (Securities & Exchange Board of India) in 1992
Ninth Five Year Plan	Duration – from 1997 to 2002. Targeted growth rate – 7 percent Achieved growth rate of 5.6% Objective – “growth with justice and equity”. It was launched in the 50th year of independence of India. Plan was launched when there was an all-round ‘slowdown’ in the economy led by the South East Asian Financial Crisis (1996–97). · Launched National Population Policy, National Population fund and Population Stabilization Fund in 2000. · Swarna Jayanti Shahari Rojgaar Yojana (SJSRY) and Swarna Jayanti Gram Swarojgaar Yojana (SGSY) were launched. · Sarva Shiksha Abhiyan launched in 2001.
Tenth Five Year Plan	Duration – from 2002 to 2007. Objective – aims to double the Per Capita Income of India in the next 10 years. Targeted growth rate – 8 percent Achieved growth rate of 8.2% Plan aims to reduce the poverty ratio by 15% by 2012. For the first time the Plan went to set the ‘monitorable targets’ for eleven select indicators of development for the Centre as well as for the states ‘Governance’ was considered a factor of development States’ role in planning to be increased with the greater involvement of the PRIs Policy and institutional reforms in each sector – reforms in the PSUs, legal reforms, administrative reforms, labour reforms, etc Agriculture sector was declared as the prime moving force (PMF) of the economy in 2002. Increased emphasis on the social sector – About 27% of total outlay.
Eleventh Five Year Plan	Duration – from 2007 to 2012. Targeted growth rate – 8.1 percent Achieved growth rate of 7.9% Objective – “faster and more inclusive growth” Plan target of 9-10 per cent GDP growth. It was prepared by C. Rangarajan
Twelfth Five Year Plan	Duration – from 2012 to 2017. Objective – “Faster, More Inclusive and sustainable growth” Growth rate target is 9%. Broad Objectives of 12th Five Year Plan To reduce poverty To improve regional equality across states and within states To improve living conditions for SCs, STs, OBCs, Minorities To generate attractive employment opportunities for Indian youth. To eliminate gender gaps. Economic Growth Real GDP Growth Rate of 8.0 per cent. Agriculture Growth Rate of 4.0 per cent. Manufacturing Growth Rate of 10 per cent. Every State must have an average growth rate in the Twelfth Plan preferably higher than that achieved in the Eleventh Plan. Head-count ratio of consumption poverty to be reduced by 10 percentage points over the preceding estimates by the end of Twelfth FYP. Mean Years of Schooling to increase to seven years by the end of Twelfth FYP. Reduce IMR to 25 and MMR to 1 per 1,000 live births, and improve Child Sex Ratio (0–6 years) to 950 by the end of the Twelfth FYP. Reduce Total Fertility Rate to 2.1 by the end of Twelfth FYP. Increase green cover (as measured by satellite imagery) by 1 million hectare every year during the Twelfth FYP. Increase investment in infrastructure as a percentage of GDP to 9 per cent by the end of Twelfth FYP Provide access to banking services to 90 per cent Indian households by the end of Twelfth FYP.

CONCLUSION

• To conclude, India’s five year plans did not achieve much in terms of what they set out to do.
• The economic progress that we have witnessed so far is, by and large, a result of the opening up of India’s economy post 1991 BoP crisis.
• Today the private sector has overtaken the public sector and taken lead across various sectors of the economy.
• There are both positive and negative aspects to this.

 

MULTILEVEL PLANNING

• By the mid-1960s, the states were given the power to plan, by the Centre, advising them that they should promote planning at the lower levels of the administrative strata.
• By the early 1980s, India was a country of multi-level planning (MLP) with the structure and strata of planning as follows:

First Strata: Centre-Level Planning At centre level planning, three types of Central Plans had evolved over the years – Five Year Plans, Twenty-Point Programme and MPLADS (Member of Parliament Local Area Development Scheme)

Second Strata: State-Level Planning By the 1960s, the states were planning at the state level with their respective planning bodies, (State Planning Boards) with the respective CMs being their Chairman. The plans of the states were for a term of five years and parallel to the concerned Five Year Plans of the Centre.

 

Third Strata: District-Level Planning By the late 1960s all the districts of the states were having their own plans with their respective District Planning Boards with the respective District Magistrate as chairman.

 

Fourth Strata: Block-Level Planning As a part of the district-level planning the block level planning came up which had the District Planning Boards as their nodal body.

 

Fifth Strata: Local Level Planning By the early 1980s, plans were being implemented at the local level via the blocks and had the District Planning Boards (DPBs) as the nodal agency.

 

ACHIEVEMENTS OF PLANNING

• National income increased manifold
• India became one of the largest and emerging economies in Asia with about 2.7 trillion USD GDP.
• India has become the fifth-largest economyin 2019, overtaking the United Kingdom and France.
• India ranks third when GDP is compared in terms of purchasing power parity at $11.33 trillion.
• Improvement in social indicators – IMR, MMR, Literacy among others.
• Robust industrial sector – cement, fertilizers, steel, pharma etc.
• Agriculture growth is also gaining momentum with record breaking food grains productions.
• Whopping rise in FOREX reserves- about 480 bn USD (June 2020)
• Global leadership of India in the service
• Considerable expansion of the higher and vocational education sector – Health universities, engineering institutions etc.
• Poverty dropped to about 20% of the population

The Member of Parliament Local Area Development Scheme (MPLADS) MPLADS is the last of the Central Plans. The scheme was launched in 1993 with Rs. 2 crore given to each MP. In April 2011 the corpus was enhanced to Rs. 5 crore while announcing the new guidelines for the scheme. Under this scheme the Members of Parliament recommends some works (i.e. creation of fixed community assets, based on locally felt developmental needs) to the concerned District Magistrate.

 

FAILURES OF PLANNING

• High rate of unemployment
• Quality of outcome from education is dismal
• Rampant poverty.
• Gender parity is still steep and widespread
• R&D is not globally competitive along with poor spending (about 0.6% of GDP)
• Export growth is not much high.
• Regional imbalances are clearly visible
• Low productivity of agriculture sector
• Half of the children suffer from malnutrition.

 

PRE-REFORM PERIOD (PRE 1990s)

Achievements

• Acceleration of the growth rate – during the first three decades of planning, the growth rate averaged around 3.5 to 4 percent (known as Hindu growth rate – coined by Raj Krishna)
• Growth of the agriculture sector – average spending on agriculture and allied sector was around 23-25 percent of plan outlay in each FYP. Multipurpose projects such as Damodar valley, Bhakra Nangal also brought prospects for the agriculture The Green revolution was also brought in.
• Development of economic infrastructure – development of irrigation projects, hydro electric projects, thermal power projects and expansion of network of surface transports.
• Development of heavy capital goods industry base.

 

Failures

• Failure to create employment opportunities – India is facing a problem of underemployment and disguised unemployment.
• Failure to eradicate poverty – more than quarter of the population in India was living below poverty line even after four decades of planning, this speaks about the failure of planning in creating ‘growth for all’.
• Failure in undertaking land reforms and other institutional reforms in agriculture – productivity of agriculture is dismal. Non remunerative nature of agriculture.
• Failure in setting up a strong, competitive, diversified industrial base – promotion of capital goods industries by the state led to concentration and inefficiency.

 

ECONOMIC REFORMS SINCE 1991

• The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. Government’s expenditure was more than its income.

 

ECONOMIC CRISIS OF 1980s

• Government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable.
• There was a sharp rise in the prices of many essential goods.
• Imports grew at a very high rate without matching growth of exports.
• Foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks.
• No sufficient foreign exchange to pay the interest to international lenders.

To avert and mitigate the crisis, India approached the International Bank for Reconstruction and Development (IBRD) (World Bank) and the International Monetary Fund (IMF) and received $7 billion as loan to manage the crisis.

Measures to avail the loan from IMF and World Bank

1.Liberalisation – Removing restrictions on the private sector

2.Privatisation – Reducing the role of the government in many areas

3.Globalisation- Removing trade restrictions

 

CONDITIONS OF IMF FOR INDIA

• Devaluation of the rupee by 22 percent.
• Drastic reduction in the peak import tariff from the prevailing level of 130 per cent to 30 per cent.
• Excise duties to be hiked by 20 percent to neutralize the revenue shortfalls due to the custom cut.
• All government expenditure to be cut down by 10 per cent, annually.
• India agreed to the conditionalities of World Bank and IMF – announced the New Economic Policy (NEP) – which consisted of following economic reforms:

1. 1. Creating a more competitive environment in the economy by removing the barriers to entry and growth of firms;
   2. Introduced liberalization with a view to integrate the Indian economy with the world economy;
   3. To remove restrictions on FDI as also to free the domestic entrepreneur from the restrictions of Monopolies and Restrictive Trade Practices (MRTP) Act;
   4. To unleash the Indian industrial economy from the web of unnecessary bureaucratic controls;
   5. To reduce the load of public sector enterprises which have shown a very low rate of return or which were incurring losses over the years.

 

REASONS FOR ECONOMIC REFORMS

• Rise in Prices – Inflation surged from 7% to 16.7%. attributed to rapid increase in money supply.
• Rise in Fiscal Deficit – Due to increase in non- development expenditure fiscal deficit of the Government had been increasing. This was accompanied by rise in public debt and resultant interest.
• Adverse Balance of Payments: When foreign exchange falls short for payment or total imports exceeds total exports, problems of adverse balance of payments arise.
• Iraq-Kuwait War 1990-91 – This led to rise in petrol prices. The flow of remittances from Gulf countries stopped.
• Dismal performance of the PSUs – These were not performing well due to political interference and became a big liability for the Government.
• Fall in Foreign Exchange Reserves – Indians foreign exchange reserve fell to lowest in 1990-91 and it was insufficient to pay for an import bill for 2 weeks (In 1989-90, it declined to Rs. 6252 crores)

Balance of Payments of a country is the record of all economic transactions between the residents of the country and the rest of world in a particular period. Import cover – measures the number of months of imports that can be covered with foreign exchange reserves (FOREX) available with the central bank of the country.

 

ECONOMIC REFORMS IN INDIA

• Economic reforms is the process in which a government prescribes a declining role for the state and an expanding role for the private sector in an economy.
• Economic reforms started in India in 1991 have been widely termed by experts as gradualist or incremental in nature with characteristic of occasional reversals.
• Process of economic reforms started in India with the motto and slogan of ‘reforms with human face’. However, it has utterly failed to garner the empathy of the massese., reforms are to benefit all.
• Countries such as Brazil, Argentina, South Africa, etc. also went for the stop-and-go approach of reforms, unlike India.
• In these reforms, the governments first decide the sector where reform is needed – then they pin-point the prerequisites, and finally both sets of the reforms are activated simultaneously.

 

REFORM MEASURES

1. Macroeconomic Stabilisation Measures

• These include all those economic policies which intend to boost the aggregate demand in the economy – be it domestic or external.
• For enhancing domestic demand, increasing the purchasing power of the masses is essential, which connotes an emphasis on the creation of gainful and quality employment

 

2. Structural Reform Measures

• Measures that include all the policy reforms which have been initiated by the government to boost the aggregate supply of goods and services in the economy.
• It naturally entails unshackling the economy so that it may search for its own potential of enhanced productivity.
• For the purchasing capacity of the people to be increased, the economy needs increased income, which comes from increased levels of activities.
• Income so increased is later distributed among the people whose purchasing power has to be increased.
• This will take place by properly initiating a suitable set of macroeconomic policies.

 

LPG FRAMEWORK OF THE REFORMS

• The process of reforms in India had to be completed via a roadmap of three processes – liberalisation, privatisation and globalisation (LPG).
• These three processes specify the characteristics and extent of the reform process India initiated.
• Liberalisation ???? the direction of reform
• Privatisation ???? the path of reform
• Globalisation shows the ultimate goal of the reform.

 

LIBERALIZATION

• The term “liberalization” in this context implies economic liberalization.
• This policy connotes that greater freedom is to be given to the entrepreneur of any industry, trade or business and that governmental control on the same be reduced to the minimum.
• Liberalisation was introduced to put an end to regulations and restrictions and open up various sectors of the economy.
• Only key issues of welfare and other regulatory mechanisms are left with the state.

 

Economy liberalization in Indian context includes:

• Removal of Industrial Licensing and Registration
• Reducing the quantitative restrictions on imports also reduces import duties.
• Reduced control on FOREX management both in current and capital accounts.
• Financial systems reforms
• Reduction in the level of both personal and corporate taxation.
• Liberalized rules for FDI and foreign portfolio investment (FPI).
• Opening of the public-sector domains like power, transport, banking etc to private players.
• Partial privatization of public sector units.
• Change in approach towards industrial sickness

 

IMPORTANT MEASURES UNDER LIBERALISATION

1. Removal of Industrial Licensing:

• • All industrial licensing was abolished except a shortlist of 18 industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons.
  • Subsequently, all industries except for a small group of five industries (alcohol, cigarettes, hazardous chemicals industrial explosives, electronics, aerospace and drugs and pharmaceuticals), industrial licensing requirements have been done away with.
  • Reservations for the Public sector for defence equipment, atomic energy generation and railway transport.
  • Market mechanism to determine the prices.

 

2. Financial Sector Reforms:

• • The major aim of financial sector reforms is to reduce the role of RBI from regulator to facilitator of the financial sector.
  • RBI regulates the financial institutions such as commercial banks, investment banks, stock exchange operations and foreign exchange markets.
  • All the banks and other financial institutions in India are regulated through various norms and regulations of the RBI.
  • Financial sector reforms led to the establishment of private sector banks, both Indian as well as foreign.

 

3. Liberalization of Foreign Investment:

• • Earlier, prior approval was required by foreign companies, now automatic approvals were given for FDI to flow into the country.
  • A high-priority and investment-intensive industries were de-licensed and could now invite up to 100% FDI including sectors such as hotel and tourism, infrastructure, software development,etc.
  • Use of foreign brand name or trademark was permitted for sale of goods.

 

4. Public Sector Reforms:

• Greater autonomy was accorded to the PSUs in-order to restrict interference of the government officials and allow their management greater freedom in decision-making.

5. MRTP Act :

• The Industrial Policy 1991 restructured the Monopolies and Restrictive Trade Practices Act.
• Regulations relating to concentration of economic power, pre-entry restrictions for setting up new enterprises, expansion of existing businesses, mergers and acquisitions etc. have been abolished.

 

Effects of liberalization on Indian Economy

• India’s annual average growth rate (GDP) from 1990 – 2018 has been 7 % which is almost double than the pre-reforms era.
• Industrial Growth Rate – The performance of the industrial sector is dismal, barring few exceptional years. Its share in GDP is still at 29% (2017-18).
• Foreign companies got free access to Indian markets and made domestic products uncompetitive.

 

Reasons for poor industrial growth rate

• Lower productivity in industry than in services within India – predominance of the ‘unorganized’ sector (account for almost two-thirds of industrial employment in India)
• Wages in India are low. However, manufacturing in India is more capital-intensive than in comparable countries.
• One cause of low productivity is poor infrastructural facilities.
• Transmission and distribution losses in the power sector in India are more than 20 per cent – higher than in any comparable country.
• State-owned power companies are inefficient and cannot supply electricity round the clock – shortage of electricity.
• World Bank studies have repeatedly found India to be low in ease of doing business as compared to its counterparts such as China.
• Labour laws are more complicated and made by both the Centre and the states.
• India has invested too little in transport infrastructure – resulting in poor connectivity.
• The rise of twin balance sheet problems in India.
• Share of agriculture in the domestic economy has declined to about 17% (2017-18). However, people dependent upon agriculture are still around 47%.
• Economic reform for agricultural development are critical for –
  • Raising living standards,
  • Alleviating poverty,
  • Assuring food security,
  • Generating buoyant market for expansion of industry and services
  • Making substantial contribution to the national economic growth

PRIVATISATION

• The policies through which the ‘roll back’ of the state was done included deregulation, privatization and introduction of market reforms in public services.
• Privatization at that time was used as a process under which the state assets were transferred to the private sector.
• Another variant of privatization is disinvestment.
• Disinvestment is de-nationalization of less than 100 per cent ownership transfer from the state to the private sector.
• If the sale of shares of the state-owned assets has been to the tune of 51 per cent, the ownership is really transferred to the private sector even then it is termed as privatization.
• In general sense, all the economic policies which directly or indirectly seem to promote the expansion of the private sector or the market (economy) have been termed as the process of privatization.

GLOBALISATION

• Globalization is termed as ‘an increase in economic integration among nations’.
• For the WTO, the official meaning of globalization is movement of the economies of the world towards “unrestricted cross border movements of goods and services, capital and the labour force”.
• Globalization is world economic integration through free movement across national borders of:
• Financial capital represented by investment in capital markets and money markets,
• Physical capital represented by plant and machinery
• Technology

 

MAINS ELEMENTS OF GLOBALISATION

• To open the domestic markets for inflow of foreign goods, India reduced customs duties on imports – to only 10%
• The import licensing has been almost abolished.
• Tariff barriers have also been eliminated significantly to encourage trade volume to rise in keeping with the World trade Organization (WTO)
• Foreign Exchange Regulation Act (FERA) was liberalized in 1993 and later Foreign Exchange Management Act (FEMA) 1999 was passed to enable foreign currency transactions.
• The FDI policy of the GoI encouraged the inflow of fresh foreign capital by allowing 100% foreign equity in certain projects under the automatic route.
• India signed many agreements with the WTO affirming its commitment to liberalize trade such as TRIPs (Trade Related Intellectual Property Rights), TRIMs (Trade Related Investment Measures) and AOA (Agreement on Agriculture).

 

EFFECT OF GLOBALIZATION ON INDIAN ECONOMY

 

Positive effects

• Increase in Foreign Trade – India’s share in the world trade has gone up significantly in post globalization.
• Increase in Foreign investment – Govt. started encouraging the entry of foreign investment, which resulted in an increase in FDI and FPI.
• Increase in Foreign Exchange Reserves – foreign exchange reserves of India hovering round US$ 480 billion at end March 2020.
• Increase in foreign collaborations and joint ventures – such as Dassault Aviation and Reliance
• Expansion of Market – expanded size of market facilitated Indian business units to expand their business in the whole world – Infosys, TCS, Wipro, Tata Steel etc.
• Technological Development – technical collaboration of foreign companies enabled the inflow of modern advanced and superior foreign technology in India.
• Brand Development – Globalization has promoted the use of branded goods. Brand development has led to quality improvement.
• Development of Capital Market – helped in Indian capital market development. How many foreign investors invest in Indian capital market?
• Increase in Employment – foreign companies are establishing their production and trading units in India.
• Reduction in brain Drain – many multinational corporations (MNCs) have set up their business units in India which provide attractive salary packages in India itself.

 

Negative Effect

• Loss of Domestic industries – Because of better quality and low cost of foreign goods, foreign competition has increased in India.
• Problem of Unemployment – companies are using capital intensive technology, so employment opportunities have reduced.
• Exploitation of Labour – exploitation of unskilled workers by giving lower wages, contractual long working hours and worse working condition.
• Increase in Inequalities – small and cottage industries are adversely hit by foreign industries.
• Bad Effect on Culture and Value System –The vulgar advertisements shown by some MNCs pollute the thinking of the young generation in India.

 

ADVOCACY OF GLOBALIZATION

• Globalisation promotes foreign direct investment which in turn facilitates national development.
• Globalisation helps developing countries to make use of and adapt technologies developed by advanced countries without undertaking heavy expenditures in R&D.
• Globalisation widens the access of developing countries to export their goods and services to developed countries.
• Globalisation enables consumers in developing countries to acquire quality consumer goods, especially consumer durables, at relatively much lower prices.
• Globalisation facilitates faster diffusion of knowledge.
• It enables developing countries to attain international standards of production and productivity.
• By reducing tariffs and quantitative restriction, globalisation increases the share of foreign trade as a percentage of GDP.

Conclusively, the proponents of globalisation consider it as the engine of growth, technological advancement, raising levels of productivity, enlarging employment and bringing about poverty reduction with modernisation.

 

GENERATIONS OF ECONOMIC REFORMS

• During the launching of economic reforms in 1991, there were no such official announcements. In the coming times, many ‘generations’ of reforms were announced by the governments.
• A total of three generations of reforms have been announced till date, while experts have gone to suggest the fourth generation as well.

 

FIRST GENERATION (1991-2000)

• First Generation – Reforms from 1991 to 2000 were called by the government as the reforms of the First Generation .
• It was in the year 2000–01 that the government, for the first time, announced the need for the Second Generation of economic reforms and it was launched in the same year.
• The broad contours of the First Generation of reforms may be seen as follows:

1. 1. Promotion to Private Sector – Included various important and liberalising policy decisions – De-reservation and de- licencing of the industries, abolition of the MRTP limit, simplifying environmental laws.
   2. Public Sector Reforms – The steps taken to make the PSUs profitable and efficient, more autonomy in decision making, disinvestment, corporatisation, etc.
   3. External Sector Reforms – Consisted of policies such as abolishing quantitative restrictions on import, switching to the floating exchange rate, full current account convertibility, reforms in the capital account, permission to foreign investment (direct and indirect), liberal Foreign Exchange Management Act, etc.
   4. Financial Sector Reforms – Initiatives were taken up in areas such as banking, capital market, insurance, mutual funds, etc.
   5. Tax Reforms – Consisted of all the policy initiatives directed towards simplifying, broad basing, modernising, checking evasion, DTAAs (Double Taxation Avoidance Agreements), etc.

 

SECOND GENERATION REFORMS (2000-01 ONWARDS)

• The government launched the second generation of reforms in 2000-01.
• The fact is, that the reforms India launched in the early 1990s were not taking place as intended and a need for another set of reforms was felt by the government.
• These reforms were not only deeper and delicate, but required a higher political will power from the governments.
• The major components of the reform are as given below:

1. 1. Factor Market Reforms – Considered as the ‘backbone’ for the success of the reform process in India, it consists of dismantling of the Administered Price Mechanism (APM). Now, only kerosene oil and LPG remained under the APM, while petrol, diesel (by March 2014), lubricants have been phased out. Opening the petroleum sector for private investment, cutting down the burden of levy on sugar, etc. Factor Market Reforms are still going on.
   2. Public Sector Reforms – especially emphasises on areas like greater functional autonomy, freer leverage to the capital market, international tie-ups and greenfield ventures, disinvestment (strategic), etc.
   3. Reforms in Govt. and Public Institutions – Involves conversion of role of the government from the ‘controller’ to the ‘facilitator’ or the administrative reform.
   4. Legal Sector Reforms – Although started in the first generation, now it was to be deepened and newer areas were to be included, such as, abolishing outdated and contradictory laws, reforms in the Indian Penal Code (IPC) and Code of Criminal Procedure (CrPC), Labour Laws, Company Laws and enacting suitable legal provisions for new areas like Cyber Law, etc.
   5. Reforms in Critical Areas – reforms initiated in the infrastructure sector (power, roads, telecom, energy sector among others), agriculture, agricultural extension, education and healthcare, etc. These areas have been called by the government as ‘critical areas’.

• Some other important areas were also emphasised:

1. 1. State’s Role in the Reform – All new steps of the reforms were now to be started by the state with the centre playing a supportive role.
   2. Fiscal Consolidation – The FRBM Act is passed by the Centre and the Fiscal Responsibility Act (FRAs) is followed by the states to ensure fiscal prudence.
   3. Greater Tax Devolution to the States – during the second generation of reforms, we see a visible change in the central policies favouring greater fiscal leverage to the states.
   4. Focussing on the Social Sector – especially healthcare and education gets increased attention by the government with manifold increases in the budgetary outlay.

 

THIRD GENERATION REFORMS

• Announcement of the third generation of reforms were made on launching of the Tenth Plan (2002–07) – ‘inclusive growth and development’
• This generation of reforms commits to the cause of a fully functional Panchayati Raj Institution (PRIs), so that the benefits of economic reforms, in general, can trickle down to the grassroots.
• The constitutional arrangements for a decentralised developmental process was already affected by 73^rd and 74^th amendment,
• It was agreed in the early 2000s that the government gets convinced of the need of ‘inclusive growth and development’.
• Till then, the development process had lacked the ‘inclusion’ factor,

 

FOURTH GENERATION REFORMS

• Fourth generation is not an official ‘generation’ of reform in India.
• In early 2002, some experts coined this generation of reforms which entail a fully ‘information technology-enabled’
• They hypothesised a ‘two-way’ connection between the economic reforms and the information technology (IT), with each one reinforcing the other.

 

CONCEPT OF DISINVESTMENT

• Another variant of privatization is Disinvestment.
• The aim of disinvestment was to raise resources through sale of PSUs to be directed towards social welfare expenditures, raising efficiency of PSUs through increased competition, increasing consumer satisfaction with better quality goods and services, upgrading technology and most importantly removing political interference along with according autonomy in decision.
• Aftermath of Industrial Policy of 1956, the socialisation of the economy was measured by the size of the public sector in the national economy.
• The greater the share of the public sector, the greater was the degree of socialisation of the economy.
• Post economic reforms 1991, the private sector is considered as the engine of growth. The new environment assigned an increasing role for the private sector.

 

Reasons for disinvestment of Indian PSU

• Indian PSUs had shown a very negative rate of return on capital employed.
• Inefficient PSUs had become and were continuing to be a drag on the Government’s fiscal resources turning to be more of liabilities to the Government than being assets.
• The national GDP and gross national savings were also getting adversely affected by low returns from PSUs.
• About 10 to 15 % of the total gross domestic savings were getting reduced on account of low savings from PSUs.
• Political interference in decision making
• Lack of standardization and competitiveness of the products
• Inefficiency and low productivity – underutilization of resources

 

Advantages and use of disinvestment proceeds

• For financing and making up the increasing fiscal deficit.
• Resource mobilization, the proceeds can be used to invest in other growth sectors which can induce economic activity and generate better returns for the government
• Financing large scale infrastructure through disinvestment.
• Financing for social sectors (health, education, women and children) creates positive externality as it will facilitate more production and trade.
• Improve overall efficiency of the PSUs – the inefficient PSUs will now be forced to make better achievable targets.

 

THE RANGARAJAN COMMITTEE ON DISINVESTMENT 1993

The Rangarajan Committee of 1993 was constituted by the govt for making recommendations in context with the disinvestment. The committee said –

• The units to be disinvested should be identified and disinvestment could be made upto any level, except in defence and atomic energy where the govt should retain the majority holding in equity.
• Disinvestment should be a transparent process duly protecting the right of the workers.
• An autonomous body for the smooth functioning and monitoring of the disinvestment programme should be established. à Disinvestment Commission established in 1996 as an advisory body
• It suggested four modes of disinvestment viz. Trade sale, Strategic Sale, Offer of shares and Closure or sale of Assets.
• In its budget speech of 2000-01, the govt. emphasized that more emphasis would now be paid on the strategic sale of public sector enterprises.

The disinvestment receipts for finance year 2017-18 exceeds Rs 1 lakh crore which is higher than the figure of last year at Rs 46,250 crore. Government also launched BHARAT 22 Exchange Traded Fund (ETF) to meet the disinvestment targets.

 

POST-REFORM PERIOD

Appraisal

• Rise in growth rate – economy has come out of “Hindu growth rate” and clocked averaged growth rate of 7-8 percent.
• Rise in exports – India is global leader of software export.
• Surge in inflows of foreign investment
• Growth of private sector – The private sector entered into new areas and expanded production and employment
• Robust performance of the service sector – with the onset of reforms, the share of services sector went up to 44 percent in total GDP.
• Built up of foreign exchange reserves – India has about USD 480bn as forex reserve in May 2020

 

Failure

• Agriculture has not gained much – Agriculture is the backbone of Indian economy and rural india. It needs greater focus to enhance productivity and make it more remunerative business.
• GDP compositions in 2017 are as follows
• Problem of poverty still persists – About 30 percent of the population still live in poverty.
• Unemployment is on rise – in rural areas the problem of unemployment and underemployment is widespread and deeply entrenched. New economic policies were more beneficial to the skilled and trained workforce.
• Rural India still neglected – about 70 percent India lives in rural areas. People migrate to urban areas due to inadequate employment opportunities.
• Plight of agriculture workers has worsened – agricultural workers and labourers continue to be the most backward and neglected class.

 

GREEN REVOLUTION

The Green Revolution is referred to as the process of increasing agricultural production by incorporating modern tools and techniques in agricultural practices.

 

BACKGROUND

• At the time of its independence, India was predominantly an agricultural economy. And yet the state of Indian agricultural sector was dismal.
• From the lack of investment, a dearth of technology, low yield per acre and many such problems plagued the industry.
• After 1947 India had to rebuild its economy. Over 75 percent of the population depended on agriculture in some way or the other.
• But agriculture in India was faced with several structural and other problems. The productivity of grains was very low, along with fragmentation of landholding. India was still monsoon dependent because of lack of irrigation and other infrastructure.
• So in 1965, the government with the help of Indian geneticists M.S. Swaminathan (father of Green Revolution) launched the Green Revolution. The movement lasted from 1967 to 1978 and was a great success.

 

FEATURES OF GREEN REVOLUTION

• Introduced High Yielding Variety seeds in traditional Indian agriculture.
• The Green Revolution at first focused on states with better infrastructure such as Tamil Nadu and Punjab due to rich irrigation facilities.
• During the second phase, the high yielding variety seeds were given to other states and crops other than wheat were also included in the plan.
• The Green Revolution has improved the irrigation systems around farms in India.
• Commercial crops and cash crops such as cotton, jute, oilseeds, etc were not a part of the plan. Green revolution in India mainly emphasised on food grains such as wheat and rice.
• To enhance farm productivity, the green revolution increased the availability and use of fertilizers, weedicides, and pesticides to reduce any damage or loss to the crops.
• It also helped in promoting commercial farming in the country
• Introduction of machinery and technology like harvesters, drills, tractors, etc and thus, facilitated mechanization of farming.

 

FIRST GREEN REVOLUTION

The high yielding varieties (HYVs) of wheat and rice have been the key elements in Indian green revolution. Though the term “green revolution” refers to wheat and rice, some agricultural scientists include maize, soybean and sugarcane where spectacular gains in yield have occurred.

 

COMPONENTS OF GREEN REVOLUTION

1.INTRODUCTION OF HIGH YIELDING VARIETIES (HYV)

• • In the 1960s, the average national yield of wheat was very low as compared to the wheat yields of agriculturally advanced countries.
  • MS Swaminathan, (former Director General of ICAR) stressed the need for reorientation of the entire breeding programme of tall varieties.
  • Norman E. Borlaug was invited from Mexico in 1963 by the GoI to assess the possibilities of using dwarf varieties in India.
  • Borlaug recommended the feasibility of using semi dwarf wheat of Mexican origin as the Agro-climatic conditions prevailing in India are similar to Mexico.
  • On his recommendation two semi dwarf varieties namely Lerma Rajo and Sonora-64 were chosen and were released for cultivation in irrigated fields.
  • These varieties gave very high yield and brought in revolution in wheat production.
  • In 1970, Norman E. Borlaugwas awarded the Nobel prize for the “Green Revolution” which also helped India.
  • The important high yielding varieties responded favourably to fertilizer and irrigation.

 

2. USE OF CHEMICAL FERTILIZERS AND PESTICIDES

• • Pesticides are chemicals which have been developed to kill or control organisms called pests which are unwanted in agriculture.
  • Nitrogenous fertilizers (N) – Nitrogen containing fertilizers e.g. ammonium sulphate, ammonium nitrate and urea.
  • Nitrogenous fertilizers promote plant growth and are essential for food production.
  • Potassium fertilizers (P) – Potassium containing fertilizers e.g. potassium sulphate and potassium nitrate.
  • Phosphate fertilizers (K) – Phosphate containing fertilizers e.g. ammonium phosphate, calcium dihydrogen phosphate (superphosphate).

 

3. MECHANIZATION OF AGRICULTURE

• • Increase in productivity on large areas of land brought the idea of farm mechanization.
  • To cope up with the shortage of agricultural labour, farm mechanization was the obvious choice for completing agricultural operations.
  • Mechanization improves the efficiency of inputs and ensures economy of scale.

 

4. IRRIGATION

• • HYVs usually require abundant water and hence irrigational facilities were a prerequisite for green revolution.
  • Wells (Dug and Tube) – This kind of irrigation is widely practiced in plain regions of India. Over-exploitation of wells is well observed in Punjab-Haryana region.
  • Canals – This is usually an elaborate and extensive irrigation Canal irrigation is well suited for regions with clayey soil is clayey soil prevents water percolation. Mostly practiced in south India and Ganga-Yamuna region.
  • River Lift Systems – Water is directly drawn from the rivers for supplementing irrigation in areas close to rivers. Mostly practiced in South India.
  • Tanks – These are small storage reservoirs, which intercept and store the run-off of smaller catchment areas.

 

IMPACT OF GREEN REVOLUTION

POSITIVE

• The Green Revolution has remarkably increased Agricultural Production. The biggest beneficiary of the revolution was the Wheat Grain.
• Green Revolution increased the per hectare yield in case of wheat from 850 kg per hectare to an incredible 2281 kg/hectare in its early stage.
• India reached its way to self-sufficiency and was less dependent on imports. The production in the country was sufficient to meet the normal and emergency demand.
• Rather than depending on the import of food grains from other countries India started exporting its agricultural produce.
• There was a rise in rural employment. The tertiary industries created employment opportunities for the workforce.
• The adoption of new technology has also given boost to agricultural employment because of diverse job opportunities created by multiple cropping and shift towards hired workers – transportation, irrigation, food processing, marketing, etc
• There has been more consistency with the annual harvest because the fields are worked in a similar way each year.
• New technology and modernization of agriculture have strengthened the linkages between agriculture and industry.
• It has helped to create numerous strains of plants that are resistant to disease and pests. It makes farmers more secure
• The Green Revolution in India majorly benefited the farmers of the country. Farmers not only survived but also prospered during the revolution. Their income saw a significant raise which enabled them to shift from sustenance farming to commercial farming.

 

NEGATIVE

• Retardation of agricultural growth due to inadequate irrigation cover, fragmentation of farm size, failure to evolve new technologies, inadequate use of technology, declining plan outlay, unbalanced use of inputs and weaknesses in credit delivery system.
• Regional dispersal of the evolution created regional inequalities. The benefits of the green revolution remained concentrated in the areas where the new technology was used.
• Since the revolution for the number of years remained limited to wheat production, its benefits were mostly accrued only to wheat-growing areas.
• Interpersonal inequalities between large and small scale farmers.
• Adverse effects on the distribution of pattern of income in rural areas. It led to widening the inter-regional and intra-regional disparities in income
• The new technologies introduced during the revolution called for substantial investments which were beyond the means of a majority of small farmers.
• Farmers having large farmlands continued to make greater absolute gains in income by reinvesting the earnings in farm and non-farm assets, purchasing land from the smaller cultivators, etc.
• Ecological cost of the green revolution is tremendous and unsustainable.
• The farmers are largely dependent on the market for the supply of inputs and for the demand for their products.
• Demand for agricultural credit has also increased as the new technology has increased the cash requirements of the farmers. Poor farmers were not able to get loans easily.
• There has been displacement of agricultural labour by extensive agricultural mechanization and left them unemployed.
• The hybrid crops have also created environmental impacts like soil pollution, water pollution due to excessive use of fertilisers, pesticides etc. needed by these crops.

CONCLUSION

• There are both positive and negative impacts of the Green Revolution on farmers.
• Due to the Green Revolution there was a considerable increase in food grains production which was extremely necessary for farmers to increase production so that agriculture became
• Due to the Green Revolution, the agricultural sector of India is able to meet the increasing demand for food grains. However, now is the high time to bring a green revolution which is also farmers friendly.

 

Other Revolutions related to Agriculture

Black Revolution	Related with petroleum production
Blue Revolution	Related with fish production
Brown Revolution	Related with leather production
Golden Revolution	Related with overall horticulture, honey and fruits productions
Green Revolution	Related with agriculture production
Grey Revolution	Related with fertilizers
Pink Revolution	Meat and poultry production
Silver Revolution	Related with egg production
White Revolution	Related with dairy and milk production
Yellow Revolution	Related with oil seed production