ECONOMIC SYSTEM
An economic system is a system of production, resource allocation and distribution of goods and services within a society.
CAPITALISM
CAPITALISM
SOCIALISM
SOCIALISM
It is a combination of capitalism and socialism. Private and Public sectors co exist.
REASONS BEHIND THE ADOPTION OF
MIXED ECONOMY
(i) Economic condition of India was backward at the time of Independence. So, we wanted both private public sectors to take our country to progress.
(ii) Socialism was adopted as our national goal. So, importance was given to the growth of public sector.
(iii) India became a democratic country. So, people had to be given the right to own resources.
(I) India adopted mixed economy as her economic system. It is a combination of socialism and capitalism. Planning is needed to solve the basic questions in the public sector.
(ii) India wanted to achieve quick economic progress in order to abolish poverty and unemployment. Planned use of resources is necessary for quick economic progress.
(iii) India wants the equitable distribution of resources and income. Planning would help to achieve this goal.
1. ECONOMIC GROWTH
2. MODERNISATION
3. SELF RELIANCE
AGRICULTURAL DEVELOPMENT DURING THE PERIOD FROM 1950 TO 1990
1. ABOLITION OF ZAMINDARI SYSTEM
Under permanent settlement, the lands were owned by the Zamindars.
The peasants who cultivated those lands had to pay rent to the zamindar.
Immediately after independence, Zamindari system was abolished.
The lands of the Zamindars were transferred into the hands of the peasants who cultivated those lands.
REASONS BEHIND THE FAILURE OF LAND REFORMS
(i) Zamindars made use of the loopholes of the land reform laws. They continue to own large areas of land.
(ii) Land ceiling laws were challenged in the court by the Zamindars. Then they registered their surplus lands in the name of their relatives.
(iii) In many places heavy rent is collected from the peasants.
(iv) The land lords evict the peasants from the land that they cultivate.
Subsidy is an amount of money given by the Government to an industry or business keep the price of a commodity or service low.
Arguments against subsidies
(i) Soon after independence, it was necessary to give subsidies to encourage the farmers to adopt the new technology. Now, the new technology is widely adopted and it is profitable. So, subsidies can be abolished.
(ii) Subsidies mostly benefit only the fertiliser industry and the rich farmers. The poor farmers and agricultural workers are not benefited.
(iii) The government has to spend a major part of its income to provide subsidies. So, the government does not have adequate resources for developmental activities.
(iv) Subsidies encourage the farmers to use more fertilisers than required. This destroys the natural fertility of the soil.
Arguments in favour of subsidies
(i) Farming in India is risky. Subsidies are needed to encourage the farmers to take the risk.
(ii) Most of the farmers are poor. They cannot afford to buy the agricultural inputs without subsidies.
(iii) Abolition of subsidies will widen the gap between the rich and the poor.
BENEFITS OF GREEN REVOLUTION
(i) Agricultural output increased enormously. So, farmers had marketable surplus.
(ii) Income of the farmers increased. They could come above the poverty line.
(iii) India could achieve self sufficiency in food grains. Famines could be avoided.
(iv) The government could collect huge quantities of food grains from the farmers and maintain a buffer stock.
(v) Fertiliser industry developed. It provided employment to many people.
Negative effects of Green Revolution
(i) Green Revolution benefited only the rich farmers. The new technology was expensive. Marginal and small farmers did not have money needed to adopt it.
(ii) Green Revolution was limited to few crops like wheat and rice.HYV seeds were not available for many crops.
(iii) Use of chemicals and over irrigation resulted in the degradation of soil.
INDUSTRIAL DEVELOPMENT DURING THE PERIOD FROM 1950 TO 1990
Importance of Industrial Sector.
(i) Industries provide regular employment to a large number of people.
(ii) Industries promote modernization and help to achieve economic development.
(iii) Industries provide fertilizers, pesticides and machines needed for agriculture.
(iv) Industries provide the equipments needed for providing transport and communication facilities.
(v) Industries produce medicines and medical equipments and help in the growth of health sector
IPR 1956 classified Industries in to three categories
Category 1
Basic and Key Industries
Reserved for Public Sector
Category: 2
Other Important Industries
There can be both Private and Public Sector Units. However, new units will be in Public Sector
Category : 3
Other Industries Open to Private Sector
Private Sector units were brought under the Government control by a system of licenses. Units set up in backward areas were given many privileges.
Some products were reserved for the Small Scale Sector. Large companies will not be given license to produce these goods.
The Government wanted to regulate and control the private sector. So, a system of licenses was introduced.
(i) A license was needed to start a new unit. It was easy to get license if the unit is set up in backward areas.
(ii) To increase the production capacity of an existing unit, license had to be obtained.
(iii) If a unit wanted to diversify production, license was needed.
(iv) License was given only if the Government thought that those goods were needed to the society.
Privileges to the enterprises set up in
Backward areas
(i) It was easy to get license if the unit is set up in a backward area.
(ii) Units in backward areas were given several tax concessions.
(iii) The Government provided electricity to them at lower rates.
(iv) They could get land at low rates.
SMALL SCALE INDUSTRIAL SECTOR�
The industrial units with less capital investment are called small scale units.
In 1950, a unit with less than five lakh rupees was called a small scale unit.
Today the limit is increased to one crore rupees.
importance of Small Scale Industries
(i) The Karve Committee suggested the development of Small Scale industries for achieving rural development.
(ii)Small Scale industrial units use labour intensive technology. They give employment to large number of people.
(iii) They can be set up in backward areas. They help in achieving regional equality.
(iv) Capital needed to start a small scale unit is less. So, even ordinary people can start a unit with Government and Bank support.
Privileges were given to the Small Scale units under the Economic policy followed from 1950 – 1990
(i) A large number of products were reserved for the small scale sector. This was to protect them from the competition of large units.
(ii) They were given tax reductions.
(iii) Banks gave loans to small scale units at low interest rates.
(iv) Technical support and marketing support were also provided to them.
KARVE COMMITTEE
The Village and Small Scale Industries Committee (Karve Committee) was set up in 1955.
It suggested steps to promote small scale industries.
It suggested the development of small-scale sector for the rural development of India.
Public Sector given a lot of importance in the Industrial policy followed from 1950 to 1990 because:
(i) Private Sector was not developed in India. Private industrialists did not have the capital needed for investing in large scale units needed for the development of our country.
(ii) Market for industrial goods in India was not large enough to attract investment by private individuals.
(iii) India adopted socialism as our national goal. To achieve socialism, development of public sector was needed.
(iv) Second Five Year Plan gave importance to the development of Public Sector.
Positive impact of the Economic Policy followed from 1950 to 1990 on the Industrial Development of India.
(i) Contribution of Industrial Sector to GDP increased from 11.8 percent in 1950 – 51 to 24.6 percent in 1990 – 91.
(ii) Annual growth rate of industrial sector increased to 6 percent.
(iii) Industrial Sector became diversified. We started making all the goods needed for our people.
(iv) Basic and key industries and capital goods industries developed.
(v) Promotion of small scale industries enabled even ordinary people to start industrial units.
(vi) Protection from foreign competition helped domestic industries to develop.
Negative Impact of the Economic Policy followed from 1950 to 1990 on the Industrial Development of India
(i) Public Sector units became less efficient and many of them became sick units.
(ii) Big industrial units misused the system of license. They would get license not to start a unit but to prevent competitors from starting new units.
(iii) The Permit License Raj discouraged private investors and prevented the growth of industrial sector.
(iv) Lack of competition reduced the quality of services and goods provided by our producers.
(v) Corruption and malpractices became widespread in the country.
(i) India followed a policy of import substitution. Instead of importing goods from other countries, efforts were made to produce those goods in India.
(ii) Indian industries were not capable to compete with foreign companies. So, steps were taken to protect them.
(iii) Heavy import duty was imposed on imported goods.
(iv) The Government fixed import quota for several goods.
Two forms of protection for domestic industries
(i) Tariff Protection: The Government imposed heavy import duty on imported goods. vThis measure protected our industries from foreign competition.
(ii) Quotas: Quotas specify the quantity of goods that can be imported. Government fixed import quotas.
Protection saved our industries from foreign competition. It helped domestic industries to develop. Protection also reduced the use of foreign exchange to buy consumer goods.
Main features of the economic policy prior to 1990
(i) India adopted mixed economy. We wanted to develop both public and private sectors.
(ii) Economic Planning was introduced in order to achieve economic growth with equity.
(iii) Land Reforms were introduced to make the real tiller the owner of the land.
(iv) Public sector was given more importance in our industrial policy.
(v) Restrictions were imposed on private sector. The system of license was introduced
(vi) India followed an inward looking foreign trade policy. Heavy import duty and import quotas were introduced to protect domestic industries.
Positive impact of Economic Policy from 1950 to 1990 on Indian Economy.
(i) Contribution of Industrial Sector to GDP increased from 11.8 percent in 1950 – 51 to 24.6 percent in 1990 – 91. Annual growth rate of industrial sector increased to 6 percent.
(ii) Industrial Sector became diversified. We started making all the goods needed for our people.
(iii) India could achieve self sufficiency in food grains. Green Revolution improved the living condition of our farmers.
(iv) Land Reforms helped many farmers to become owners of land
Negative Impact of Economic Policy from 1950 to 1990 on Indian Economy
(i) Public Sector units became less efficient and many of them became sick units.
(ii) The Permit License Raj discouraged private investors and prevented the growth of industrial sector.
(iii) Lack of competition reduced the quality of services and goods provided by our producers.
(iv) India failed to develop our export sector. Balance of Trade became unfavourable.