02_INDIAN ECONOYM_class 11






INDIAN ECONOMY (1950-1990)



It is an arrangement by which the central problems of an economy are solved.


  1. Capitalist Economy

            It is an economic system based on private  property and private profits.

  1. Socialist Economy

            It is planned or command economy based on public ownership of property and welfare, motive

  1. Mixed Economy

            The economies with the element of both capitalist and socialist economy are mixed economy.


It means planned co-ordination and utilization of available, resources in an economy to achieve certain pre-determined social and economic objectives in a time bound programme.

In 1950, Planning commission was set up under the chairmanship of Jawaharlal Nehru.


Plan means how the resources of the nation should be put to useIt must have some general as well as specified objectives which are to be achieved with in a specified period of time.  In India, plans were of 5 years duration and are called 5 years plans



Planning objective before to the long term objectives to be achieved over a period of 20 years. It is also called perspective plans. The basis of perspective plan is “5 yeas Plan”.

Plan objective refers to short term objectives to be achieved over a period of five years. There are sector specific.


The plans must have the specified goals.  The goals of the five year plan are growth, modernization, self-reliance; equity.Choice has to be made in each plan about which of the goal is to be given the primary importance.


It refers to the increase in the country’s capacity to produce the output of goods and services with in the country.  It refers to either the large stock of productive capital or a large size of supporting services or increase in the efficiency of productive capital and services.

The good indicator of the economic growth is “Gross Domestic Product” GDP is the market value of all the goods and services produced in an economy.  The GDP is derived from different sectors of the country i.e primary, secondary land and tertiary sector.Thecontribution made by each of these sectors makes up the GDP.


Adoption of new technology and changes in the social outlook is called modernization.Technology increases the production of goods & services for eg. farmers using high Quality seeds instead of the old ones.  Similarly in the factory, the output can be increased by using new type of machines changes in the social outlook, helps to make the society more prosperous and civilized.


Our first seven five year plans gave importance to self reliance which means avoiding the imports of the goods which could be produced in India itself.  This was necessary as it reduced the dependence on foreign country.  It was feared that our dependence on foreign food, technology and capital may lead to interference of foreign country in our policies.


It is important to ensure that the benefits of the economic prosperity each the poor sector as well instead being only enjoyed by the rich people.  Every Indian should be able to meet basic needs such as food, house, education, health care and inequality in the distribution of wealth should be reduced.

Economic planning

Economic planning is the way of organizing and utilizing the resources to its maximum advantage

Need and importance of economic planning

  1. To reduce povertyIndia was trapped in the vicious circle of poverty at the time of independence.The poverty can be reduced only through good and efficient planning.
  2. Best utilization of resources- For the rapid development to take place it is necessary that the resources must be best utilized. This can be done by implementing economic planning.
  3. Developing social and economic infrastructure-  Investing money in social and economic infrastructure is not very profitable, so private entrepreneur are not interested in its development but building of theses infrastructure facilities are essential for the development of the country.Therefore the work is undertaken by government through planning.
  4. To increase the rate ofcapital formation- Thedeficiency of capital was one of the main reasons for backwardness and underdevelopment in India  at the time of independence. Capital formation and mobilizing the resources require state’s efforts. Therefore India prefer to adopt economic planning.
  5. The success of economic planning in U.S.R- The success of economic planning in U.S.S.R played an important role in adopting and popularizing the concept of  economic planning in India.



Agriculture is very important for Indian economy because of the following-

  1. National Income – About one-forth of India’s national income is derived from agriculture.
  2. Employment– Agriculture provide most important source of employment about 64% of the Indian are engaged in agriculture.
  3. Help to Industry – Agriculture provide raw material to industries like cotton, jute, oilseeds etc.
  4. Foreign Trade – Contribution of agriculture products in the total export of India is very large.
  5. Transportation – Main source of income of the means of transport like roads, railways and bullock carts is through the transport of food grains from one place to another.



  1. Low productivity – This is the most important problem of the Indian agriculture. As compared to the advanced nation of the world, crop productivity is extremely low in India.
  2. Lack of permanent means of irrigation – Indian agriculture is heavily dependent on rainfall.Failure of rainfall leads to the failure of the crop. It implies that there is no permanent means of irrigation.
  3. Problem of finance – Farmers need short and long period finance for the purchase of seed, fertilizers and various kinds of machineries. For this, the farmers depend on non-institutions, sources and landlords who charge high rate of interest
  4. Small and scattered land holdings – Small and scattered holdings are not condusive to the use of modern technology and increase the cost of management.
  5. Exploitative Agrigarian Relation – Agrarian relation refers to the relation between landlords and the tenants. Most of the landlords exploit farmers in terms of the high rents and share in the crop.
  6. Lack of marketing system – Marketing system of agriculture sector is highly unorganized. Farmers sell their products at the local market at reduced prices.



As a result of the measures adopted to improve the agriculture the production of the food grains increased to 2046 lakh in 2005 from 550 lakh in 1951.

Under the five year plan following measures were taken –

  2. More irrigation – In order to increase the productivity of the agriculture, irrigation facilities has been expanded in 1951, 17% of the land was covered by irrigation facilities now it has been extended to 40.2% of the land
  3. Fertilizers – Fertilizers are being used to increase the productivity of the agriculture use of chemical fertilizers has been used considerably the around 168 tones in 2004 – 05.
  4. High yielding verities of seeds – (HYV) Seeds are the principle cause find increasing agriculture production
  5. Plant pesticides – Several steps have been taken to protect the crops against diseases and insects. Fourteen central plant protection centers have been set up in this respect.
  6. Scientific Cultivation – It relates to the selection of crops and their Quality preparation of Soil crop rotation, selection of seeds, proper use of manure. Intensive Agriculture area has been launched and integrated rural development program has also been launched in this regard.
  7. Mechanization – Several measures have been taken to popularize the use of agricultural machines, tractors and other implications, cheap credit facilities are also provided by co-operative societies.
  9. Improvement in Agricultural – Marketing –  The main motive behind this was to ensure reasonable price for the products to the formers  2 measures were taken –
    • Regulated Markets – Their objective is to protect the former against the exploration by the middleman.
    • Co-Operative Marketing Societies – These societies sell the product of the members at reasonable price
  1. Credit facilities – Co-operative credit societies have been developed to provide credit to the farmers at low rate of interest. Land development banks have also increased on 12th July, 1982, national bank for agriculture and rural development was established to grant loans for agricultural development.


Measures concerning reforms in land tenure system and size of holding are termed as land   reforms.

(1)        ZAMINDARI ABOLITION – Under this system, Zamindar is the owner of the land.  He gives land on lease to the farmers for cultivation.  Zamindars used to exploit cultivators by charging high rents from them.  At the time of independence, 40% of land was under this system laws were passed to abolish this system 1950 in Bihar which was followed by other states as well.With the abolition of this system the actual cultivators of the land acquired the ownership right over the land.

(2)        TENANCY REFORMS – In order to reform this system, various lows were adopted.  The main features were –

(1)        Maximum limit of rent is fixed

(2)        Tenants cannot be evicted from land unlawfully.

(3)        In case, the land is vacated by the tenant, he must be compensated the owner for making any improvements over land etc.

(3)        CEILING ON LAND HOLDINGS – Ceiling on the land holding refers to the maximum size of cultivable land holding that an individual as family can own.  This was done to encourage equal distribution of land and proper utilization.

(4)        CONSOLIDATION OF HOLDINGS – Converting many small and fragmented fields into one or two big farms is called consolidation of holdings Improved cultivation is possible only on the reasonable size of holding.

(5)        CO-OPERATIVE FARMING – Co-operative farming is the solution to the problem of sub-division and fragmentation of holding.

The main features are –

  1. The farmers make use of the land cattle and other agricultural implements jointly.
  2. All farmers pool their land
  3. Members of the cop-operative farming society select a managing committee among themselves.
  4. Every member gets his share of produce in proportion to the share of land.


  1. Lack of Political Will

Implementation of land reforms calls for land political decisions and effective political support direction and control. No progress is expected in the absence of required political will.

  1. Inadequate of Ceiling Laws

            Till 1972, the level of ceiling among different states differed considerably.

  1. Inadequate Proof of Tenants

Tenants cultivating land are not in a position to prove that they are the actual tillers of the land because their name do not appears in records.


It is an economic benefit, direct or indirect, granted by government to domestic producers of goods and services, of ten to strengthen their competitive position against foreign companies.

The withdrawal of fertilizer subsidy would raise the prices of fertilizers and hence reduces the demand and use of fertilizers. Demand for fertilizers respond more to the availability of water then to prices. In future, there is a scope for improving the resource, use efficiency by reducing subsidies and aimng them better to small and regions lagging behind. The savings from reducing the subsidies could be used for

(a)        Creating employment to the poor.

(b)        For increasing investment in agriculture which has been falling in recent years.


As a result of the various measures taken to improve the agricultural production the production of food grains in 1967 – 68 increased by 25%.

Green Revolution refers to the tremendous increase in agricultural production which was possible due to the adoption of new agricultural strategy.  It implies that

  • Considerable increase in agricultural production
  • Stabilization of high level of agricultural production.


Impact of Green Revolution

  1. Green Revolution increased the productivity especially for wheat and rice. As a result the output of food grains in the country increased by large amount.
  2. Indian farmers adopted multiple crop programming which help to raise huge buffer stock.
  3. Green Revolution changed the pattern of agriculture. Now agriculture is not only for self-consumption rather it has become commercial purpose.



  1. The impact of green revolution remained confined to some states like Punjab, Haryana and few crops like wheat and rice.
  2. The impact  of green revolution were that it benefited only rich farmers which further leads to inequalities of income in rural sector.  It is because of the simple reason that only rich farmers can afford to use agricultural technology.
  3. The extensive use of chemical fertilizers and pesticides created the problem of pollution and health hazards.



Industrial policy is an important instrument through which the government regulates the industrial activity in an economy.

Industrial Policy 1956 – A new industrial policy was introduced in 1956 which had the following features –

(1)        CLASSIFICATION OF INDUSTRY – Large scale industries were classified into 3 categories

Public sector

It included industries wherein state had the exclusive responsibility eg heavy electrical plants, heavy machines iron and steel.

→ Public cum private sector –

There were 12 industries in this category. Ownership of these industries will mostly be in the hands of govt. private sector will be given opportunity to develop in this sector.

Private sector –

Industries under such sector were under the conditions to operate within the economic and social policies of the state.

(2)        FAIR TREATMENT TO PRIVATE SECTOR – Provisions have been made for the special encouragement to industries under private sector by giving facilities like power, transport and finance.

(3)        COTTAGE AND SMALL SCALE INDUSTRIES – Sufficient importance have been given to cottage and small scale industries as these industries prove efficient in providing more employment, reducing inequalities and utilizing local capital resources

(4)        BALANCED REGIONAL GROWTH – Special provisions have been made under this policy to check the uneven growth in different parts of the country areas which are industrially backward will have sufficient industrial growth.  More and more facilities will be provided to develop the industries in these areas.

(5)        FOREIGN CAPITAL – Various concessions were given for large scale utilization of foreign capital.


Small scale industries are those whose capital worth Rs.1 crores in the form of machinery and plant is invested.



Cottage and small scale industries have the following role in Indian economy –

(1)        Employment – Cottage and small scale industries are labor intensive i.e. more persons can be employed with relatively less investment of capital.   Employment potential of these industries is very high.

(2)        Equal Distribution of wealth – These industries help in the equal distribution of wealth and income.  It is so because capital is not concentrated in the hands of few people, rather it is     distributed in small quantities over a large no. of people.

(3)        Less pressure of peopleson Agriculture – It is important that pressure on land should be reduced.  This can be possible only if more and more people are diverted from agriculture to cottage and small scale industries.

(4)        Immediate increase in production – “Gestation lag” is small in small industries and large in large industries.  Therefore, there is an immediate increase in production.

(5)        Artistic Goods – These industries alone can manufacture artistic Goods.  In India, these industries produce such goods as carpets heavy work, jewellery, ornaments etc. which are in great demand abroad.

(6)        Complementary to large industry – Output of these industries are used as input in large scale industries.  Also these industries use plants and equipment is produced by the large scale industries.

(7)        Export – These industries play important role in the export trade of the country amount 34% total export was due to these industries in 2004 – 05.


Cottage and small scale industries are in a bad condition in India.  These industries are facing several problems as follows –

  • Problems of raw material land power – Small industries fail to get raw material in sufficient quantities whatever raw material, they get is of poor quality and high price.
  • Problem of finance – These industries get very little amount of capital as loan from commercial banks and other co-operative societies, so they have to depend on money lenders. They charges high rate of interest and also compels artisans to sell them the products at low price.
  • Old methods of production– Old and outdated methods of production are employed in these industries.  Therefore, production is in the small quantity and of poor quality.  It fails to attract the customer.
  • Problem of marketing – These industries have to suffer a lot of difficulties in order to market their goods like outward appearance of the goods produced is not appealing, industries have no marketing organization of their own.
  • High cost of production – Cost of production in these industries are high because, they get raw material at the high price and their technique of production is outdated.
  • Competition with large scale industries – Goods manufactured by large industries is cheap and of high quality. Thus, small industries are not in a position to face competition from large scale industries.
  • Uneducated entrepreneur – The entrepreneur running these industries are workers engaged there in are generally illiterate and ignorant. They fail to organize their industries efficiently.
  • More importance to luxuries – Cottage industries in India have so far concentrated more on the production of artistic and luxury goods which are fairly costly. Their demand is limited, so it is difficult to enlarge production.



Industrial policy implies those principles and procedures which are formed and adopted to promote industrialization in the country.

Main steps taken to improve small scale industries are –

(1)        Financial Help – These industries receive financial help from the institution like state Govt,
co-operative and commercial banks, state finance co-operation, small industrial development bank of India, national small industries co-operation, industrial development bank of India
( IDBI).

(2)        Common production programme – Under this programme, production of some goods have been exclusively reserved for small industries and restriction have been placed on the expansion of large industries.

(3)        Research and Training – In order to provide research and training concerning these industries, many centre have been set up which provide training through service institutes.

(4)        Improved Tools – To provide improved tools to the small industries “Hire purchase system” have been introduced.  Under this system, tools and machines are made available to them on installment basis.  This is done by National small industries corporation (NSIC).

(5)        Purchase by Govt. –Govt itself is a big buyer of these industry’s products. National small industries corporation is an agency through which goods of small industries are sold to govt. departments.

(6)        Industrial co-operative societies – These societies provide cheap credit facilities to small industries besides marketing their products and supplying raw material to them.  They easiest in the production.

(7)        Exports – Special effort are made by govt to promote the export of the product of small industries state trading corporations give advice in this respect.

(8)        National small industries corporation – This Corporation was established in 1953 for the development of small business.  Its main functions are –

(a) To sell goods produced by the small industries to the govt.

(b) To give capital land technical assistance to the small industries.

(c)  To co-ordinate large and small scale business.

(d) To provide machines on installment basis to these industries.


It refers to the complete framework of laws, regulations and infrastructural arguments adopted by the governments to affect the quantity and the value of India’s export and import.

  1. Trade policy is also known as import substitution or inward looking trade strategy. This policy aimed at replacing or substituting imports with domestic production for eg –instead of importing vehicles made in a foreign country industries would be encouraged to produce them in India itself.  In this policy, the Govt. protected the domestic industries from foreign industries protection from imports took 2 forms –
  • Tariff – Tariff are a tax on imposed goods; they made imported goods more expensive and discourage their use.
  • Quotas – Quotas specify the quantity of goods which can be imported. This protected the domestic firms from foreign competition.  The aim of this policy was to protect the industries of developing countries from competition from the products of more developed countries.
  1. Foreign trade policy was made very restructive in second five years plan. Only the import of essential capital goods was allowed.
  2. In the events, against the policy of liberalization was carried forward.
  3. In eighties, special arrangement to promote export growth were made like many export promotion scheme. Such as cash compulsory scheme, market development all assistance etc. were started which aimed at providing concessions to the exporters.

Positive Effects on Industrial Development Positive effects

The achievement of industrial sector was impressive.  Like –

  • The proportion of GDP contributed by industrial sector increased in the period from 11.8% in 1950 – 51 to 24.6% in 1990 – 91. It indicated the development.
  • The promotion of small scale industries gave opportunities to these people who did not have the capital to start large firms to get into business.
  • Annual growth rate of industrial sector during this period is commendable.
  • Indian Industry was no longer restricted to cotton and jute Infact it became well diversified in 1950 largely due to the public sector.


Initially public sector was required in a big way.  This was criticized on the basis of performance of the public sector –

  1. Public sector often created monopoly by continuing to produce goods and services, although this was no longer required eg – telecommunication services. Even now public sector can provide defense material and medical facilities to the poor and private sector can manage hotels well. It was argued that public sector should get out of the area which the private sector can manage and govt. can concentrate its resources on important
  2. Continuation of public sector firms – Many public sector firms continue to operate even after incurring huge losses because it is almost impossible to close a govt. undertaking. However a loss making private firms will not waste the resources by being kept running despite the losses.
  3. Industrial Licensing – The need to obtain industrial License was misused by many industrial firms. The excessive regulation (Permit License Raj) prevented firms from becoming more efficient.  More time was spending by the industrialist to obtain license rather than on thinking about law to improve the products.
  4. Import Restriction – The protection from foreign competition did more harm than doing good. Due to the restrictions on imports, the consumers had to purchase whatever was produced by the Indian producers.  Producers had no incentive to improve the Quality of the product.  Producers were selling low Quality item at high prices.
  5. Evaluation of Public Sector – Public sector was meant not for coming profit but for promoting welfare of nation. The public sector should be evaluated on the extent to which it contributed to the welfare and not on the basis of profit earned.

Because of all these conflicts our new economic policy was introduced in 1991.