IED Chapter 2

• Capitalist system:

  • Dependent on market forces
  • Goods produced based on demand and obtained by those with purchasing power
• Socialist system:

  • Goods and services provided by the government based on society's needs
  • No private property, everything owned by the state
• Mixed economy:

  • Market produces based on demand
  • Government provides what the market fails to do and to those who cannot afford it
• Jawaharlal Nehru and other leaders decided India would be a socialist society with a strong public sector, private property, and democracy
• First Industrial Policy Resolution announced in 1948
• Planning Commission set up in 1950 with the Prime Minister as Chairperson
• A plan outlines how a nation's resources should be used, with general goals and specific objectives to achieve within a specified time
• • Growth: aiming to increase the country’s capacity to produce the output of goods and services within the country by stimulating a larger stock of productive capital or a larger size of supporting services
• Primary goals of the five-year plans:

  • Modernization: encouraging new techniques, methodologies, social outlook, and policies. Example: modernization of informal sector enterprises and provision of social security, measures to informal sector workers
  • Self-reliance: avoiding import of goods that could be produced in India itself, optimum utilization of nation's own resources, encouraging indigenous industries
  • Equity: encouraging policies revolving around providing food, a decent house, education, and health care to reduce inequality in the distribution of wealth
• Modernisation refers to changes in social outlook and the use of new technology
• Government wanted to increase production of goods and services through new methods with technology
• Government policies aimed to assess progress in a socialist economy based on:

  • Equality of opportunities between men and women
  • Bridging the gap between the haves and have-nots
  • Availability of basic infrastructural facilities to all
  • Optimum utilization and distribution of resources
• Prasanta Chandra Mahalanobis is known as the Architect of Indian Planning
• The Second Five-Year Plan (1956-1961) was based on Prasanta Chandra Mahalanobis ideas.
• At the time of Independence, the low productivity of the agricultural sector in India led to the country importing food from the United States of America (U.S.A.)
• Government of India implemented institutional/land reforms post-independence to transform Indian agriculture:

  • Land ceiling: Fixing the maximum size of land owned by an individual to reduce land ownership concentration
  • Abolition of the Zamindari system: Eliminating farmers' exploitation, promoting agricultural growth, abolishing intermediaries, and making tillers the owners of land
• These reforms have resulted in:

  • Stability of farming as an occupation
  • Promotion of equity in agriculture
• Drawbacks/Challenges of Land Reforms:

  • In some areas, the former zamindars continued to own large areas of land by making use of some loopholes in the legislation
  • there were cases where tenants were evicted and the landowners claimed to be self-cultivators (the actual tillers), claiming ownership of the land
  • even when the tillers got ownership of land, the poorest of the agricultural laborers (such as sharecroppers and landless laborers) did not benefit from land reforms.
• Drawbacks/Challenges of Land Ceiling:

  • The big landlords challenged the legislation in the courts, delaying its implementation.
  • They used this delay to register their lands in the name of close relatives, thereby escaping from the legislation.
  • The legislation also had a lot of loopholes that were exploited by the big landholders to retain their land.
• The Green Revolution refers to the large increase in the production of food grains from the use of high-yielding variety (HYV) seeds, especially for wheat and rice
• The use of HYV seeds required the correct quantities of fertilizer and pesticide, as well as a regular supply of water
• The application of these inputs in correct proportions is vital
• First Phase of Green Revolution (mid-1960s to mid-1970s):

  • HYV seeds were restricted to more affluent states like Punjab, Andhra Pradesh, and Tamil Nadu
  • Primarily benefited wheat-growing regions only
• Second Phase of Green Revolution (mid-1970s to mid-1980s):

  • HYV technology spread to a larger number of states and benefited a greater variety of crops
• Impact of Green Revolution:

  • Enabled India to achieve self-sufficiency in food grains
  • India no longer had to rely on other nations for meeting its food requirements
  • Government could procure enough food grains to build a stock for times of food shortage
• Marketed Surplus:

  • The portion of agricultural produce sold in the market by farmers
• Risks of the HYV technology:

  • Increased disparities between small and big farmers
  • HYV crops were more prone to pest attacks, risking small farmers losing everything
• Steps taken by the Government to avoid risks:

  • Provided low-interest loans to small farmers and subsidized fertilizers
  • Research institutes established by the government helped reduce the risk of small farmers being ruined by pest attacks on their crops
• Arguments against subsidies:

  • Subsidies were needed to encourage farmers to test new technology
  • Once technology is profitable and widely adopted, subsidies should be phased out
  • A substantial amount of fertilizer subsidy benefits the fertilizer industry
  • Subsidies largely benefit farmers in more prosperous regions, not the target group
  • Subsidies are a huge burden on the government's finances
• Arguments in favor of subsidies:

  • Farming in India is a risky business, so subsidies should continue
  • Most farmers are very poor and cannot afford required inputs without subsidies
  • Eliminating subsidies will increase inequality between rich and poor farmers
  • The goal of equity would be violated if subsidies are eliminated
• In India, between 1950 and 1990:

  • Proportion of GDP contributed by agriculture declined significantly
  • Population depending on agriculture remained high
  • Industrial and service sectors did not absorb people from the agricultural sector
• Importance of industry:

  • Economists have found that poor nations can progress only if they have a good industrial sector
  • Industry provides more stable employment compared to agriculture
  • Promotes modernization and overall prosperity
• Industrial Policy Resolution 1956 (IPR 1956):

  • Formed the basis of the Second Five Year Plan, aiming to build a socialist pattern of society
  • Classified industries into three categories:
  • First category: industries exclusively owned by the government
  • Second category: industries where private sector could supplement public sector efforts, with government responsible for starting new units
  • Third category: remaining industries to be in the private sector
• Licensing System:

  • No new industry allowed without a government license
  • Used to promote industry in backward regions
  • Easier to obtain a license if the unit was in an economically backward area
  • Units in such areas given concessions like tax benefits and lower electricity tariff
  • Aimed to promote regional equality
• Small Scale Industry:

  • Village and Small-Scale Industries Committee (Karve Committee) in 1955 noted the potential of small-scale industries for rural development
  • Refers to industries with maximum investment of Rs. 1 crore on unit assets
  • Believed to be more 'labour intensive' and generate more employment
• Government steps to protect small scale industries:

  • Production of certain products reserved for small-scale industry
  • Given concessions like lower excise duty and bank loans at lower interest rates
• Import substitution implies replacing or substituting imports with domestic production
• Example: Instead of importing vehicles made in a foreign country, industries would be encouraged to produce them in India itself
• Government protected domestic industries from foreign competition
• Tools used to protect domestic industries:

  • Tariffs: tax on imported goods to make them more expensive and discourage their usage
  • Quotas: specify the quantity of goods that can be imported