CBSE Class 11 Economics Indian Economy 1950-1990 Notes

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Indian Economy 1950-1990 Class 11 Economics Revision Notes

Class 11 Economics students should refer to the following concepts and notes for Indian Economy 1950-1990 in standard 11. These exam notes for Grade 11 Economics will be very useful for upcoming class tests and examinations and help you to score good marks

Indian Economy 1950-1990 Notes Class 11 Economics


Important Dates:

1- Planning Commission-1950

2- First five year plan-1st April,1951- 31st March,1956

3- Planning Commission to NITI Ayog -1st Jan,2015 (by BJP)

4- Green Revolution- 1966

5- Industrial Policy Resolution- 1948

6- Second Industrial policy resolution adopted in India- 30th April,1956

7- Industries (Development and Regulation) Act- 1951

8- India entered into Planned development era-1950’s

9- 30-April 1956 –second industrial policy resolution.


After two hundred years of British rule and their exploitative policies, India finally got freedom on 15th August, 1947. Now, it is necessary to reconstruct the backward and stagnant and deplited economy into a developed economy, the most important task before the government of independent India was to decide the type of ‘Economic System’ which would be most suitable for India.

Q. What do you mean by economic system?

Ans. Economic System refers to an arrangement by which central problems of an economy are solved.

Q. What are the main central problems of an economy?

As such scarcity is evident, due to the availability of limited resources, and human needs having no limit. Therefore, this variation between the supply and demand leads to the formation of central problems of an economy.

A decision of allocation of resources needs to be taken depending on the central problems of the economy.

1. What to produce

2. How to produce

3. For whom to produce

1. What to produce?

This problem refers to the decision regarding the selection of different commodities and the quantities that need to be produced.

There are 2 aspects to the problem.

 What type of goods to be produced?

 How much amount of goods to be produced?

2. How to produce?

This aspect deals with the process or technique by which the goods and services can be produced.

1. Labour Intensive Techniques: it is used with the help of more no. of labour and less involvement of capital.

2. Capital Intensive Techniques: This technique involves more capital investment and less utilisation of labour.

The choice of technique for production depends on the availability of the resource in that nation, and hence resource allocation becomes a challenge.

3. For whom to produce

This problem deals with determining the people who will be the final consumers of the goods produced. As the resources are scarce in an economy, it becomes difficult to cater to all sections of society.
It leads to the creation of a problem of choice in an economy as a good that may be in demand among a section, may not be in demand for another section of the society.
Such a situation arises due to the difference in income distribution among the population, which causes a change in buying behaviour.

Q. What are the different types of economic systems?

1. Capitalist Economy: A capitalist economy is an economic system in which means of production are owned, control and operated by the private sector.

2. Socialistic Economy: A socialistic economy is the one in which the means of production are owned, controlled and operated by the government.

3. Mixed Economy: A mixed economic system refers to a system in which the public sector and the private sector are allotted their respective roles for solving the central problems of the economy.

Q. What do you mean by capitalist economy and its features?

Capitalist Economy: A capitalist economy is an economic system in which means of production are owned, control and operated by the private sector.


• There is a private ownership of the means of production.

•  Means of production are used in a manner such that the profits are maximised.

•  The role of the government is largely confined to the maintenance of law & order and defence of the country.

Q. What do you mean by Socialist economy and its features?

Socialistic Economy: A socialistic economy is the one in which the means of production are owned, controlled and operated by the government.


•  Means of production are collectively owned by the society as a whole.

•  Means of production are used in a manner such that social welfare is maximised.

•  There is a direct participation of the government in the process of production. The role of the government is not merely confined to law & order and defence.

Q. What do you mean by mixed economy and its features?

Mixed Economy: A mixed economic system refers to a system in which the public sector and the private sector are allotted their respective roles for solving the central problems of the economy.


•  Means of production are owned by the private entrepreneurs as well as the government.

•  In the private sector, production decisions are governed by the principle of profit maximisation, while in the public sector, social welfare rules the roost.

•  Both private and public sectors play a significant role in the process of production.

Q. which economic system India opted and why?

After the freedom, leaders of independent India (like Jawaharlal Nehru) were confused with regard to economic system, to be followed in India.

•  Some leaders were in favour of socialist economy. However, in a democratic country like India, complete dilution of private ownership was not possible.

•  Capitalist economic system did not appeal to Jawaharlal Nehru, our Prime Minister, as under this system, there would be less chances for improvement in quality of life of majority of people.

•  As a result, mixed economy (with best features of both socialist and capitalist economy) was adopted by Indian economy.
The merit of mixed economy is that it combines the merits of capitalist as well as a socialist economy. On the one hand, GDP growth is encouraged because of private entrepreneurs are free to focus on ‘profit maximisation’. On the other hand, ‘social justice’ or equality is promoted because the government sector places high priority on the maximisation of social welfare.

Q. What is meant by Economic Planning?

• Economic planning can be defined as making major economic decisions (what, how and for whom to produce) by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economy as a whole.

• The Industrial Policy Resolution of 1948 and the Directive Principles of the Indian Constitution assigned a leading role to the public sector. Private sector was also encouraged to be part of the plan efforts.

• To make economic planning effective, the Government of India setup Planning Commission in 1950, with the Prime Minister as the Chairman. (First chairman of planning commission was prof. Mahalanobis).

• The purpose of the commission was to carefully assess the human and physical resources of the country and to prepare the Plans for the effective use of resources.

• The Planning Commission fixed the planning period at five years, which began the era of ‘Five Year Plans’.

Q. Explain some features of economic policy persued under planning 1950-1991.

1) Heavy Reliance on public sector:

•  Economic policy prior to 1991 indicated heavy reliance on public sector.

•  It was realised that the objective of socialist pattern of society could be achieved only through a comprehensive development of public sector enterprise.

2) Regulated Development of Private sector:

•  According to Industrial (Development and Regulation) Act, 1948 new industry in the private sector could not be established without a licence and registration.

•  Regulated development of private sector was to ensure that there was no concentration of economic power in the private hands.

3) Protection of small-scale industry and regulation of large scale industry:

•  Large-scale industry was regulated through several acts.

•  Small-scale industry, on the other hand, was offered protection from competition- certain areas of production were exclusively reserved for the small-scale industries, particularly labour-intensive industries such as readymade garments, chemicals, etc.

•  Several boards (like handloom board and silk board) were established to promote the products of small scale industries in the global market.

4) Focus on saving and investment:

•  Saving and investment identified as the key determinants of economic growth.

•  High interest rate were offered to promote saving while investment was induced through subsidies and capital grants.

5) Protection from Foreign competition:

•  Domestic industry was protected from foreign competition.

•  High import duties and quantitative restrictions were levied on imports.

6) Focus on import of substitution:

•  It implied domestic production of goods which were imported from abroad.

•  The basic idea was to save foreign exchange and become self-sufficient.

7) Restriction on foreign Capital:

•  Foreign direct investment was controlled and regulated through foreign exchange regulation act (FERA).

•  This was to minimise economic control of the domestic market by the foreign investors.

Q. What is the achievements of Planning?

1. Increase in national income:

•  Increase in national income indicates economic growth.

•  During the period prior to planning, national income of India increased at the rate of just 0.5 percent per annum. Indian economy was, therefore, stagnant economy.

•  Increase in national income during the Twelfth plan was 6.8 percent against the target of 8 percent. In 2018-19, increase in national income is estimated to be 6.9 per cent.
Thus, during most plans, we failed to achieve the targeted rate of growth.

2. Increase in per capita income: over time, per capita income has recorded a significant rise:

Over time, per capita income has recorded a significant rise.

•  During the period prior to planning, rate of increase in per capita income had only been notional.

•  Twelfth plan estimated a growth rate of 5.5 percent per annum. This does not show any promise of a rise in the quality of life each and every individual in the economy.

3. Rise in Savings and Investment:

•  In 1950-51, rate of saving was 9.5 percent of national income.

•  It increased to 31.3 percent by the end of eleventh plan (2011-12) and was estimated to be 30.5 percent in 2017-18. We all know, that saving and investment are the principal drivers of economic growth.

4. Growth and diversification of industry:

•  Five year plans gave a big push to the basic and capital goods industries.

•  In the eleventh plan, industrial production growth rate was 7.2 percent. It increased to 6.9 percent in 2018-19.

•  Consumer goods industries have substantially grown to achieve the level of self-sufficiency.

5. Employment:

•  Serious efforts have been made during plans to increase employment opportunity.

•  During the eleventh plan, unemployment rate came down from 8.3 percent in 2004-05 to 5.6 percent in 2011-12. It increased to 6.9 percent in 2018-19.

•  In the twelfth five year plan, government has fixed the target of creating 50 million employment opportunities.

Q. What are the failures of planning in India?

1. Abject poverty:

•  In India, 21.9 percent of population still lives below the poverty line.

•  There are those people who are getting even the essentials of life.

•  Nearly 50 percent of those who are absolutely poor in the world are living in India.

2. High Rate of Inflation:

•  We have failed to tackle inflationary spiral in the country because high rate of inflation has tended to erode the real income of the people.

•  Also, economic divide between haves and have-nots has tended to rise.

•  First plan is the only exception which price level slided down, in all other plans the prices recorded a steep rise.

3. Unemployment Crises:

•  While more and more opportunities of employment has been generated, challenge of unemployment has not subsidies.

•  At the end of first Plan, 53 lakh persons were unemployed. This number rose to over 4 crore at the end of eleventh plan.

•  This is emerging to be serious cause of social unrest, threatening the process growth.

4. Inadequate Infrastructure: Development of infrastructure (including power, roads, dams, bridges, schools, colleges and hospitals) continues to be inadequate despite 67 years of planning. Consequently, actual growth has failed to match the targets of growth has failed to match the targets of growth. Particularly, shortage of power has been a serious constraint in the overall process of growth and development.

Q What were the different goals of five year plan?

•  In India, plans are made for duration of 5 years are known as five year plans.

•  The five years plans have been concerned with the removal of economic backwardness of the country to make India a developed country.

•  The first five year plan listed the basic goals of India’s development, which served as guiding principles of Indian planning.

•  These basic goals are:
i. Growth
ii. Modernisation
iii. Self-reliance
iv. Equity

•  Due to limited resources, a choice has to be made in each plan about which of the goals is to be given primary importance. Nevertheless, the planners have to ensure that, as far as possible, the policies of the plans do not contradict these four goals.

What is meant by growth?

•  It refers to a consistent increase in GDP over a long period of time.

•  Growth implies: either a large stock of productive capital; or a large size of supporting services like transport and banking; or an increase in the efficiency of productive capital and services; or increase in flow of goods and services in an economy.

•  A good indicator of economic growth, in the language of economics, is steady increase in the GDP.

•  In some countries, growth in agriculture contributes more to the GDP growth, while in some countries, growth in service sector contributes more to GDP growth.

What is meant by modernisation?

1. Modernisation refers to the integration of technology in the economy.

2. Adoption of New technology:

•  Modernisation aims to increase the production of goods and services through use of new technology.

•  A factory can increase output by using new type of machine.

3. Change in social outlook:

Modernisation also requires change in social outlook, such as gender empowerment or providing equal rights to women. A society will be more civilised and prosperous if it makes use of the talents of women in the work place.

4. The term modernisation indicates a variety of structural and institutional changes in the framework of economic activity. Modernisation implies:

•  Shift in sectoral composition of production and diversification of activities

•  An advancement of technology and institutional innovations.

What is meant by self-reliance?

1) Self-reliance means dependence on domestically produced goods, particularly food grains.

2) Under this we have shifted from surplus to commercialisation. In other words, it means to have development through domestic resources.

3) To reduce foreign dependence: As India was recently freed from foreign control, it is necessary to reduce our dependence on foreign countries, especially for food. So, stress should be given to attain self-reliance.

4) To avoid foreign interference: it was feared that dependence on imported food supplies. Foreign technology and foreign capital may increase foreign interference in the policies of our country.

What do you mean by Equity?

• The five year plans must also focus on the development of our society. It is essential to ensure that these benefits from the economy are enjoyed by all members of the society. This is where equity comes in.

• Equity focuses on ensuring that all citizens of our country have their basic needs for food, housing, clothing etc. fulfilled. It also looks to reduce the wealth gap and the inequality in our society.


Q. What are the features of Agriculture?

The agriculture sector accounted for the largest share of workforce with approximately 70-75 percent. So, agricultural development was focused right from the First Five Year Plan.

Q. What are the features (or problems) of Agriculture?

1. Low productivity-

•  Indian agriculture sector was known for its low productivity. Lack of knowledge was responsible for stagnation in this sector.

•  Since agricultural sector generates demand for the industrial sector, backwardness of the agriculture implies slow growth of the industry.

2. Disguised Unemployment-It is a kind of unemployment in which there are people who are visibly employed but are actually unemployed. This situation is also known as 'hidden unemployment'. In such a situation more people are engaged in a work than required.

3. High dependency on Rainfall-

•  The Indian economy is heavily dependent on agriculture and the livelihood of the Indian farmer largely depends on the Monsoon rains.

•  Good rainfall means good crop and bad rainfall means bad crops.

•  Consequently, growth process fails to be stable.

4. Subsistence agriculture-

•  It means the primary objective of the farmer is to secure subsistence for his family; it is not to earn profits.

•  Subsistence agriculture fails to generate surplus for investment. It leads to stagnation in agriculture.

5. Depreciated Technology-

•  There were many obsolete technologies and harvesting machines. Harvesting was generally done manually and was very tedious.

•  Bulk of farming population in India is extremely poor. Lack of modern inputs leads to low productivity and therefore, backwardness.

6. Landlord Tenant Conflicts-

•  Farmers were often a part of a critical contract that bound them to their landlords. Landlords used to extract huge amount of interest from farmers and deprived them of their necessities.

•  Little or no surplus is left with the tenants for re-investment. Accordingly, agriculture tends to stagnate.

Q. Explain the importance of Agriculture in the Indian Economy?

1) Contribution to GDP:

•  Agriculture makes a significant contribution to GDP in India.

•  The decline (in percentage contribution of agriculture in the economy.

•  It often occurs owing to relatively faster growth of secondary and tertiary sectors of the economy.

2) Source of employment:

•  In India, agriculture is a significant source of employment.

•  Over 50% of working population in India engaged in agricultural sector.

•  Implying that agriculture is the principle source of subsistence for the people in India.

3) Supply of raw material:

•  Agriculture supplies industrial raw materials like cotton for the textile industry, seeds for the oil industry, and sugarcane for the sugar mills.

•  As a supplier of raw material, agricultural sector is of primary significance for the growth of the industrial sector in the economy.

4) Source of demand for the industrial goods:

•  Agricultural sector is an important source of demand for the industrial goods.

•  Agricultural prosperity leads to industrial prosperity.

5) Contribution to international trade:

•  Agriculture makes a significant contribution to India’s international trade.

•  India exports tea, jute, cashewnuts, tabacco, coffee and spices.

•  Exports are a source of foreign exchange, which India needs for the import of defence goods as well as crude oil.

Q. What are the problems faced by Indian agriculture?

1. Lack of permanent means of irrigation:

•  Crop farming in India is heavily dependent on rainfall. Permanent means of irrigation are extremely deficient.

•  Stability in agricultural output requires that permanent means of irrigation are developed across all parts of the country.

2. Deficiency of finance:

•  Deficiency of finance is another major problem facing Indian Agriculture.

•  Lack of finance hinders growth of Indian agriculture.

•  High cost of borrowing leads to vicious circle of poverty of the farmers.

3. Small and scattered holdings:

•  Holdings in India are not only small but scattered as well. Small holdings do not allow the use of modern technology.

•  Scattered holdings increase the cost of management. This contributes to backwardness of farming and poverty of the farmers.

4. Lack of organised marketing system:

•  Agricultural marketing system is highly unorganised.

•  They are obliged to sell their produce to the mahajans and money lenders (in the local markets) in return for the loans they raise from these middleman.

•  At the level of marketing, the bulk of small holders fail to get a remunerative price for their crops, because of the lack organised marketing system.

5. Exploitative agrarian relations:

•  Agrarian relations refer to the business relations between the landlords and the tenants.

•  Having paid exorbitant rents to the absentee landlords, the tillers of the soil are left with little surplus for further investment.

•  Accordingly, land continues to be used as a source of subsistence (or as a means of livelihood) rather than a source of business profits.

New Agriculture Strategy: Green Revolution in India At the time of independence, about 75% of country’s population was dependent on agriculture.
Green Revolution refers to the large increase in the production of food grains due to use of high yielding variety (HYV) seeds. Green revolution is the spectacular advancement in the field of agriculture.

Why there was a need for green revolution?

• India’s agriculture vitally depends on the monsoon and in case of storage of monsoon, the farmers had to face lot of troubles.

• Moreover, the productivity in the agricultural sector was very low due to use of outdated technology and absence of required infrastructure.

• As a result of intensive and continued efforts of many agricultural scientists, this stagnation in agriculture was permanently broken by the ‘Green Revolution’.

Effects of Green Revolution-

Q. What were the effects of Green Revolution?

Production has increased due to extensive cultivation i.e., bringing new land under the plough.

• The green revolution enabled the government to produce sufficient amount of food grains to build a stock which could be used in times of food storage.

• The low-income groups, who spend a large percentage of their income on food, benefited from the decline in relative prices of food grains.

• Use of chemical fertilizers has eliminated the need for fallowing.

• It caused a change in farmer’s outlook as farming is no longer viewed as a source of subsistence, it is considered as a commercial venture as well.
Risk involved under Green Revolution-

Q. What was the risk involved under green revolution?

• Risk of Pest Attack: The HYV crops were more prone to attack by pests. So, there was a risk that small farmers who adopted this technology could lose everything in a pest attack.

• Risk of Increase in Income Inequalities: There was a risk that costly inputs required under green revolution will increase the disparities between small and big farmers. However, due to favourable steps taken by the government, these fears did not come true.

Limitations of Green Revolution-

Q. What were the limitations/ disadvantages of Green Revolution?

1. Revolutionary rise in output is confirmed mainly to the production of food grains (wheat and rice).

2. Spread of Green Revolution has not been uniform across all regions. In states like Punjab, Haryana, Maharashtra and Tamil Nadu, it made a remarkable impact. But in Eastern UP, Bihar, Madhya Pradesh and Odisha, its impact was relatively insignificant.

3. It benefited only the rich farmers and not the small and marginal farmers as they could not afford the inputs that were required for cultivation of these seeds.

4. Continuous use of groundwater for tube well irrigation reduced the water- table below the ground.

Q. What was industrial development?

Industrial development is the building and growing of industries within an economy. These industries include mass production, and other services. The developing countries like India can progress only if they have a good industrial sector.

Q. What are the features of Industrial growth?

1. Public enterprises were to play a centre role in the process of industrialisation.

2. Process of industrialisation focused on ‘import substitution’. Implying that the production of such goods was to be accorded a high priority which were imported from rest of the world. The idea was to achieve self-reliance as well as to economise the use of foreign exchange.

3. As far as possible, domestic industry was to be protected from foreign competition. Protection was to be offered through

a) Heavy duty on imports, and

b) Fixation of import quotas. It was realised that protection would foster the growth of the domestic industry.

4. Large-scale industry was to be developed with a view to building an infrastructural base in the country.

Q. What are the positive and negative effects of industrialisation?

Positive effects:

1. Economic growth got a big push. Industrial output recorded a significant rise. There was about 6 percent annual increase in output during the period 1950-1990.

2. Growth of SSI made a substantial contribution in achieving the objectives of growth with social justice.

3. The overall growth pattern in the economy showed a marked thrust on socialistic pattern of society.

Negative effects:

1. Public sector monopolies gradually turned out to be a ‘dead social weight’. Inefficiency, corruption, leakage emerged as their principal characteristics.

2. Lack of competition promoted the domestic entrepreneurs to focus upon monopoly-control of the market. Growth through competition and diversification was conveniently avoided.

3. Saving foreign exchange through import substitution (rather than generating it through export promotion) proved to be an inefficient policy instrument.

Q. What was the role of public sector in industrial development?

There was a need for a leading role of the Public Sector due to the following reasons:

1) Shortage of Capital with Private Sector: Private entrepreneurs did not have the capital to undertake investment in industrial ventures, required for the development of economy.

2) Lack of Incentives for Private Sector: The Indian market was not big enough to encourage private industrialists to undertake major projects, even if they had capital to do so. Due to limited size of the market, there was low level of demand for the industrial goods.

3) Objective of Social Welfare: The objective of equity and social welfare of the government could be achieved only through direct participation of the state in the process of industrialisation.

Q. What do you mean by industrial policy resolution 1956, when it was adopted?

Industrial Policy Resolution of 1956 (IPR 1956) is a resolution adopted by the Indian Parliament in April 1956.

1. Industrial policy is a comprehensive package of policy measures which covers various issues connected with different industrial enterprises of the country.

2. After industrial policy, 1948, Indian economy had to face a series of economic and political changes, which necessitated the need for a fresh industrial policy for the country. So, on 30th April, 1956, a second industrial policy resolution was adopted in India.

3. Classification of industries:

•  Schedule A: this first category compromised industries which would be exclusively owned by the government state. In this schedule, 17 industries were included, like arms and ammunition; atomic energy; heavy and core industries; aircraft; oil; railways; shipping; etc.

•  Schedule B: In his schedule, 12 industries were placed which would be progressively state-owned. The state would take the initiative of setting up industries and private sector will supplement efforts of the state.

•  Schedule C: This schedule consisted of the remaining industries which were to be in the private sector.
These industries were controlled by the state through a system of licences, enforced under industries (development and regulation) act 1951.

4. Industrial licencing:

An industrial licence is a written permission from the government, to an industrial unit to manufacture goods.

•  Setting up of new industries

•  Expansion of existing ones;

•  Diversification of products.

5. Industrial concessions: the private entrepreneurs were offered many types of industrial concessions for establishing industry in the backward regions of the country.

These concession included:

•  Tax holiday (freedom from the payment of tax for some time), and

•  Subsidised power supply.

Q. What do you mean by industrial licensing?

An industrial license is a written permission from the government, to an industrial unit to manufacture goods. Under this:

1. No new industry was allowed unless a licence is obtained from the government.

2. It was easier to obtain a licence if the industrial unit was established in an economically backward area.

3. The purpose of this policy was to promote regional equality.
4. License were needed even if an existing industry wants to expand output or diversify production.

Q. What do you mean by Small-scale industry?

1. Small scale industries (SSI) are those industries in which manufacturing, production & rendering of services, are done on a small or micro scale. These industries make a one-time investment in machinery, plants and industries but it does not exceed Rs 1 crore.

2. At the beginning of planning (1951) it was defined as one whose investment did not exceed 25 lakh.

Q. Explain the importance of small-scale industries?

1. SSI Increases Production-

India is one of the world’s fastest growing economies in the world. Consequently, its production output is massive. It is pertinent to note that SSIs contribute almost 40% of India’s gross industrial value.

2. SSI Increases Export-

Apart from producing more goods and services, SSIs have been able to export them in large numbers as well. Almost half of India’s total exports these days come from small-scale businesses.

3. SSI Provides Employment -

It is important to note firstly that Small Scale Industries employs more people than all industries after agriculture. It distributes employment in all parts of the country and prevents unemployment crisis.

4. SSI do Welfare of people-

Apart from providing profitable opportunities, Small Scale Industries play a large role in advancing welfare measures in the Indian economy as well. A large number of poor and marginalized sections of the population depend on them for their sustenance.

Q. What do you mean by foreign Trade?

Foreign trade is the exchange of capital, goods, and services across international borders or territories.

Q. Explain a brief composition of foreign trade?

After independence, there has been a substantial change in the composition of India’s foreign trade.

1) Decline in percentage share of agricultural exports:

It happened owing to the facts:

•  That India started using its farm products as raw material for its domestic industry

•  That a substantial rise of India’s population has raised the domestic consumption of farm products.

2) Decline in percentage share of conventional items:

•  Conventional items of India’s exports include jute, tea, food grains and minerals. These items constituted the bulk of India’s exports at the time of independence.

•  But with planned development programmes in place, domestic demand for the conventional items has tended to rise.

3) increase in percentage share of manufactured goods:

•  Percentage share of manufactured goods in total exports has tended to rise.

•  This points to the fact that planned development programmes (launched after independence) have started yielding results.

•  These changes in the composition of India’s foreign trade suggest that India is no longer a static and backward economy.

Q. What do you mean by Trade policy i.e. Import substitution or Inward looking strategy?

1) Import substitution refers to a policy of replacement or substitution of imports by domestic production.

2) The basic aim of the policy was to protect domestic industries from foreign competition.

3) The policy of Import substitution can serve 2 definite objectives:

•  Savings of precious foreign exchange; and

•  Achieving self-reliance

4) By adopting inward looking trade strategy, the government preferred to economise the use of foreign exchange (through import substitution) rather than maximise the generation of foreign exchange (through export promotion).

5) Also, the government wanted to protect the domestic industry from international competition.

6) For example-instead of importing vehicles made in a foreign country, domestic industries would be encouraged to produce them in India itself.

Q. What are the impact does inward looking strategy left on domestic industry?

Good impact:

1) Diversification of industrial growth:

•  Modern industry was no longer confined to textile and jute.

•  Industrial growth started spreading across engineering goods and a wide range of consumer goods.

•  It is widely recognised that electronic industry would have failed to take roots in the domestic economy, had the policy of ‘protection’ not been pursued.

2) Opportunities of investment:

•  Protection to SSI (small-scale industry) opened new opportunities of investment for those who did not have much capital.

•  New investment opportunities implied new opportunities of self-employment. It promoted growth with equity.

Bad Impacts:

1) Growth of inefficient Public Monopolies:

•  Protection of public sector industry led to the growth of inefficient monopolies.

•  Telecommunication was a government monopoly till about 1990. We all know that people had to wait for years and years just for a telephone connection.

2) Lack of competition:

•  Old users of cars still remember that ambassador and fiat were the only two models produced by the domestic industry in India.

• No doubt that the domestic car industry flourished as a near-monopoly owing to the policy of protection.

Protection from Imports through ‘Tariffs’ and ‘Quotas’-

Government made use of two ways to protect goods produced in India from imports:

i. Tariffs: Tariffs refers to taxes levied on imported goods. The basic aim for imposing heavy duty on imported goods was to make them more expensive and discourage their use.

ii. Quotas: Quotas refer to fixing the maximum limit on the imports of a commodity by a domestic producer.

Reasons for Import Substitution-

1. The policy of protection is based on the fact that industries of developing countries like India are not in a position to compete against the goods produced by more developed economies. With protection, they will be able to compete in the due course of time.

2. Restriction on import was necessary to overcome the fear of drain of foreign exchange reserves on the import of luxury goods.


b. The achievements of India’s Industrial sector during the first seven plans are impressive indeed.

I. The proportion of GDP contributed by the industrial sector increased in the period from 11.8 percent in 1950-51 to 24.6 percent in 1990-91.

II. The rise in the industry’s share of GDP is an important indicator of development. The six percent annual growth rate of the industrial sector during the period is commendable.

III. No longer was Indian industry restricted largely to cotton textiles and jute; in fact, the industrial sector became well diversified by 1990, largely due to the public sector.

IV. The promotion of small-scale industries gave opportunities to those people who did not have the capital to start large firms to get into business.

V. Protection from foreign competition enabled the development of indigenous industries in the areas of electronics and automobile sectors which otherwise could not have developed.

c. In spite of the contribution made by the public sector to the growth of Indian economy, some economists are critical of the performance of many public sector enterprises.

d. Many public sector incurred huge losses but continued to function because it is difficult to close a government undertaking even if it is a drain on the nation’s limited resources.

e. This does not mean that private firms are always profitable. However, a loss-making private firm will not waste resources by being kept running despite the losses.

f. The need to obtain a license to start an industry was misused by industrial houses; a big industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms.

g. Regarding protection, some economists hold that we should protect our producers from foreign competition as long as the rich nations continue to do so. Owing to all these conflicts, economists called for a change in our policy.


h. The progress of the Indian economy during the first seven plans was impressive indeed.

i. Our industries became far more diversified compared to the situation of independence.

India became self-sufficient in food production, thanks to green revolution.

j. Land reforms resulted in the abolition of the hated zamindari system. However, many economists became dissatisfied with the performance of many public sector enterprises.

k. Excessive government regulation prevented growth of entrepreneurship. In the name of self-reliance, our producers were protected against foreign competition and this did not give them the incentive to improve the quality of goods that they produced.

l. Our policies were ‘inward oriented’ and so we failed to develop a strong export sector. The need for reform of economic policy was widely felt in the context of changing global economic scenario, and the new economic policy was initiated in 1991 to make our economy more efficient.


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Indian Economic Development Chapter 2 Indian Economy 1950-1990
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Indian Economic Development Chapter 3 Liberalisation, Privatisation and Globalisation: An Appraisal
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Indian Economic Development Chapter 4 Poverty
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Indian Economic Development Chapter 6 Rural Development
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Indian Economic Development Chapter 7 Employment Growth Informalisation and Other Issues
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Indian Economic Development Chapter 8 Infrastructure
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Indian Economic Development Chapter 9 Environment and Sustainable Development
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Indian Economic Development Chapter 10 Comparative Development Experiences Of India and Its Neighbours
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Statistics for Economics Chapter 1 Introduction
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Statistics for Economics Chapter 2 Collection of Data
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Statistics for Economics Chapter 3 Organisation of Data
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Statistics for Economics Chapter 4 Presentation of Data
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