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CLASS-XII
ECONOMICS-PART-B
INDIAN ECONOMIC DEVELOPMENT
Chapter –VI
DEVELPMENT EXPERIENCE (1947-90)
AND ECONOMIC REFORMS SINCE 1991
1. What do you understand by the drain of Indian wealth during the colonial
period?
Dadabhai Naroji advocated the theory of ‘Drain of Wealth’ in the 19th
century.
The colonial period was marked by the exploitation of Indian resources.
The sole motive of Britain to conquer India was to own a perennial source
of cheap raw materials to feed its own industrial base in Britain.
Further, British government used India’s manpower to spread its colonial
base outside India.
Also, the administrative expenses that were incurred by the British
government to manage the colonial rule in India were borne by Indian
Exchequer.
Thus, the British rule drained out Indian wealth for the fulfilment of its own
interests.
2. Which is regarded as the defining year to mark the demographic transition
from its first to the second decisive stage?
The year 1921 is regarded as the defining year or the ‘Year of Great Divide’
Because prior to 1921, population growth in India was never consistent.
India was in the first phase of demographic transition till 1921 that was
characterised by high birth rate and high death rate.
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It implies low survival rate (or low life expectancy), which was nearly 8
per thousand per annum.
Therefore, the period before 1921 witnessed stagnant population growth
rate.
After 1921, India’s population growth never declined and showed a
consistent upward trend.
3. When was India’s first official census operation undertaken?
First official census was undertaken in the year 1881.
4. Give a quantitative appraisal of India’s demographic profile during the
colonial period?
The demographic condition on the eve of independence was as follows:
i. High Birth Rate and Death Rate. High birth rate and high death rate
are treated as indices of backwardness of a country.
Both birth rate and death rate were very high at 48 and 40 per
thousand of person’s respectively.
ii. High Infant Mortality Rate. If refers to death rate of children below
the age of one year.
It was about 18 per thousand live births.
iii. Low Life Expectancy. Life expectancy means the number of years that
a new born child on an average is expected to live.
It was as low as 32 years.
iv. Mass Illiteracy. Mass illiteracy among the people of a country is taken
as an indicator of its poverty and backwardness.
The population census of 1941 (which was the last census under the
British rule) estimated the literacy rate at 17 per cent.
This means that 83 per cent of the total population was illiterate.
V. Low Standard of Living.
At the time of independence, people used to spend between 80 to 90 %
of their income on basic necessities,
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That is on food, clothing and housing. Even then, people did not get
adequate quantity of food or clothing or housing and millions of people
starved, went naked and lived in huts or in the open.
Moreover, some parts of India came under severe famine conditions.
The famines were so severe that millions died. One of the worst
famines in India was the Bengal famine of 1943, when three million
people died.
5. Underscore some of India’s most crucial economic challenges at the time of
independence?
Most crucial economic challenges at the time of independence were:
a) Little industrialisation
b) Decline of handicrafts.
c) Low agricultural output
d) High imports of grains.
e) Low figure of national income
f) Low figure Per capita income which showed extreme poverty.
g) Very sluggish economic progress.’
h) Unemployment and underemployment.
i) Very high infant mortality rate,
j) low life expectancy
k) Low standard of living.
l) Poverty and Inequalities
m) Lack in Infrastructure
6. Indicate the volume and direction of trade at the time of independence?
India has been an important trading nation since ancient times. But the
restrictive policies of commodity production, trade and tariff pursued by
the British government adversely affected the structure, composition and
volume of India’s foreign trade.
The state of India’s foreign trade on the eve of independence was as
follows:
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a) Net Exporter of Raw Material and Importer of Finished Goods.
b) India became an exporter of primary products such as raw silk, cotton,
wool, sugar, indigo, jute, etc.
c) An importer of finished consumer goods like cotton, silk and woollen
clothes and capital goods like light machinery produced in the factories of
Britain.
d) UK was the chief supplier to India contributing to over 31 per cent of total
import at the time of independence.
e) The principal item of import was food grains
f) By 1947 food grain imports had touched the level of 3 million tonnes.
g) Britain had Monopoly Control on Foreign Trade.
h) Opening of Suez Canal in 1869 served as a direct route for the ships
operating between India and Britain.
i) The canal connected Port Said on the Mediterranean Sea with the Gulf of
Suez.
j) It provided a direct trade route for ships operating between Europe.
7. What was the focus of the economic policies pursued by the colonial
government in India? What were the impacts of these policies?
The economic policies pursued by the colonial government in India were
concerned more with the protection and promotion of the economic interests
of their home country rather than with the development of the Indian
economy.
Thus, at the time of independence in 1947, India was a poor and
underdeveloped country.
At that time, agriculture was in a poor condition and mineral resources were
not fully used.
There were only a few industries and many of the cottage and small-scale
industries had declined under the British rule.
Millions of people were unemployed, not because they were unwilling to
work but because there were no jobs to be found.
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The per capita income of Indians was one of the lowest in the world,
indicating that the average Indian was extremely poor and could not afford
even the basic necessities of life.
For instance, the staple food of average Indian consisted of rice, wheat and
millets (like jowar and bajra). Most Indians could not afford to buy
nutritious and balanced diet.
The vast majority of people in India led a miserable life.
8. Name some modem industries which were in operation in our country at
the time of independence?
The Tata Iron and Steel Company (TISCO) were incorporated in August
1907 in India.
It established its first plant in Jamshedpur (Bihar).
Some other industries which had their modest beginning after Second World
War were: sugar, cement, chemical and paper industries.
9. What was the focus of the economic policies pursued by the colonial
government in India? What were the impacts of these policies?
The main focus of the economic policies pursued by the colonial government
was to make India a mere supplier of Britain’s own flourishing industrial
base.
The policies were concerned mainly with the fortification and advancement
for their home country.
The interests of the Indian economy were completely ignored. Such policies
brought structural changes in the Indian economy by transforming it to a
supplier of raw materials and consumer of finished products from Britain.
The impacts of these policies are discussed as follows in detail;
i. Low Economic Development
Throughout the British rule, Indian economy experienced very low level of
economic development. As per some researches, Indian economy grew at
even less than 2% during 1900-50.
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The reason for such a low level of development was that the British
government was more concerned with the promotion of economic interests of
their home country.
Consequently, the colonial rule transformed India’s agriculture sector to a
mere supplier of raw materials for the British industries.
This not only affected the production of the agricultural sector but also ruined
the small manufacturing units like handicrafts and cotton industries.
These manufacturing units faced a stiff competition from the British machine
made textiles and handlooms.
ii. Backwardness of Indian Agriculture
Under the colonial rule, India was basically an agrarian economy employing
nearly 85% of its population.
Nevertheless, the growth of the agriculture sector was meager.
This was due to the prevalence of various systems of Land Settlement,
particularly Zamindari system.
Under this system, the zamindars (owners of land) were required to pay very
high revenue to the British government, which they used to collect from the
peasants (landless labourers, who were actually cultivating).
The zamindars were mainly concerned with extracting high revenues from
the peasants but never took any steps to improve the productivity of the land.
Moreover, in order to feed British industries with cheap raw materials, the
Indian peasants were forced to grow cash crops (such as, indigo, cotton, etc.)
instead of food crops (such as, rice and wheat).
This commercialisation of agriculture not only increased the burden of high
revenues on the poor peasants but also led India to face shortage of food
grains.
Therefore, Indian agriculture remained backward and primitive.
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iii. Deindustrialisation of Indian Economy
India failed to develop a sound and strong industrial base during the colonial
rule.
The status of industrial sector during the British rule can be well defined by
the term ‘systematic deindustrialisation’. The cause of deindustrialisation can
be attributed to the downfall of India’s handicraft industry and the cause of
bleak growth of modern industry was the lack of investment.
On one hand, the British government imposed heavy tariffs on the export of
Indian handicraft products and on the other hand, allowed free exports of
Indian raw materials to Britain and free imports of British products to India.
As a result of the heavy tariffs, the Indian exports became costlier and its
demand in the international market fell drastically that led to the collapse of
Indian handicrafts industries.
Simultaneously, the demand for the handicrafts products also fell in the
domestic markets due to stiff competition from the machine made textiles of
Britain. As a result, the domestic industries lacked investment and growth
initiatives.
iv. Regression in Foreign Trade
During the colonial rule, the British government owned the monopoly power
over India’s foreign trade.
The British government used the trade policy according to the interests of
their home country.
The exports and imports transactions were restricted only to India and
Britain. On one hand, the exports from India provided the cheap raw
materials to the British industries and on the other hand, India's imports from
Britain provided a virgin market for Britain’s products.
In either ways, British industries were benefitted. Moreover, the surplus
generated from t foreign trade was not invested in the Indian economy;
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instead it was used in administrative and war purposes by Britain to spread
their colonial power.
10. Name some notable economists who estimated India’s per capita income
during the colonial period?
As the British government was never interested in upliftment of our country,
so they never took any initiative to measure India’s national and per capita
income.
Though some of the economists tried to estimate India’s national income and
per capita income during the colonial rule, but the results are mixed and
conflicting.
The following are some of the notable economists who were engaged in
estimation of national income and per capita income:
1. Dadabhai Naroji
2. William Digbay
3. Findlay Shirras
4. V.K.R.V Rao
5. R.C. Desai
Out of these, V.K.R.V Rao's estimates are considered to be significant.
Most of these studies revealed that Indian economy grew at even less than 2%
during 1900-50 with half per %t growth in per capita output per year.
11. What were the main causes of India’s agricultural stagnation during the
colonial period?
Under the colonial rule, India was basically an agrarian economy,
employing nearly 85% of its population. Nevertheless, the growth of
the agriculture sector was meager.
The following are the causes explaining stagnancy in Indian
agriculture sector during the colonial rule:
i. Introduction of Land Revenue System
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This was due to prevalence of various systems of Land Settlement,
particularly Zamindari system.
This system was introduced by Lord Cornwallis in Bengal in 1793.
Under this system, the zamindars(owners of land) were required to pay
very high revenue to the British government, which they used to collect
from the peasants (landless labourers, who were actually cultivating).
The zamindars were mainly concerned with extracting high revenues
from the peasants but never took any steps to improve the productivity of
the land.
This resulted in low agricultural productivity and worsened the peasants
economically.
ii. Forceful Commercialisation
Initially before the British rule, the farmers were practicing
conventional subsistence farming.
They used to grow crops like rice and wheat for their own
consumption. But afterwards, in order to feed British industries with
cheap raw materials,
The Indian farmers were forced to grow commercial crops (like
indigo required by British industries to dye textiles) instead of food
crops (like rice and wheat).
This led to the commercialisation of Indian agriculture. This
commercialisation of Indian agriculture not only increased the burden
of high revenues on the poor farmers but also led India to face
shortage of food grains, resources, technology and investment.
Therefore, Indian agriculture remained backward and primitive.
iii. Lack of Irrigation Facilities and Resources
Besides the above factors, Indian agricultural sector also faced lack of
irrigation facilities, insignificant use of fertilisers, lack of investment,
frequent famines and other natural calamities, etc. that further
exaggerated the agricultural performance and made it more vulnerable.
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12. Name some modern industries which were in operation in our country at
the time of independence.
The second half of the nineteenth century witnessed the emergence of
modern industries.
At the initial stage, development was confined to setting up of cotton
and jute textile mills.
The western parts of the country Maharashtra and Gujarat was the hub
for cotton textile mills which were mainly dominated by the Indians
whereas the jute industries were mainly concentrated in Bengal
and were dominated by the British. In the beginning of the 20thcentury,
Iron and steel industries also started emerging gradually.
It was incorporated in 1907. Some other industries that were operating at
a smaller scale during the British era were sugar industry, cement
industry and paper industry.
13. What was the two-fold motive behind the systematic deindustrialisation
affected by the British in pre - independent India?
The following are the two-fold motives behind the systematic
deindustrialisation affected by the British:
Making India a Supplier of Raw Materials: The main motive of the British
government was to make India a mere supplier of cheap raw materials to feed
its own flourishing industrial base.
Making India a Market for Finished Goods: Another important objective of
the British government was to use India as a virgin market to sell the finished
goods produced by the British industries
14. The traditional handicrafts industries were ruined under the British rule.
Do you agree with this view? Give reasons in support of your answer.
Yes, we do agree with the above statement that the traditional handicrafts
industries were ruined under the British times. The following are the reasons
in favour of the statement.
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I. Discriminatory Tariff Policy: The British rule in India corresponded
with its industrialisation. The British rule used India both as a source of
cheap raw materials as well as easy accessible market for their finished
products. Thereby, they imposed heavy tariffs (export duties) on India’s
export of handicraft products, while allowed free export of India’s raw
material to Britain and free import of British products into India. This
made Indian exports costlier and its international demand fell drastically
leading to the collapse of handicrafts industries.
II. Competition from Machine made Britain Goods: The demand for the
handicrafts products experienced a downward trend in the domestic
markets as well. This was due to stiff competition from the machine
made textiles from Britain. This was because of the reason that the goods
produced mechanically in Britain were comparatively cheaper and of
superior quality than the Indian handicraft goods. This narrowed the
market for Indian industries.
III. Emergence of New Class: The British rule in India popularised western
lifestyle in India. There was an emergence of a new section of population
(consisting mainly of zamindars) in India who liked the British goods.
This section used to spend lavishly on the British products that provided
impetus for the development of British industries at the cost of the
domestic industries. Hence, gradually Indian industries perished away.
IV. Disappearance of Princely State: Prior to the advent of British, India
was ruled by princely states. They used to patronise handicrafts industries
and consequently, Indian handicrafts gained reputation in the
international markets. But during the British rule, these princely states
were ruined thereby ruining the protection of these handicrafts industries.
Thus, gradually Indian handicrafts lost its reputation and its importance
deteriorated.
15. What objectives did the British intend to achieve through their policies of
infrastructure development in India?
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One cannot deny the fact that under the British rule, there was significant
change in the infrastructural development in the country.
But the bonafide motive of the British behind the infrastructure development
was only to serve their own colonial interests.
There was infrastructural development in the fields of transport and
communication.
The roads served the purpose of facilitating transportation of raw materials
from different parts of the country to ports, and ports were developed for
easy and fast exports to and imports from Britain.
Similarly, railways were introduced and developed for the transportation of
finished goods of British industries to the interiors of India.
Railways assisted British industries to widen the market for their finished
products.
Post and telegraphs were developed to enhance the efficiency and
effectiveness of the British administration.
Hence, the aim of infrastructural development was not the growth and
development of the Indian economy but to serve their own interest.
16. Highlight the salient features of India’s pre-independence occupational
structure?
The occupational structure that refers to the distribution of population
engaged in different occupations, showed no variation throughout the British
rule. The following are the salient features of India’s pre-independence
occupational structure:
I. Agriculture- The Prime Occupation: Under the colonial rule, India was
basically an agrarian economy, employing nearly 85% of its population. As
India had a massive poverty during the colonial rule, so a large proportion of
the population was engaged in agricultural sector to earn their subsistence. But
due to the prevalence of Zamindari system, agricultural sector lacked
investment and, thereby, its growth was highly constrained. Thus, in other
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words, despite employing a significant proportion of the population, the growth
of agriculture sector was meager.
II. Industry- The Bleak Occupation: Apart from agriculture, a small proportion
of population was employed in manufacturing sector. Nearly 10% of the total
workforce was engaged in manufacturing and industrial sector. This was due to
the stiff competition that the Indian industries faced from the machine made
cheap goods from Britain. Further, the lack of investment, initiatives and the
unfavourable tariff structure constrained industrial sector. Thus, the Indian
industrial sector failed to contribute significantly to India’s GDP.
III. Unbalanced Growth: The three sectors of Indian economy, i.e. agricultural,
industrial and tertiary sector were unequally developed. While the agricultural
sector was relatively developed, whereas, the other two sectors were at their
infant stage. In addition, there was regional variation in the occupational
structure of India. While on the one hand, states like Tamil Nadu, Andhra
Pradesh and Bombay experienced a fall in the agricultural work force on the
other hand states like Orissa, Rajasthan and Punjab experienced a rise in the
agricultural workforce.
17. Were there any positive contributions made by the British in India?
Discuss.
Yes, there were various positive contributions that were made by the
British in India. The contributions were not intentional but purely the
effects of colonial exploitation of the British.
The following are the positive contributions made by the British:
a) Introduction of Railways: The introduction of railways by the British was a
breakthrough in the development process of Indian economy. It opened up the
cultural and geographical barriers and facilitated commercialisation of Indian
agriculture.
b) Introduction of Commercialisation of Agriculture: The introduction of
commercial agriculture is an important breakthrough in the history of Indian
agriculture. Prior to the advent of the British, Indian agriculture was of
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subsistence nature. But with the commercialisation of agriculture, the
agricultural production was carried out as per the market requirements. It was
due to this factor that today India can aim at attaining self-sufficiency in food
grains production.
c) Introduced Free Trade to India: British forced India to follow free trade
pattern during the colonial rule. This is the key concept of globalisation today.
The free trade provided domestic industry with a platform to compete with the
Britain industries. The introduction of free trade led to an increase in the
volume of India’s export rapidly.
d) Development of Infrastructure: The infrastructure developed in India by the
British proved as useful tool to check the spread of famines. The telegram and
postal services served Indian public.
e) Promoted Western Culture: English as a language promoted westernised
form of education. The English language acted as a window to the outside
world. This has integrated India with the rest of the world.
f) Role Model: The way and the technique of British administration acts as a
role model for the Indian politicians and planners. It helped Indian politicians
to govern the country in an efficient and effective manner.
18. What do you mean by low productivity in agriculture?
Low output per hectare of land is called Low productivity.
19. What do you mean by economic structure?
Economic structure is a term that describes the changing balance of output,
trade, incomes and employment drawn from different economic sectors –
ranging from primary (farming, fishing, mining etc) to secondary
(manufacturing and construction industries) to tertiary and quaternary sectors.
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INDIAN ECONOMY 1950- 1990
1. Define a plan.
A plan is a proposed list of goals that an economy wants to achieve within a
specific period of time.
It suggests the optimum ways to utilise the scarce available resources to
achieve the enlisted goals. In India, planning is done for a period of five years,
which is called five year plan.
Plans have both specific and general goals. Some of the common goals are
economic growth, modernisation, self-reliance and equity.
Plans lay down the basic framework over which the policies are designed.
Often various goals are conflicting to each other,
for example, modernisation reduces labour employment. So there is a need to
maintain a balance among different goals.
2. Why did India opt for planning?
Soon after independence, India faced an important choice to opt either for
capitalism or socialism. Finally, India, inspired by the extraordinary success of
planning in Soviet Union, opted for socialism. Although, Indian political and
economic conditions were not as favourable as it was for Soviet Unions to opt
for socialism, yet India adopted socialism but with a difference.
India hinged upon the socialist idea with a strong emphasis on public sector
and active participation of the private sector in a democratic framework.
The Planning Commission (1950) was established with the motive that the
government would undertake comprehensive planning for the nation as a
whole, where public sector would lay down the basic economic framework and
would encourage private sector for their active contribution to the economic
growth.
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3. Why should plans have goals?
Every plan should have specified goals.
Plan without goal is like life without soul. While a plan specifies the means
and ways to allocate scarce resources to achieve proposed targets, goals are the
ultimate targets, the achievement of which ensures the success of plans. Thus,
plans must include the goals.
4. What are high Yielding Variety (HYV) seeds?
High Yielding Variety of seeds was developed by the Nobel Laureate
Dr. Narman Barlauf in Mexico.
These seeds are more productive and need regular and adequate irrigation
facilities along with greater use of fertilisers and pesticides. In 1966,
consequent to the use of HYV seeds,
Indian agricultural sector experienced Green Revolution, especially in the
crops of rice and wheat. HYV seeds grow faster than the normal seeds and,
consequently, crops can be harvested in a much shorter time period.
Initially, HYV seeds were used in states like Punjab, Andhra Pradesh and
Tamil Nadu (as these states had more suitable irrigation facilities) and later on
to other states. Consequent to the use of HYV seeds, the production of food
grains in 1967-68 increased by 25% .
5. What is marketable surplus?
Marketable surplus refers to the difference between the total output produced
by a farmer and his on-farm consumption.
In other words, it is that portion of the total output that the farmer sells in the
market.
Marketable surplus = Total farm output produced by farmer – Own
consumption of farm output.
6. Explain the need and type of land reforms implemented in the agriculture
sector?
The need for land reforms in India was very necessary due to the following reasons:
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I. Land Tenure System: There were three types of land tenure systems namely,
the Zamindari System, the Mahalwari System and the Ryotwari
System prevalent in the Indian agricultural sector at the time of independence.
The common feature of these three systems was that the land was mostly
cultivated by the tenants and the land revenues were paid by them to their
landlords. This led to the exploitation of tenants in the form of exorbitant
rents.
II. Size of Land Holdings: The size of land holdings owned by the farmers was
very small. In addition, the land holdings were fragmented. This obstructed
the use of modern techniques.
III. Lack of Initiative: As most of the land was owned by the landlords, so the
farmers lacked initiative and neither had enough means to undertake
mechanised methods of cultivation.
IV. Traditional Approach and Low Productivity: Indian farmers used to rely
on the conventional and the traditional inputs and methods and climatic
conditions that hampered the productivity of agricultural sector.
V. Absence of Marketing System: Due to the absence of well-developed
marketing system, the farmers used to rely on the intermediaries to sell their
product in the market. These intermediaries used to purchase the farm
products at a very low price and sell them at higher price at market.
Consequently, the correct profit share did not accrue to the farmer and, hence,
this led to the lack of finance and investment on farm.
VI. Nature of Farming: The basic motive for farming was for subsistence. That
is, farming was done basically to earn survival and not for sale and to earn
profit.
Due to the above problems in the Indian agriculture, it was very necessary to
undertake land reforms. Land reforms comprise of the following steps:-
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i. Abolishing Intermediaries: The prime focus of land reforms was to abolish
intermediaries like Zamindars, Jagirdars, etc. There were many steps
undertaken to make the tillers, the owners of the land.
ii. Regulation of Rent: The cultivators were exploited in the form of exorbitant
rents. In the first five year plan, the maximum rent fixed was one-fourth or
one-fifth of the total farm produce
The regulations of rent not only reduced the burden from the tenants but also
enabled them with greater portion of finance to invest on farm.
iii. Consolidation of Holdings: As the land holdings were small and also
fragmented, so it was very necessary to consolidate the land holdings for the
use of modern and advanced technology. The farmers were given consolidated
holdings equal to the total of the land in their various fragmented plots. This
enabled them the benefits associated with the large scale production.
iv. Land Ceilings: It means legislated fixed amount of land that an individual
may hold. The basic motive behind this step was to promote equality of
ownership of land holdings. This eradicated the concentration of land holdings
in few hands. Government used to confiscate the excess land over the fixed
amount of land and distribute it among the landless farmers.
v. Co-operative Farming: This step was taken to counter the problems due to
sub-division of holdings. Small scale farming by an individual land holder is
neither profitable nor productive, so, these steps encouraged different farmers
to pool their farms and perform farming jointly. This enhanced the
productivity and greater profits were shared by the individual farmers.
7. What is Green Revolution? Why was it implemented and how did it benefit
the farmers? Explain in brief.
Due to low productivity, frequent occurrence of famines and low levels of
agricultural products in the latter half of second five year plan, a team was
formed to suggest various ways to counter these problems.
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As per the recommendations of the team, government introduced the use of
HYV seeds, modern techniques and inputs like fertilisers, irrigation
facilities and subsidised credit.
These steps collectively are known as Intensive Area Development
Programme (IADP). Consequently, in the year 1967-68, food grains
production increased nearly by 25%.
Due to this substantial increase of food grains production, this outcome is
known as ‘Green Revolution’.
The word Green Revolution comprises of two words ‘Green’ that is
associated to crops and ‘Revolution’ is associated to the substantial
increase.
Need of Green Revolution
The needs of Green Revolution are as follows.
a) Low Irrigation Facility: The well irrigated and permanent irrigated area was
only 17% in 1951. The major part of area was dependent on rainfall and,
consequently, agriculture suffered from low level of production.
b) Conventional and Traditional Approach: The use of conventional inputs
and absence of modern techniques further hampered the agricultural
productivity.
c) Frequent Occurrence of Famines: Famines in India were very frequent
during the period 1940s to 1970s. Further, due to higher growth rate of
populations, agriculture failed to grow at the same speed.
d) Lack of Finance (credit): Small and marginal farmers found it very difficult
to get finance and credit at cheap rate from the government and banks ,hence,
fell an easy prey to the money lenders.
e) Self-sufficiency: Due to the traditional agricultural practices, low
productivity, and to feed growing population, often food grains were imported
that drained away scarce foreign reserves. It was thought that with the
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increased production due to Green Revolution, government can maintain
buffer stock and India can achieve self-sufficiency and self-reliable.
f) Marketising Agriculture: Agriculture was basically for subsistence and,
therefore, less amount of agricultural product was offered for sale in the
market. Hence, the need was felt to encourage the farmers to increase their
production and offer a greater portion of their products for sale in the market.
8. Explain ‘growth with equity’ as a planning objective?
Both growth and equity are the two important aspects of India’s five
year plans.
While growth refers to the increase in GDP over a long period of time
equity refers to an equitable distribution of GDP so that the benefits due
to higher economic growth are shared by all sections of population.
Equity implies social justice.
Growth itself is desirable but growth in itself does not guarantee the
welfare of people.
Growth is assessed by the market value of goods and services (GDP)
and it may be possible that the goods and services that are produced may
not benefit the majority of population.
In other words, only a few with high level of living and money income
may get the share of GDP.
Hence, growth with equity is a rational and desirable objective of
planning.
This objective ensures that the benefits of high growth are shared by all
the people equally and, hence, this not only leads to reduction of
inequality of income, poverty promotion of egalitarian society but also
enables everyone to be self-reliant.
Therefore, to conclude, it can be said that growth with equity is the most
important objective of an economic planning.
9. Does modernisation as a planning objective create contradiction in the light
of employment generation? Explain.
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No, modernisation as a planning objective does not contradict employment
generation. In fact both modernisation and employment generation are
positively correlated.
While modernisation refers to the use of new and modern technology in
production process that may make some people lose their jobs in the initial
stages. But gradually, the use of modern technology and input will raise the
productivity and, consequently, the income of the people that will further
raise the demand for goods and services.
In order to fulfil this increased demand, there will be more job
opportunities that will lead more people to be hired and, hence, more
employment opportunities will be generated. Hence, both modernisation
and employment generation are not contradictory but are complementary to
each other.
10. Why was it necessary for a developing country like India to follow self-
reliance as a planning objective?
Self-reliance implies discouraging the imports of those goods that could
be produced domestically. Achieving self-reliance is of prime
importance for a developing country like, India as
Otherwise, it would increase the country’s dependence on foreign
products.
Dependence on foreign goods and services can promote economic
growth of India but this would not contribute to the development of
domestic productive resources.
Dependence on foreign goods and services provides impetus to foreign
country’s industries at the cost of domestic infant industries. Further,
imports drain away the scarce foreign reserves that are of prime
importance to any developing and underdeveloped economy.
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Therefore, achieving self-reliance is an important objective for
developing countries in order to avoid themselves from being
acquiescent to the developed nations.
11. What is sectoral composition of an economy? Is it necessary that the service
sector should contribute maximum to GDP of an economy? Comment.
The sectoral composition of an economy is the contribution of different
sectors to total GDP of an economy during a year. That is, the share of
agricultural sector, industrial sector and service sector in GDP.
Yes, it is necessary that at the later stages of development, service sector
should contribute the maximum to the total GDP. This phenomenon is
called Structural Transformation.
This implies that gradually the country’s dependence on the agricultural
sector will shift from the maximum to minimum and, at the same time,
the share of industrial and service sector in the total GDP will increase.
This structural transformation together with the economic growth is
termed as economic development.
12. Why was public sector given a leading role in industrial development during
the planning period?
At the time of independence, Indian economic conditions were very poor
and weak.
There were neither sufficient foreign reserve nor did India have
international investment credibility.
In the face of such poor economic condition it was only the public
sectors that need to take the initiative.
The following are the reason that explains the driving role of the public
sector in the industrial development:
I. Need of Heavy Investment:
There was a need of heavy investment for industrial development.
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It was very difficult for the private sector to invest such a big
amount. Further, the risks involved in these projects were also
very high and also these projects had long gestation period.
Thus, the government played the leading role to provide the basic
framework of heavy industries.
II. Low Level of Demand:
At the time of independence, the majority of population was poor
and had low level of income.
Consequently, there was low level of demand and so there was no
impetus for any private sector to undertake investment in order to
fulfil these demands.
Thus, India was trapped into a vicious circle of low demand. The
only way to encourage demand was by public sector investments.
13. Explain the statement that green revolution enabled the government to
procure sufficient food grains to build its stocks that could be used during
times of shortage?
Green Revolution led to an increase in the production of food grains. With
the use of modern technology, extensive use of fertilisers, pesticides and
HYV seeds there was a significant increase in the agricultural productivity
and product per farm land.
In addition, the spread of marketing system, abolition of intermediaries and
easy availability of credit has enabled farmers with greater portion of
marketable surplus.
All these factors enabled the government to procure sufficient food grains to
build the buffer stock and to provide cushion against the shocks of famines
and shortages.
14. While subsidies encourage farmers to use new technology, they are a huge
burden on government finances. Discuss the usefulness of subsidies in the
light of this fact.
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Subsidy means availing some important inputs to farmers at a concessional
rate that is much lower than its market rate.
During 1960s, in order to adopt new technology HYV seeds and use of
modern fertilisers and insecticides, farmers were provided inputs at a
subsidised rate.
Thus, the public sector role was needed to invest heavily, so as to raise the
income of people that will in turn raise the demand and so on.
The following arguments are given in favour of subsidy:
a) Subsidy is very important for marginal land holders and poor farmers who
cannot avail the essential farm inputs at the on-going market rate.
b) Subsidy in 1960s was basically an incentive for the farmers to adopt modern
techniques and vital inputs like fertilisers, HYV seeds, etc. The subsidy was
mainly of convincing and lucrative nature so that the farmers do not hesitate to
use these modern techniques.
c) Subsidy is generally provided to the poor farmers with the motive of reducing
inequality of income between rich and poor farmers and to promote an
egalitarian distribution of income.
d) It is argued that the adoption of new technology and techniques are not risk
free and only daring farmers are only willing to adopt them.
The following arguments are given against subsidy.
a) It is generally argued that subsidy favours and benefits fertiliser industries
than the farmers. Subsidies provide a protective shield against the market
conditions and, consequently, these industries need not to bother about their
market share and competition.
b) Subsidies are also enjoyed by the potential farmers who do not need them.
This often leads to the misallocation and wastage of the scarce resources.
Indian Economic Development 25/44
c) Subsidies, if provided at a much lower rate than the market rate may lead to
the wastage of resources. For example, subsidised electricity leads to the
wastage of energy.
d) There is a general consensus that in order to assess the benefit and feasibility
of a particular technique, subsidy should be provided but once the
performance has been judged subsidies should be stopped.
Hence, based on the above pros and cons, we can conclude that although
subsidies are very useful and necessary for poor farmers and to overcome
uncertainties associated with farming, it put an excessive burden on the scarce
government finances. Thus, a proper planning, suitable reforms and allocation of
subsidies only to the needy farmers is required.
15. Why, despite the implementation of green revolution, 65 % of our population
continued to be engaged in the agriculture sector till 1990?
Although Indian agricultural production increased substantially that
enabled India to attain the status of self-sufficiency in food grains but
this increase is substantial only in comparison to food grain production
in the past.
Further, India failed to achieve structural transformation associated with
the agricultural revolution and development. That is, in other words,
industrial and service sector failed to generate significant employment
opportunities in order to attract and absorb excess agricultural labour.
The agricultural contribution to GDP has fallen from 51% in 1960-61 to
44% in 1970-71, on the other hand, the share of industry and service
sector in India’s GDP increased merely from 19% to 23% and from 30%
to 33% during the same period. Meantime, the percentage of population
dependent on agriculture decreased merely from 67.50% (in 1950) to
64.9% (in 1990).
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Hence, the industrial and service sector growth was not very significant
and, hence, failed to employ and attract surplus labour from agricultural
sector.
This may be because of the flaws in the economic policies that became
the bottleneck for the growth of secondary and tertiary sector.
16. Though public sector is very essential for industries, many public sector
undertakings incur huge losses and are a drain on the economy’s resources.
Discuss the usefulness of public sector undertakings in the light of this fact.
Although, the mismanagement and wrong planning in PSUs may lead to
misallocation and, consequently, to wastage of the scarce resources and finance but
PSUs do have some positive and useful advantages.
i. Enhancing Nation’s Welfare: The main motive of the PSU was to provide
goods and services that add to the welfare of the country as a whole. For
example, schools, hospitals, electricity, etc. These services not only enhance
welfare of country’s population but also enhance the future prospects of
economic growth and development.
ii. Long Gestation Projects: It was not feasible and economically viable for the
private sectors to invest in the big and wide projects like basic industries and
electricity, railways, roads, etc. This is because these projects need a very huge
initial investment and have long gestation period. Hence, PSU is the most
appropriate to invest in these projects.
iii. Basic Framework: An important ideology that was inherited in the initial five
year plans was that the public sector should lay down the basic framework for
industrialisation that would encourage the private sector at the latter stage of
industrialisation.
iv. Socialist Track: In the initial years after independence, Indian planners and
thinkers were more inclined towards socialist pattern. It was justified on the
rational ground that if the government controls the productive resources and
production, then it won’t mislead the country’s economic growth. This was the
Indian Economic Development 27/44
basic rationale to set up PSUs. These PSUs produce goods not according to the
price signals but according to the social needs and economic welfare growth of
the country.
v. Reduce Inequality of Income and Generate Employment Opportunities: It
was assumed that in order to reduce inequalities of income, eradicate poverty
and to raise the standard of living, government sector should invest in the
economy via PSUs.
17. Explain how import substitution can protect domestic industry?
In the initial seven five year plans, India opted for import substitution
strategy, which implies discouraging the imports of those goods that could
be produced domestically.
Import Substitution Strategy not only reduces an economy’s dependence on
the foreign goods but also provides impetus to the domestic firms.
Government provides various financial encouragements, incentives, licenses
to the domestic producers to produce domestically the import substituted
goods.
This would not only allow the domestic producers to sustain but also
enables them to grow as they enjoy the protective environment.
They need not to fear from any competition and also not to worry about
their market share as license gives them the monopoly status in the domestic
market.
Being monopolist, they earn more profits and invest continuously in R&D
and always look for new and innovative techniques.
This gradually improves their competitiveness and when they are exposed
to the international market they can survive and compete with their foreign
counterparts.
18. Why and how was private sector regulated under the IPR 1956?
Indian Economic Development 28/44
IPR 1956 was adopted in order to accomplish the aim of state controlling
the commanding heights of economy.
This policy was aligned with the Indian economy’s inclination towards
socialist pattern of system of Soviet Union. According to this resolution,
industries were classified into following three categories:
Category 1: Those industries that are established and owned exclusively by the
public sector.
Category 2: Those industries in which public sector will perform the primary role
while the private sector will play the secondary role. That is, the private sector
supplements the public sector in these industries.
Category 3: Those industries that are not included in Category 1 and Category 2 are
left to the private sector.
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19. Match the following:
1. Prime Minister A. Seeds that give large proportion of output
2. Gross Domestic
Product
B. Quantity of goods that can be imported
3. Quota C. Chairperson of the planning commission
4. Land Reforms D. The money value of all the final goods and
services produced within the economy in one
year
5. HYV Seeds E. Improvements in the field of agriculture to
increase its productivity
6. Subsidy F. The monetary assistance given by
government for production activities.
ANSWER:
1. Prime Minister C. Chairperson of the planning commission
2. Gross Domestic
Product
D. The money value of all the final goods and
services produced within the economy in one year
3. Quota B. Quantity of goods that can be imported
4. Land Reforms E. Improvements in the field of agriculture to
increase its productivity
5. HYV Seeds A. Seeds that give large proportion of output
6. Subsidy F. The monetary assistance given by government for
production activities.
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LIBERALISATION, PRIVATISATION & GLOBALISATION
1. Why were reforms introduced in India?
Economic reforms were introduced in the year 1991 in India to combat
economic crisis.
Economic Crisis of 1991 was a culminated outcome of the policy failure in
the preceding years.
It was in that year the Indian government was experiencing huge fiscal
deficits, large balance of payment deficits, high inflation level and an acute
fall in the foreign exchange reserves.
Moreover, the gulf crisis of 1990-91 led to an acute rise in the prices of fuel
which further pushed up the inflation level.
Because of the combined effect of all these factors, economic reforms
became inevitable and were the only way to move Indian economy out of
this crisis.
The following are the factors that necessitated the need for the economic
reforms.
I. Huge Fiscal Deficit: Throughout 1980s, fiscal deficit was getting worse due
to huge non-development expenditures. As a result, gross fiscal deficit rose
from 5.7% of GDP to 6.6% of GDP during 1980-81 to 1990-91. Subsequently,
a major portion of this deficit was financed by borrowings (both from external
and domestic source).
The increased borrowings resulted in increased public debt and mounting
interest payment obligations. The domestic borrowings by government
increased from 35% to 49.8% of GDP during 1980-81 to 1990-91.
Moreover, the interest payments obligations accounted for 39.1% of total fiscal
deficit. Consequently, India lost its financial worthiness in the international
market and, fell in a debt trap. Thus, economic reforms were needed urgently.
II. Weak BOP Situation: BOP represents the excess of total amount of exports
over total amount of imports. Due to lack of competitiveness of Indian
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products, India was not able to earn enough foreign exchange through exports
to finance our imports. The current account deficit rose from 1.35% to 3.69%
of GDP during 1980-81 to 1990-91. In order to finance this huge current
account deficit, Indian government borrowed a huge amount from the
international market. Consequently, the external debt increased from 12% to
23% of GDP during the same period. On the other hand, Indian exports were
not potent enough to earn sufficient foreign exchange to repay these external
debt obligations. This BOP crisis compelled the need for the economic
reforms.
III. High level of Inflation: The high fiscal deficits forced the central
government to monetise the fiscal deficits by borrowings from RBI. RBI
printed new money that pushed up the inflation level, thereby, making the
domestic goods more expensive. The rate of inflation rose from 6.7% p.a. to
10.3% p.a. during 1980s to 1990-91. In order to lower the inflation rate,
government in 1991 had to opt for the economic reforms.
IV. Sick PSUs: Public Sector Undertakings were assigned the prime role of
industrialisation and removal of inequality of income and poverty.
But the subsequent years witnessed the failure of PSUs to perform these roles
efficiently and effectively.
Instead of being a revenue generator for the central government, these became
liability. The sick PSUs added an extra financial burden on the government’s
budget.
Thus, because of all the above reasons existing concomitantly, the economic
reforms became inevitable.
2. Why is it necessary to become a member of WTO?
It is important for any country to become a member of WTO (World Trade
Organisation) for the following reasons:
i. WTO provides equal opportunities to all its member countries to trade in the
international market.
Indian Economic Development 32/44
ii. It provides its member countries with larger scope to produce at large scale to
cater to the needs of people across the international boundaries. This provides
ample scope to utilise world resources optimally and provides greater market
accessibility.
iii. It advocates for the removal of tariff and non-tariff barriers, thereby,
promoting healthier and fairer competition among different producers of
different countries.
iv. The countries of similar economic conditions being members of WTO can
raise their voice to safeguards their common interests.
3. Why did RBI have to change its role from controller to facilitator of financial
sector in India?
Prior to liberalisation, RBI used to regulate and control the financial sector that
includes financial institutions like commercial banks, investment banks, stock
exchange operations and foreign exchange market.
With the economic liberalisation and financial sector reforms, RBI needed to
shift its role from a controller to facilitator of the financial sector.
This implies that the financial organisations were free to make their own
decisions on many matters without consulting the RBI.
This opened up the gates of financial sectors for the private players.
The main objective behind the financial reforms was to encourage private
sector participation, increase competition and allowing market forces to
operate in the financial sector.
Thus, it can be said that before liberalisation, RBI was controlling the financial
sector operations whereas in the post-liberalisation period, the financial sector
operations were mostly based on the market forces.
4. How is RBI controlling the commercial banks?
RBI controls the commercial banks via various instruments like
Statutory Liquidity Ratio (SLR),
Cash Reserve Ratio (CRR),
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Bank Rate
Prime Lending (PLR),
Repo Rate, Reverse Repo Rate
and fixing the interest rates and deciding the nature of lending to various
sectors.
These are those ratios and rates that are fixed by RBI and it is mandatory for all
the commercial banks to follow or maintain these rates. All these measures
control the commercials banks' operations and also control money supply in
Indian economy.
5. What do you understand by devaluation of rupee?
Devaluation of Rupee refers to the fall in the value of rupee in terms of foreign
currency.
Specifically, it implies deliberate official lowering of the value of the country's
currency with respect to the foreign currency.
Devalutaion prevails under the fixed exchange rate regime. This implies that
value of rupee has fallen and the value of foreign currency has risen.
It means that now (after devaluation) one US$ can be exchanged for more
rupees.
This encourages exports and discourages imports as the former is cheaper now
for foreign countries and the latter is expensive for Indians.
6. Distinguish between the following
(i) Strategic and Minority sale
(ii) Bilateral and Multi-lateral trade
(iii) Tariff and Non-tariff barriers.
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ANSWER
(i) Strategic Sale Minority Sale
a)
Strategic Sale refers to the sale
of 51% or more stake of a PSU
to the private sector who bids
the highest.
Minority Sale refers to the
sale of less than 49% stake of
a PSU to the private sector.
b)
The ownership of PSU is
handed over to the private
sector.
The ownership of PSU still
remains with the government
as it holds 51% of stakes.
(ii) Bilateral Trade Multilateral Trade
a) It is a trade agreement between
two countries
It is a trade agreement among
more than two countries.
b)
This is an agreement that
provides equal opportunities to
both the countries.
This is an agreement that
provides equal opportunities to
all the member countries in the
international market
(iii) Tariff Barriers Non-tariff Barriers
a)
It refers to the tax imposed on
the imports by the country to
protect its domestic industries.
It refers to the restrictions other
than taxes, imposed on imports
by the country.
b) It includes custom duties,
export-import duties
It includes quotes and licenses.
Indian Economic Development 35/44
c)
It is imposed on the physical
units (like per tonne) or on
value of the goods imported.
It is imposed on the quantity
and quality of the goods
imported.
7. Why are tariffs imposed?
Tariffs are imposed to make imports from foreign countries relatively
expensive than domestic goods, thereby, discouraging imports indirectly.
These are imposed to provide a safe and protective environment to the infant
domestic firms from their technologically advanced foreign counterparts.
Tariffs facilitate the domestic firms to survive and grow.
Tariffs are also imposed on those goods that the government thinks to be
socially unwanted and imports of which will exert unnecessary burden on the
scarce foreign exchange reserves.
8. What is the meaning of quantitative restrictions?
Quantitative Restrictions (QRs) refer to the restrictions in the form of limits or
quotas on the amount of commodities that can either be imported or exported.
QRs usually on imports (refers to non-tariff measures) are imposed to
discourage imports of foreign goods and to reduce Balance of Payment (BOP)
deficits.
The imposition of QRs provides impetus to the domestic firms to survive, grow
and expand in a protective and lesser competitive environment.
9. Those public sector undertakings which are making profits should be
privatised. Do you agree with this view? Why?
An efficient and profit earning PSU is a revenue generator for the government.
But if, a PSU is an inefficient and loss making one, then the same PSU exerts
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unnecessary burden on the government's scarce revenues and further may lead
to budget deficit.
The loss making PSUs should be privatised whereas it would not be fair to
privatise a profit making PSU.
Privatising a PSU may lead to concentration of monopoly power in the private
hands. Further some of the PSUs like, water, railways, etc. enhance the welfare
of nation and is meant to serve general public at a very nominal cost.
Privatisation of such important PSUs will lead to loss of welfare of poor
people.
Hence, only less important PSUs should be privatised while leaving the core
and important PSUs to be owned by the public sector.
Instead of privatisation of profit-making PSUs, government can allow more
degree of autonomy and accountability in their operations, which will not only
increase their productivity and efficiency but also enhance their
competitiveness with their private counterparts.
10. Do you think outsourcing is good for India?
Yes, outsourcing is good for India. The following points suggest that outsourcing is
good for India.
I. Employment: For a developing country like India, employment generation is
an important objective and outsourcing proves to be a boon for creating more
employment opportunities. It leads to generation of newer and higher paying
jobs.
II. Exchange of technical know-how: Outsourcing enables the exchange of
ideas and technical know-how of sophisticated and advanced technology from
developed to developing countries.
III. International worthiness: Outsourcing to India also enhances India’s
international worthiness credibility. This increases the inflow of investment to
India.
Indian Economic Development 37/44
IV. Encourages other sectors: Outsourcing not only benefits the service sector
but also affects other related sectors like industrial and agricultural sector
through various backward and forward linkages.
V. Contributes to human capital formation: Outsourcing helps in the
development and formation of human capital by training, imparting them with
advanced skills, thereby, increasing their future scope and their suitability for
high ranked jobs.
VI. Better standard of living and eradication of poverty: By creating more and
higher paying jobs, outsourcing improves the standard and quality of living of
the people in the developing countries. It also helps in reducing poverty.
VII. Greater infrastructural investment: Outsourcing to India requires better
quality infrastructure. This leads to the modernisation of the economy and
larger investment by the government to develop quality infrastructure and
develop quality human capital.
However, Outsourcing to India is good but developed countries oppose this
because outsourcing leads to the outflow of investments and funds from the
developed countries to the less developed countries.
Also the MNCs contribute more to the development of the host country than
the home country. Further, outsourcing reduces the employment generation in
the developed countries as the same jobs can be done in the less developed
countries at relatively cheap wages.
Moreover, this leads to job insecurity in the developed countries as at a point of time
jobs can be outsourced to the developing countries.
11. India has certain advantages which make it a favourite outsourcing
destination. What are these advantages?
The following points qualify India to be the favourite spot for outsourcing by
various MNCs.
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I. Easy Availability of Cheap Labour: As the wage rates in India are
comparatively lower than that of in the developed countries, MNCs find it
economically feasible to outsource their business in India.
II. Reasonable Degree of Skills: Indians have fairly reasonable degree of skills
and techniques that need low training period and, thus, low cost of training.
III. International worthiness: India has a fair international worthiness and also
credibility. This enhances the faith of the foreign investors in India.
IV. Virgin Market: India has a virgin market for produced goods and services.
This not only helps the MNCs to explore the wide domestic market of India but
also conquer the international market as the cost of production in India is
relatively cheaper.
V. Stable Political Environment: The democratic political environment in India
provides a stable and secured environment to the MNCs to expand and grow.
VI. Favourable Government Policies: The most important point that makes India
as the most favourite spot for outsourcing is the favourable government and tax
policies. MNCs gets various types of lucrative offers from the Indian
government like tax holidays, low rate of tax, easy tax policies, etc. All these
policies enable the MNCs to retain a major portion of their earnings in the form
of savings that they can invest to grow and expand their business.
VII. Lack of Competitive Competitors: The most important for the MNCs in
India is that they don’t face stiff competition from the Indian domestic
industries. This almost enables them to enjoy a monopoly status in the Indian
markets.
VIII. Reasonable Degree of Infrastructural Investment: Indian government has
invested heavily in the past two decades in the infrastructural sector. Various
steps have been taken for connecting remote and rural areas to the metropolitan
and other major cities. This has not only reduced the cost of production of the
MNCs but also helped them operate efficiently and effectively.
IX. Cheap and Abundant Availability of Raw Materials: India is well enriched
in natural resources. This ensures the MNCs cheap availability of raw material
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and undisturbed and perennial supply of raw materials. This enables proper and
smooth operation of MNCs.
12. Do you think the navaratna policy of the government helps in improving
the performance of public sector undertakings in India? How?
To improve efficiency, infuse professionalism and to enable PSUs to compete
effectively in the market, government awarded the status of ‘navaratnas’ to the
following nine PSUs:
a. Indian Oil Corporation Ltd (IOCL)
b. Bharat Petroleum Corporation Ltd (BPCL)
c. Hindustan Petroleum Corporation Ltd (HPCL)
d. Oil and Natural Gas Corporation Ltd (ONGC)
e. Steel Authority of India Ltd (SAIL)
f. India Petro-chemicals Corporations Ltd (IPCL)
g. Bharat Heavy Electricals Ltd (BHEL)
h. National Thermal Power Corporation (NTPC)
i. Videsh Sanchar Nigam Ltd (VSNL)
These corporations were granted a greater degree of financial, managerial and
operational autonomy.
This boosted their efficiency and effectiveness.
They also became highly competitive and some of them are becoming the giant
global players.
Consequent to their better performance, government retained them under
public sector and enabled them to grow themselves not only in the domestic
market but also in the international market.
These corporations are self-reliant and financially self-sufficient. Thus, the
navaratna policy has certainly improved the performance of these PSUs.
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13. What are the major factors responsible for the high growth of the service
sector?
The major factors that led to the growth of service sectors in India are as
follows;
I. High demand for services as final product: India was a virgin market for
service sector. So, when service sector started booming due to business
outsourcing from the developed countries to India, there was very high demand
for these services especially for banking, computer service, advertisement and
communication. This high demand in turn led to a high growth rate of service
sector
II. Liberalisation and economic reforms: The growth of Indian service sector is
also attributable to the liberalisation and various economic reforms that were
initiated in 1991. Due to these reforms, various restrictions on the movement of
international finance were minimised. This led to huge inflow of foreign
capital, foreign direct investments and outsourcing to India. This encouraged
the service sector growth.
III. Structural transformation: Indian economy is experiencing structural
transformation that implies shift of economic dependence from primary to
tertiary sector. Due to this transformation, there was increased demand of
services by other sectors which y boosted the service sector.
IV. Advanced technology and growth of IT: The advancements and innovations
in the IT sector enabled the use of internet, telecommunication, mobile phone
and electronic transactions across different countries. All these contributed to
the growth of the service sector in India.
V. Increased volume of trade: Low tariff and non-tariff barriers on imports by
India are also responsible for high growth rate of service sector. The foreign
trade reforms enabled the domestic products to interact and compete in the
international markets.
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VI. Cheap labour and reasonable degree of skill in India: Due to the
availability of cheap labour and reasonable degree of skilled man power in
India, developed countries found outsourcing to India feasible and profitable.
The business outsourcing in itself provides substantial encouragements (like
development of human capital that requires services like good coaching centers
and reputed institutions, etc.) to the growth of service sector.
14. Agriculture sector appears to be adversely affected by the reform process.
Why?
The economic reforms of 1991 did not benefit the agricultural sector
significantly. The following are the reasons that explain the adverse effects of
the economic reforms on India’s agriculture sector:
I. Reduction of Public Investment: There has been a drastic decrease in the
volume of public investment in the agricultural sector. There has been an acute
cutback from the Indian government to provide sufficient irrigation facilities,
electricity, information system, market linkages and roads. Moreover,
investment in agricultural research and development was not as extensive as it
was during green revolution phase
II. Removal of Subsidies: Removal of subsidies on fertilisers pushed up the cost
of production of agriculture. This made farming more expensive, thereby,
adversely affecting the poor and marginal farmers.
III. Liberalisation and Reduction in Import Duties on Agricultural
Products: Due to adherence to the WTO commitments, Indian government
reduced import duties on agricultural products that forced the poor and
marginal farmers to compete with their foreign counterparts in the international
markets. Stiff competition in the international market along with traditional
techniques of farming badly affected the poor farmers.
IV. Shift towards Cash Crops and Lack of Food Grains: The export oriented
production strategies led to the shift of agricultural production from food
grains to the production of cash crops like cotton, jute, etc. This led to reduced
Indian Economic Development 42/44
availability of food grains and, consequently, t lower nutritional values which
further reduced their productivity.
V. Inflationary Pressures on Food Grains: The shift towards cash crops
production along with the removal of subsidies exerted inflationary pressures
on the prices of food grains. This in turn adversely affected the agricultural
sector’s performance by making the cost of producing food grains more
expensive.
15. Why has the industrial sector performed poorly in the reform period?
Similar to the agricultural sector, industrial sector’s performance was also
poor. The poor performance of industrial sector may be attributable to the
following reasons:
I. Cheaper Imports: The demand for industrial output reduced due to the
cheaper imports. The imports from the developed countries were cheaper
due to the removal of import tariffs. These cheaper and quality foreign
imports led to the fall in the demand of domestic goods.
II. Lack of Investment: Due to the lack of investment in infrastructure
facilities (including power supply) the domestic firms could not compete
with their developed foreign counterparts in terms of cost of production and
quality of goods. The inadequate infrastructural investment pushed up the
cost of production of the domestic producers and, consequently, led to the
non-feasibility of their growth prospectus.
III. High Non-tariffs Barriers by the Developed Countries: It was very
difficult to access the developed countries market due to high non-tariff
barriers maintained by the developed countries. For instance, US did not
remove quota restrictions on imports of textiles from India and China.
IV. Vulnerable and Infant Domestic Industries: During the pre-liberalised
period, the domestic industries were provided a protective environment to
grow and expand. But at the time of liberalisation, the domestic industries
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were still not developed up to the extent it was thought and consequently,
they could not compete with the multi-national companies.
The dependence of domestic industries on traditional technologies which
were neither cost effective nor quality effective was an important reason for
their poor growth. Thus, the domestic industries were adversely affected by
liberalisation.
16. Discuss economic reforms in India?
The economic reforms have enabled India to access and compete in the
international markets.
This facilitated the movement of goods and services across the international
boundaries.
Further, the increased inflows of foreign capital and investment to India have
eliminated the shortage of foreign exchange to finance the imports of
sophisticated and advanced technologies to India.
Moreover, the boom in the outsourcing and the service sector led India’s
economic growth and GDP to increase by many folds.
But on the other side, agriculture that employed a significant proportion of
population, failed to be benefited by these economic reforms.
Also the reforms favoured the high income group population at the cost of their
poor counterparts.
This resulted in wide and still increasing economic and social inequalities
among different section of population. Further, the economic reforms
developed the areas that were well connected with the metropolitan cities
leaving the remote and rural area undeveloped. Consequently, there were wide
regional disparities.
The boom in the service sector, especially in the form of quality education,
superior health care facilities, IT, tourism, multiplex cinemas, etc. were out of
the reach of the poor section of the population.
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The population engaged in the agricultural and allied sectors has still not been
able to share the fruits of advanced technology and modern techniques.
Further, the high income group has experienced increase in income, thereby,
appreciating the quality of their consumption basket, leaving the low and
middle income group to fight hard to earn their livelihood.
Thus, it can be concluded that the economic reforms failed to provide social
justice and enhance welfare of the general public of India.