Indian Economic Development Chapter 2 Indian Economy 1950-1990

Economic planning means utilising of capital's resources in different development authorities in accordance with national priorities.

In India, Prime Minister is the chair person of Planning Commission.

Planning Commission formulates plans in India.

P.C. Mahalanobis floated the idea of planning in India first of all.

Ten plans have been completed in India so far.

Capitalist economy may be defined as an economy in which there is a private ownership of means of production and all economic decisions are taken with a view to maximising profits.

Socialist economy is that economy in which there is a state ownership of means of production. All economic decisions are taken with a view to maximum welfare of the society as a whole.

Mixed economy is that economy in which both private and government sectors coexist to foster self-interest and social interest respectively.

Economic growth means a consistent increase in GDP or a consistent increase in the level of output or a consistent increase in the flow of goods and services in the economy over a long period of time.

As an economy develops, the share of the agriculture declines and the share of industry becomes dominant. At higher levels of development the service sector contributes more to GDP than the other two sectors.

The sectors from which the GDP of a country derived are

(i) agriculture sector (ii) industrial sector and (iii) service sector.

The policy of 'land to tiller' is based on the idea that the cultivators will take more interest in increasing output if they are the owners of land.

In the Directive Principles of States.

More than-two thirds of our population is dependent on agriculture directly or indirectly. One third of our national income comes from agriculture. It supplies the raw material to industries and food for more than one hundred crore people of India.

It is the art or science which relates to crop farming and cattle breeding activities.

System of ownership of land and small size of the farmers are the main causes of the backwardness of Indian agriculture.

The reforms which are related to institutional changes in the field of agriculture for its development.

When farmers are given all their lands at one place in the place of their fragmented holdings, it is called consolidation of holdings.

Significant and continuous rise in agricultural production with the use of fertilizers, HYV seeds and irrigation facilities is known as Green Revolution.

Significant and continuous rise in agricultural production with the use of fertilizers, HYV seeds and irrigation facilities is known as Green Revolution.

When all the citizens of the country do not get food for living, it is known as food problem.

(i) Increase in area sown.

(ii) Improvement in the cropping pattern.

(iii) Improvement in crop yields.

This policy refers to the policy of the government for the development of industries.

In 1948.

A small scale industry is the one in which fixed investment does not exceed Rs. 60 lakhs.

Those industries which use family labour for production purposes are known as cottage industries.

(i) They generate more employment with less use of capital.

(ii) Locally available raw material is put to maximum use. They have large export potential.

Seventeen Industries.

It was announced on 24th June, 1991.

The main features are-diversification of industries and abolition of industrial licensing.

The formulation of principles and rules.

India opted for planning because planning helps in sorting out how the resources of a nation should be put to use efficiently and economically so that the rate of economic development can be accelerated.

Plans should have goals so that it can be achieved within a specified period of time. In India, plans are of five years duration and are called five years plans.

Miracle seeds or High Yielding Variety (HVYS) Seeds are helpful in increasing the production of food grains. The use of these seeds require the use of fertilizers and pesticides in the correct quantities as well as regular supply of water.

Marketable seeds are high yielding variety of seeds. They are helpful in increasing the production of food-grains. The use of these seeds requires the use of fertilizers, pesticides (in correct quantity) and regular supply of water.

Its aim was to establishment, expansion and ownership of private industries according to priorities of five-year plans and to check the monoply tendency in industries. It also had the objective of removing regional disparities.

The leaders of Independent India had to decide among other things the type of economic system most suitable for the nation.

Socialism appealed to Jawaharlal the most.

No, he was not.

(i) Capitalism, (ii) Socialism and (iii) Mixed economy.

Mixed economy.

A plan spells out how the resources of a nation should be put to use.

The duration of Indian plans is five years.

The former Soviet Union is the poineer in national planning.

Our plan documents specify the objectives to be achieved in the five year of a plan and the objectives to be achieved over a period of 20 years.

A perspective plan is a long-term plan.

The Planning Commission was set-up in 1950.

The goals of the Five Year Plans are growth, modernization, self-reliance and equity.

Growth refers to increase in the country's capacity to produce the output of goods and services within the country.

Steady increase in the gross domestic products is a good indicator of economic growth in the language of economics.

1. Agricultural Sector, 2. Industrial Sector and 3. Service Sector.

Modernisation refers to the use of new technology and change in social outlook.

Self-reliance means avoiding import of those goods which could be produced in a country itself.

Equity in agriculture called for land reforms.

Land ceiling means fixing the maximum size of land which could be owned by an individual.

The purpose of land wiling was to reduce the concentration of land ownership in a few hands.

Green revolution broke the stagnation in agriculture during the colonial rule.

Green revolution refers to the large increase in production of food-grains resulting by the use of high yielding varieties (HYV) of seeds specially for wheat and rice.

The structure of an economy implies : primary, secondary and tertiary sectors.

The First Five Year Plan focussed on higher agricultural production as the country was confronted with an acute shortage of food grains when the first plan was initiated.

Increase in the industrial production was the principal objective dining the second plan.

Marketed surplus is the portion of agricultural produce which is sold in the market by the farmers.

One risk involved in green revolution was the possibility that it would increase the disparities between small and big farmers.

Industrial Policy resolution of 1956 formed the basis of the Second Five Year plan.

The industries were classified into three categories under Industrial Policy Resolution of 1956.

Labour intensive industries are those industries which use more labour and less capital.

Protection from foreign competition is being critisised on the ground that if it is kept continued even after it proved to do more harmful than good.

Land-reforms were successful in Kerala and West Bengal because these states had government committed to the policy of the land to the tillers.

The risk of small farmers being ruined when pests attack their crops was considerably reduced by the service rendered by research institutes established by the government.

Hurdles : Following hurdles were faced by the land ceiling legislation:

1. The big landlord challenged the legislation in the court delaying its implementation.

2. The legislation also had a lot of loopholes which were exploited by the big landlords.

Reguisites (needs) of the use of HYV seeds : 1. The use of HYV seeds required the use of fertilizer as well as regular supply of water.

2. The farmers who could benefit from HYV seeds required reliable irrigation facilities as well as the financial resources to purchase fert ilizers and pesticides.

Five Year Plan places a lot of emphasis on the industiral development because industrial development promotes modernisation and overall prosperity.

In market economy i.e. in capitalist economy.

Socialist economy.

Mixed economy.

Mixed economy.

In capitalist economy, produced goods are distributed on the basis of purchasing power i.e. the ability to buy goods and services.

People's need is basis of distribution of goods and services in socialist economy.

If labour is cheap, than capital, then labour intensive technique will be adopted and vice-versa.

In socialist economy.

Consolidation of holdings means converting many small and fregmented fields into one or two big farms.

Cooperative farming refers to that system of farming under which each farmer continues to be the owner of his land but agricultural operations are conducted jointly with other farmers. The profit shared among the cooperators.

Periods covered by various five year plans are given below:

Development refers to a more comprehensive change in the life style of people. It includes change in technology and consumption pattern of goods and services, changes in the attitude of people and the capacity of the economy to survive and to adopt new changes.

A plan spells out how the resources of a nation should be put to use. A plan should have some general goals and specific objectives which are to be achieved within a specified period of time. Our plan documents not only specify the objectives to be attained in the five years of a plan but also what is to be achieved over a period of twenty years. This long-term plan is called perspective plan.

A plan spells out how the resources of a nation should be put to use. A plan should have some general goals as well as specific objectives which are to be achieved within a specified period oftime. In India, plans are of five years duration and are called five-year plans. Our plan documents not only specify the objectives to be attained in the five years of a plan but also what is to be achieved over a period of twenty years. This long term plan is called perspective plan. The five-year plans are supposed to provide the basis for the perspective plan.

A steady increase in the Gross Domestic Product (GDP) is considered a good indicator of economic growth. The gross domestic product is the market value of all the goods and services produced in the country during a year. If the value of GDP is more, it will be divided among large number of people. It is necessary to produce more goods and services if the people of India are to enjoy a more rich and varied life.
The GDP of a country is derived from the different sectors of the economy, namely the agricultural sector, the industrial sector and the service sector. The contribution made by each of these sectors makes up the structural composition of the economy.

The occupational structure of a country refers to the distribution of its work- force according to different occupations. It indicates the structure of economic activities. It tells us on what sector the people of the country depend for their livelihood. It also indicates the level of development of the country. As a country develops, it undergoes structural changes. With the development of the economy the share of agriculture declines and the share of industry becomes dominant. At higher levels of development, the service sector contributes more to the GDP than the other two sectors. In India, the share of agriculture in GDP is declining and the share of service sector is increasing. It reflects the relationship of economic development and structural change.

Agriculture is the backbone of the Indian economy. It contributes to nearly 30 percent of national income. About two-thirds of our total labour force depends on agriculture for their living. It also plays a significant role in the country's industrial development.

Agrarian reforms refer to all those measures which aim at improving agricultural production and productivity. There are two types of measures-institutional measures and technological measures. Institutional measures are also known as land reform measures. The present agrarian structure in India is defective which acts as an obstacle to improvements in agriculture. It has mainly two aspects : (i) The problem of unit of ownership, (ii) The problem of unit of cultivation.

The tenancy reforms : The tenants in India form a very significant part of the cultivating population. To protect their interests, the following tenancy reforms have been introduced by the government:
(i) Right of ownership : Provisions have been made in the tenancy legislation in several states for conferment of ownership rights to tenants. Tenants can acquire ownership rights by paying certain proportion of the net income from land to the land owner.

(ii) Security of tenure : It has been provided by several states through legislation to prevent large scale eviction of tenants.

(iii) Fixation of Rent : Maximum limit of rent paid by tenants to the landlords has been fixed.

The policy of land to the tiller is based on the idea that the cultivators will take more interest. They have more incentive in increasing output if they are the owners of the land. The ownership of land enables the tiller to profit from the increased output. Tenants will have the incentives to make improvement on land. In the absence of onwnership there is no incentive on the part of the farmers to be efficient.

Before independence the land tenure system was characterized by the intermediaries known as Zamindars, who merely collected rent from the actual tillers of the soil without contributing to improvements of the farm. After independence this Zamindari System was abolished to make the tillers the owners of the land. The abolition of Zamindari System resulted in some 200 lakh tenants coming into direct contact with the government. They were free from the exploitation of Zamindars.

The ownership rights to tenants give them the incentives to increase output and contribute to the growth in agriculture. Provisions have been made in the tenancy legislation in several states for conferment of ownership rights to tenants. Tenants can acquire ownership rights by paying certain times of net income from land to the landowner.

The goal of equity was not fully served by abolition of intermediaries. In some parts of the country, \Zamindars continued to own large amounts of land using some defects in the legislation. The tenants were evicted because the land owners claimed to be self-cultivators claiming ownership of the land. The big landlords challenged the legislation in the courts, delaying its implementation. They used this delay to register their lands in the name of close relatives.

The new agricultural strategy was put into practice for the first time in India in 1966. This was termed as High Yielding Varieties Programme. The HYV programme was introduced in the form of a package programme since high yielding varieties of seeds required regular and adequate irrigation facilities, extensive use of fertilizers, pesticides and insecticides. As a result of this programme, a surprise increase in food grains production was observed in 1967-68 (Nearly 25 percent increase compared to the production in 1966-67). The economists termed this increase in production as Green Revolution.

Before independence, the productivity in agriculture sector was very low because of the use of old technology and absence of the required infrastructure for the vast majority of farmers. India's agriculture depends on the monsoon and if the monsoon rains are inadequate the farmers are in trouble. Very few farmers have beat benefitted by irrigation. This stagnation in agriculture was broken by the Green Revolution.

The spread of Green Revolution technology enabled India to achieve self- sufficiency in food grains. Now India is not importing food grains from other countries of the world. We no longer had to be at the mercy of America or any other nation for meeting our nation's food requirements. Now we are exporting wheat and rice to a number of countries.

The Green Revolution has made India self-sufficient in food grains. The farmers sell their production in the open market. The portion of the agricultural produce which is sold in the market by the farmers is called marketed surplus. According to the famous economist C.H. Hanumantha Rao, a good proportion of the rice and wheat produced during the Green Revolution period was sold by the farmers in the market. As a result the price of food grains declined. The Green Revolution enabled the government to procure sufficient amount of food grains to build a stock, which could be used in times of food shortage.

India became self-sufficient in food grains requirements but the technology involved was not free from risks. One was the possibility that it will increase the disparities between small and big farmers because the big farmers could afford the required inputs and were able to reap most of the benefits of the Green Revolution. The HYV crops were also more prone to attack by pests, and the small farmers who adopt this technology may lose everything in a pest attack. But these did not come true because of the steps taken by the government. The government provided loans at a low interest rate to small farmers and subsidised fertilizers so that small farmers also could have access to the needed inputs.

At the time of independence, Indian industrialists did not have the capital to undertake investment in industrial ventures required for the development of our economy. The market was also not big enough to encourage industrialists to undertake major projects even if they had the capital to do so. Due to the lack of adequate resources with the public sector to develop basic and heavy industries, the state had to play an intensive role in promoting the industrial sector. The decision to develop the Indian economy on socialist lines led to the policy of the state controlling the commanding heights of the economy.

(i) Rapid industrial development.

(ii) Development of basic and key industries.

(iii) Rapid growth of public sector.

(iv) Reduction in inequalities of income and wealth.

The aim of Licensing Policy was to keep the private sector under control. No new industry was allowed unless a license was obtained from the government. This policy was used for promoting industries in backward regions. Even an existing industry had to obtain a license for expanding output or for diversifying production. For producing a new commodity the license was compulsory. This was to ensure that the quantity of goods produced was not more than what the economy required. License to expand production was given only if the government was convinced that the economy required the larger quantity of goods.

The main objectives of the New Industrial Policy are as follows:

1. To correct weaknesses that may have crept in the industrial strcucture as it has developed over the last four decades.

2. To consolidate the strengths built up during the last four decades of economic planning and to build on the gains already made.

3. To maintain a sustained growth in the productivity and gainful employment.

4. To attain international competitiveness.

Small scale industries can play a very important role as an instrument of economic-development of India. That is why the government has been extending the assistance for the promotion of these industries. Among the various measures, the following are important:

(i) Small industries are exempted from excise duties. This enables them to sell their products at lower prices.

(ii) 836 products have been exclusively reserved for production in small sector. Large industries cannot produce them.

(iii) Training institutes have been set up throughout the country. These help small industries to upgrade their skills and modernise their technology.

Need of land reforms : Land reforms were need to

(a) Promote the productivity of agriculture.

(b) Make a direct link between actual tiller and government by abolishing intermediaries.

(c) To bring equity in agriculture.

Types of land reforms : Following are main types of land reforms implemented in the agriculture sector:

1. Tenancy reforms : These reforms are connected with (a) regulation of rent, (6) security of tenure and (c) ownership rights of tenants.

2. Reorganisation of agriculture : It is considered with redistribution of land (land ceiling), consolidation of holdings and cooperative farming.

Significant and continuous rise in agricultural production with the use of fertilizers, HYV seeds and irrigation facilities is known as Green Revolution.

At the time of independence, about 75% of the country's population were dependent on agriculture. The productivity in agricultural sector was very low because of the use of old technology and absence of the required infrastructure for the majority of the farmers.

The spread of green revolution technology enabled India to achieve self-sufficiency in food grains. It helped in improving the living standard of farmers. Also, it helped in creating marketable surplus of food grains, especially wheat and rice.

Growth refers to the increase in the country's capacity to produce the output of goods and services within the country. A good indication of economic growth is the steady increase in the GDP.

In equity every Indian should be able to meet his or her basic needs such as food, a decent house, education and heath care and inequality in the distribution of wealth should be reduced. Hence growth with equity 'implies that benefits of development should be evenly available to everybody.

Adoption of new technology is called modernisation. It does not refer only to the use of new technology but also to changes in social outlook such as recognition that women should have the same rights as men.The concept of modernisation is never contradictory to the employment generation activities, rather it has always worked towards changing the thinking of the people and society at large.

A nation can promote economic growth and modernisation by using its own resources or by using resources imported from other vations. The first seven five year plans gave importance to 'Self Reliance' which means averting imports of those goods which could be produced in India itself. When the economy becomes 'self reliant' especially in the field of food grains, it can save foreign exchange and can promote exports. It call reduce its dependence on other countries.

Import substitution implies replacing domestic goods and services instead of importing them. For a developing counting like India, in order to accelerate the pace of economic development two important parameters are:

(a) Export promotion and

(b) Import Substitution.

Import substitution is always welcomed by domestic industry and small indigenous manufacturers. However, in the quest to substitute the imports, sometimes, local production becomes expensive.

1. Reasons of regulating private sector : Private sector was regulated under the IPR to

(a) Promote regional equality

(b) Promote industry in backward regions.

2. How regulated : Private sector was regulated through a system of licence. Now new industry was allowed unless a licence was obtained from the government.

Under subsistence agriculture, a farmer mainly produces those crops which are required to meet the most immediate needs of his family. These are primarily food crops and to some extent non-food crops like cotton, sugarcane, etc. On the other hand, under commercial agriculture, a farmer cultivates those crops which find a ready market. The farmer sells the crops in the market and with the cash received from the sale of crops, he purchases the goods required by him.

Self-Reliance : Self-reliance means avoiding imports of those goods which could be produced in a country (say India) itself.

Necessity of the policy of self-reliance: The policy of self-reliance was considered necessary due to following reasons:
1. To reduce our independence on foreign countries especially for food.

2. It was feared that dependence on imported food supplies, foreign technology and foreign capital may make India vulnerable to foreign interference to our policies.

Marketed surplus refers to surplus of farmer's output over and above his 'oh farm consumption' (i.e. expected consumption of output by the farmer's family during the year). This surplus is available to the farmers for sale in the market. Hence it is called marketed surplus. By selling the marketable surplus he gets the cash. Marketable surplus is a sign of commercialisation of agriculture.

Difference between planning objectives and plan objectives:

A society has to answer the following three questions:

1. Choice of production : What goods and services should be produced in the country?

2. Choice of technique : How should the goods and services be produced? Should producers use more human-labour or more capital for producing things?

3. For whom to produce : How should the goods and services be distributed among people?

Inward looking trade strategy : In the first seven plans trade was characterised by what is commonly called inward looking trade strategy. Technically this strategy is called import substitution.

This policy aimed at replacing or substituting imports with domestic production. For example, instead of importing vehicles made in a foreign country, industries would be encouraged to produce them in India itself. In this policy, the government protected the domestic industries from foreign competition. Protection from imports took two forms : 1. Tariffs and 2. Quotas.

1. Tariffs : Tariffs are a tax on imported goods. They make imported goods costlier and discourage their use.

2. Quotas : They specify the quantity of goods that can be imported.

Advantages of import substituting industrialisation:
1. It helped in saving foreign exchange by drastically reducing imports of goods.

2. It creates a protected market and large demand for domestically produced goods.

3. It helped in solving unemployment problem.

4. It helped in building a strong industrial base in our country which directly led to economic growth.

Phases of Green Revolution : There were two phases of Green Revolution:

1. First Phase : The period of first phase of green revolution was from mid 1960's to mid 1970's. During this phase, the use of HYV seeds was restricted to the more affluent states such as Punjab, Andhra Pradesh and Tamil Nadu. Moreover the use of HYV seeds primarily benefitted the wheat growing regions.

2. Second Phase : The period of second phase was between 1970's and 1980's. During this period, the HYV technology spread to a large number of states and benefitted more variety of crops.

Features of Five Year Plans:

1. There was decline of foreign exchange reserves.

2. Prices of essential goods are rising.

3. Unemployment is on increase.

4. There was insufficient development of infrastructure.

5. Inequality of income and economic centralisation is on increase.

6. There is a large number of people living below poverty line.

Difference between directive planning and comprehensive planning:

Every society has to answer three questions : What goods and services should be produced in the country? How should the goods and services be produced? And how should the goods and services be distributed between people?

The answer to these questions is to depend on the market forces of supply and demand. The market economy is called capitalism.

Capitalism : The economic system in which means of production are in the hands of private entrepreneurs is called capitalism. The management, ownership and control of productive activities are in private hands. They produce goods and services for the profit motive.

In a capitalist society, the goods produced are distributed between people not on the basis of what people need but on the basis of what people can afford and are willing to purchase.

Socialism : In a socialistic economy the means of production are not in private hands. They are owned, controlled and managed by the government. The government decides what goods are to be produced in accordance with the needs of society. The government decides how goods are to be produced and how they should be distributed. The distribution under socialism is supposed to be based on what people need and not on what they can afford to purchase. In a socialistic society, there is no private property since everything is owned by the state.

Mixed Economy : A mixed economy is a combination of both socialism and capitalism. The government and the market together answer the three questions of what to produce, how to produce, and whom to produce. In a mixed economy the market will provide whatever goods and services it can produce well, and the government will provide important goods and services which the market fails to do.

Major achievements of economic planning:

(a) Increase in National Income : Increase in national income is a sign of economic development. Prior to planning and during British regime, national income of India increased at the rate of 0.5% p.a. During the period of planning, the rate of increase in national income has been 4. percent per annum.

(b) Increase in per capita income : Prior to independence, rate of increase in per capita income had been almost zero but during the period of planning, per capita income increased at the rate of 2% p.a.

(c) Increase in rate of capital formation : Capital formation plays a significant role in the economic growth of a country. During five year plans rate of capital formation has significantly increased. As the rate of capital formation dependes on the rate of saving and investment, there has been considerable increase in the rate of saving and investment.

(d) Institutional reforms in agriculautre and Green Revolution : Plans have contributed to the development of agriculture in two ways:

(a) land reforms have been introduced in agriculture.

(b) Since 1966, stress has been given another technological advancement of agriculture. It resulted into Green revolution. During the period of planning, production of foddgrains has trebled.

(c) Development of industries: Industrial sector has received a lot of encouragement as a result of planning. Basic and capital goods industries like iron and steel, machinery, chemical fertilizers etc. have developed adequately. Public sector has gratly expanded. In the matter of customer goods industries, the country has become almost self-sufficient. Industries have been diversified and modernised industrial production capacity has gone up

considerbly. Indian economy is now ranked as the tenth industrial economy of the world. During the period of planning growth rate of industrial production has been around 6.9 percent per annum industrial production during the First Five Year Plan increased by 8 percent.

(f) Development of Economic Infrastructure : Economic infrastructure mainly includes transport means of communication irrigation facilities and the generation capacity of power etc. During the period of planning economic infrastructure has developed considerly.

(g) Development of Social Infrastructure : During the period of planning, country's social services like education health and medical facilities, family planning etc. also developed appreciably.

(i) Death rate that stood at 27 percent per thousand in 1951 came down to 8 per thousand in 2004.

(ii) Average life expectancy increased from 32 years in 1951 to 65.4 in 2001.

(iii) Several deadly diseases like malaria etc. have been eradicated.

(iv) A charm of National Laborataries and Research Centres have been set up across the country.

(v) Educational facilities were expanded considerbly.

(h) Employment : Serious efforts have beenmade during plans to increase employment opportunities.

(i) Modernisation : It ructural and institutional changes taking place during the period of planning testify to the fad that important itructural changes are—

• Increase contribution of industry in the composition of national income.

• Income in the number of industries using modern technique.

• Increasing use of modern technology in agricultural sector. Institutional changes during the plan are also significant. It includes development of public sector and of late trend towards liberalisation privatisation and globalisation.

The leaders of independent India had to decide among other things on the type of economic system and among them socialism appealed to Jawahar Lal Nehru the most. But he was not in favour of the kind of socialism practised in the erstwhile Soviet Union where all the means of production in the country were owned and controlled by the government. There was no private property. It was not possible in a democracy like India to change the ownership pattern of land and other properties. The thinkers of newly independent India sought an alternative to extreme versions of capitalism and socialism. They had sympathy with the socialist outlook and chose a system, which combined the best features of socialism and capitalism. India would be a 'socialist' society with a strong public sector but also with private property and democracy. The government would plan for the economy with the private sector being encouraged to be part of the plan effort.

The industrial policy resolution of 1948 and directive principles of the Indian Constitution reflected this view.

This system on one hand maintains the incentives and initiatives of the people, on the other it keeps the economy free from exploitation. Mixed economy provides the opportunity to fulfil both the objectives of our planning, rapid economic growth and social justice. It is the most suitable in our present day democratic setup in which mixed economy has all the sectors such as private sector, public sector, co-operative sector coexist and work together.

The failures of economic Planning are:

(i) No Substantial Increase in the Standard of Living : All the five year plans of India aimed at raising the standard of living of the people. But in reality, even the basic necessaries have not yet been provided to the people.

(ii) Rise in Prices: Price stability has been one of the objectives of each Five Year Plans in India. But almost all the plans witnessed considerable rise in price level. First Plan is the only exception when price level come down, in all other plans the prices recorded a steep rise.

(iii) Increase in Unemployment:

Unabated rise in unemployment was witnessed during the period of planning.

(iv) Less Growth in Production : In the Five Year Plans, growth rate of production was slow in many states. Priority should have been given to the development of agriculture in all the plans, but it was not done.

(v) Inadequate Development of Infrastructure : Development of infrastructure like electricity, roads, transport, education etc. remained inedequate during the period of planning.

(vi) Inequality in Distribution of Income and Wealth : Main objective of the Five Year Plan is to minimise inequality in distribution of income and wealth but during the period of planning the problem of inequality further ????

(vii) Inefficient Administration : An expert team of U.N.O. observed that one of the main shortcoming of Indian planning has been with reference to its implementation.

(viii) Lack of Strong Foundation : Despite completion of Nine Five Year Plans, economic base could not acquire strength. Even now use depend havily on rainfall for agricultural production. Due to the failure of monsoon in 1965-66, 1966-67, 1979-80 and 1982-83, the entire economy was thrown out of gear.

(ix) To Ambitious : Indian plans are criticised as too ambitious consequently, there has been a wide gap between that targets of growth rate and their achievements during the period of planning.

(x) Peradox of Saving and Investment : Although during the planning period there has been appriciable increase in saving and investment, yet the growth rate of economy has been very slow. Planning in India has failed to achieve its objectives fully. It is for this reason that since 1991 emphasis has shifted from greater participation of the public sector to greater participation of the private sector in the process of growth and development.

Meaning of Subsidies : Agricultural subsidy means an economic benefit (direct or indirect) by government to the farmers. Subsidies are given to the farmers to provide an incentive for adoptation of new technology by farmers in general and small farmers.
Arguments against subsidies : Following arguments are given against subsidies:

1. The object of giving subsidies was to provide incentive for adoptation of new technology by farmers in general and small farmers in particular. Now new technology has been widely adopted, so subsidies should be phased out.

2. Subsidies are meant to benefit the farmers but a substantial amount of fertilizer subsidy benefits the fertilizer industry and the farmers in the more prosperous regions. So there is no case for continue with fertilizer subsidy.

3. Rich farmers are taking advantages of subsidies. The target group is not being benefitted.

4. Subsidies is a huge burden on Government's finance.

5. After a limit, subsidies provide an incentive for wasteful use of resources.

Arguments in favour of subsidies : Following arguments are given in favour of subsidies :

1. Farming in India is a risky business. Most farmers are very poor and they will not be able to afford the required inputs without subsidies.

2. Eliminating subsidies will increase the inequality between rich and poor farmers and violate the goal of equality.

3. If subsidies are largely benefiting the fertilizer industry and big farmers, the correct policy is not to abolish subsidies but to take steps that only the poor farmers enjoy the benefit.

4. For providing an incentive for adoption of the new technology by farmers agricultural subsidies are essential. Without it small farmers will not be able to adopt new technology.

Conclusion : The government should not withdraw agricultural subsidies.

When India attained independence, there was a complete inbalanced economy. The prime concern of the government was to provide 'Food, Shelter and Clothing' to the society. Besides, they had to plan for industrial development. In order to achieve both these objectives simultaneously, it was thought that all important projects like infrastructural development, railways, defence, transportaiton, and telecommunication should be entrusted to public sector and the development of consumer goods industries should be handed over to private sector. Keeping in view these facts, following are the reasons responsible for giving leading role to public sector for industrial development in the economy.

(i) It helps in balanced regional development.

(ii) It keeps a check on growing monopolistic competition in the market.

(iii) It is a major source of employment.

(iv) It is mainly responsible for the security of the country.

(v) It enables the economy to build up a strong infrastructure base.

(vi) It helps in creating a socio-economic egalitarian society.

(vii) It emphasises workers security.

This statement rightly said that at present India has enough stock of food grains that can be utilised during the period of emergencies. This all has resulted due to the successful implementation of 'Green Revolution'. Green Revolution has enabled the farmers to produce a lot (especially in the field of wheat and rice) of food grains, save for own consumption and bring the marketable surplus (extra production) the market. The government purchases food grains either straight from the farmers or from the market at minimum prices ' declared by it from time to time and maintains 'Buffer Stock'. Now, we have no more to be dependent on America or other countries for the supply of food grains, we have become self-reliant mainly in the field of producing food grains because we have not only built up buffer stock of food grains for our consumption but also become exporter of food grains to other under developed nations.

As the economy grows, the occupational structure changes from agriculture sector to manufacturing sector or service sector. With the adoption of green revolution, there was tremendous increase in the food grains production but that growth was mainly restricted to production of wheat and the farmers of Punjab and Haryana. Some growth took place in the production of rice and also some benefits were reaped by the farmers of other states of India but as these 'High Yielding Variety Seeds' require different inputs in definite proportions, the benefits of green revolution were not reaped evenly by the farmers of all states of India.
Consequently, population (farmers) started searching in other areas of manufacturing sector and service sector. Unfortunately, till 1991, both these sectors were unable to absorb wider section of community. Hence, the 65% of the population was forced to remain dependent on agriculture inspite of introduction of green revolution and slow growth of manufacturing and service sector. The relative share of agriculture in GDP declined but dependence of population on agriculture remained to continue till 1990

Usefulness of public sector undertakings : There is no doubt that many public sector undertakings are incurring huge losses and are a drain on the country's resources. Inspite of this, they are very useful due to following reasons:

1. They create a strong industrial base.

2. They prevent concentration of economic power.

3. They help in the development of backward areas.

4. They seek to develop infrastructure.

5. They provide employment.

6. They promote import substitution.

7. They promote equality of income and wealth distribution.

8. They seek to remove regional imbalance in growth.

The main features of Industrial Policy Resolution 1956 can be identified as follows:
(1) Categorization of industries in three schedules:

Schedule A : Industries were made the exclusive responsibility of the states.

Schedule B : Industries were to be progressively state owned.

Schedule C : Industries were left open to private enterprise.

2. Due to the significance of cottage and small scale industries in the Indian economy, the state was bound to promote the use of these industries.

3. Emphasis was laid on removal of regional disparities.

4. Training of technical and managerial personnel was to receive special attention.

5. Provision of improved living and working conditions to workers was emphasised.

Public Sector Undertakings were assigned a key role while formulating strategy for planning because of the following reasons:
(i) Growth of heavy capital goods industries.

(ii) Establishment of socialistic pattern of society.

(iii) Balanced regional growth.

(iv) It generates about 26 percent of national income produced in the country.

(v) The public sector provides jobs to 185 lakh persons.

(vi) Surplus earned by the public sector enterprises have become an important source of non-tax revenue of the government.

(vii) Public sector enterprises check the concentration of economic power.

A small scale industry is defined with reference to the maximum investment allowed on the assets of a unit. This limit changes over a period of time. In 1950, a small scale industrial unit was one which invested a maximum of Rs. 5 lakhs, at present the maximum investment allowed is Rs. one crore.

These industries play a very significant role in every economy even in the more advaned countries like Japan and the USA. In underdeveloped country like India these are very important.

(i) Small scale industries are labour intensive and capital light industries. The labour requirement per unit is high.

(ii) The import requirements of these industries are limited.

(iii) These industries promote regional balanced development and help to avoid concentration of economic power.

(iv) These industries are useful for those goods whose market is limited.

(v) These industries can solve the problem of unemployment, poverty and backwardness.

(vi) They help in decentralisation of industries throughout the country.

(vii) They support the large scale industries by manufacturing and supplying small parts and semifinished goods.

(viii) These industries help in lowering the pressure of population on agriculture.

Difference between Industrial Policy of 1948 and Industrial Policy of 1956:

The Industrial Policy Resolution of 1956 was the basis of second-five-year plan. The plan tried to build the basis for a socialist pattern of society. The industries were classified into three categories:

(i) The first category comprised industries, which would be exclusively owned by the state.

(ii) The second category consisted of industries in which the private sector can supplement the efforts of the state sector; with the state taking the sole responsibility for starting new units.

(iii) The third category consisted of the remaining industries, which were to be in the private sector.

There was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. No new industries was allowed unless a license was obtained from the government. This policy was used for promoting industries in backward regions. In backward regions such industries were given certain concessions in taxes and electricity tarrifs to promote regional equality.

The Green Revolution refers to the large increase in production of food grains resulting from the use of high yielding variety (HYV) seeds, especially for wheat and rice.

The use of high-yielding variety seeds especially for wheat and rice required the use of fertilizers and the pesticide in the correct quantities as well as regular supply of water. The need for these inputs in correct proportions is essential. The farmers who could benefit from HYV seeds required reliable irrigation facilities as well as the financial resources to purchase fertilizers and pesticides. In the first phase of the Green Revolution, the use of HYV seeds was restricted to the more prosperous states such as, Punjab, Andhra Pradesh and Tamil Nadu. The use of HYV seeds primarily benefited wheat growing regions. In the second phase of the Green Revolution (Mid 1970 to mid 1980s), the HYV technology spread to a larger number of states and benefitted more variety of crops.

The contributions made by agriculture sector, industrial sector and the service sector make up the structural composition of the economy. Yes, it is necessary that the service sector should contribute maximum to GDP of an economy.

In some of the economies the prime share of GDP comprises of agricultural sector but in other economies, it consists of service sector. When the economy grows, this proportion changes. However, in India's GDP, there is remarkable increase in the growth of service sector which is an important characteristics of a developed economy. India's GDP consisted of 50% share of agriculture, but this proportion reduced consideredly and the proportion of service sector increased to 40.59% by the end of 1990.

Small scale industries in India are facing the following problems:

(i) Shortage of finance : The small scale industries do not have proper sources of finance. These units do not have much dealing with commercial banks. This has affected adversely their production and market activities.

(ii) Problem of the techniques of production : The methods and techniques of production used by small scale industrial units are old. The machinery, tools and implements used by them are traditional and outdated. The workers are poor and illiterate and cannot afford improved techniques of production.

(iii) Inadequate marketing facilities : The small producer also faces the problems at the time of marketing his produce as there are inadequate marketing facilities for the products. It results in low price and wastage of time. They have weak barganing power.

(iv) Competition from large scale industries : The large scale industries are organised on modern lines and use latest technology. The small scale industries cannot stand up against large scale industries.

(v) Difficulties of raw material : These industries have to purchase the raw material at higher price which increases the cost of production.

(vi) Managerial difficulties : These industries are not organised. They do not have any research and training programme.

(vii) Problem of taxation : The small scale industries have to face the problem of local and other taxes. These taxes increase the cost of production.