Envisioning a New Socio-Economic Order Notes 12th History for Tnpsc Exam

Envisioning a New Socio-Economic Order Notes 12th History for Tnpsc Exam

12th History Lesson 9 Notes in English

9] Envisioning a New Socio-Economic Order


  • When India became independent in 1947, the economy of the country was very fragile and facing many problems.
  • The level of poverty was very high.
  • Nearly 80 percent of the population was living in rural areas, depending on agriculture for their livelihood.
  • As the craft-based occupations had suffered during British rule, many skilled artisans had lost their livelihood.
  • As a result, agriculture was overcrowded, and the per capita income from agriculture was very low.
  • Agriculture was also characterized by semi-feudal relations between landowners and cultivators or peasants, who were often exploited by the land-owning classes.
  • The industrial sector had grown in the decades before Independence, but it was still quite small.
  • The best known heavy industry was Tata Iron and Steel.
  • Besides this, the main manufactures were cotton spinning and weaving, paper, chemicals, sugar, jute and cement.
  • Engineering units produced machinery for these units.
  • However, the sector was relatively small and did not offer a significant potential for employing the surplus labour from the agricultural sector.
  • In fact, the industry sector only accounted for 13% of the total Gross Domestic Product (GDP) in 1950. Most manufactured consumer goods were imported.
  • The Indian offices of major foreign companies were involved only in marketing and sales, and not in manufacturing.
  • Thus, the new government of India was faced with the mammoth task of developing the economy, improving conditions in agriculture, widening the manufacturing sector, increasing employment and reducing poverty.

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Socialistic Pattern of Society

  • Economic development can be achieved in many ways.
  • One option would be to follow the free enterprise, capitalist path; the other was to follow the socialist path. India chose the latter.
  • In fact, the Preamble to the Indian Constitution, cited in the previous lesson, stated unambiguously that India would be “a sovereign, socialist, secular democratic republic”.
  • The objectives of this socialist pattern of development were: the reduction of inequalities, elimination of exploitation, and prevention of concentration of wealth.
  • Social justice meant that all citizens would have an equal opportunity to education and employment.
  • This essentially entailed the active participation of the state in the process of development.
  • In agriculture, social and economic justice was to be achieved through a process of land reforms which would empower the cultivator.
  • In industry, the state would play an active role by setting up major industries under the public sector.
  • These were to be achieved through a comprehensive process of planning under Five Year Plans.
  • These strategies had been borrowed from the Soviet experience of rapid economic development.

  • Nehru was a Jawaharlal Nehru great admirer of the success of the Soviet Union in achieving rapid development, and thus the ideology on which this strategy is based is often referred to as “Nehruvian socialism”.

Agricultural Policy

  • At the time of Independence, agriculture in India was beset with many problems. In general, productivity was low.
  • The total production of food grains was not enough to feed the country, so that a large quantity of food grains had to be imported.
  • Nearly 80 percent of the population depended on agriculture for their livelihood.
  • This automatically reduced the income of each person to very low levels.
  • This is a situation described as ‘disguised unemployment’.
  • That is, even if many people shifted to other occupations, total production levels would remain the same, because this surplus population was not really required to sustain the activity, and was, in effect, unemployed.
  • Given the high level of poverty level among the rural population, most of them were heavily indebted to money lenders.
  • The backwardness of agriculture could be attributed to two factors: institutional and technological.
  • Institutional factors refer to the social and economic relations that prevailed, particularly between the land-owning classes and the cultivating classes.
  • Technological factors relate to use of better seeds, improved methods of cultivation, use of chemical fertilizers, use of machinery like tractors and harvester combines, and provision of irrigation.
  • The government decided to tackle the institutional drawbacks first and began a programme of land reforms to improve the conditions in agriculture.
  • The basic assumption was that such measures would improve the efficiency of land use or productivity, apart from empowering the peasants by creating a socially just system.

Land Reforms and Rural Reconstruction

  • Under the Constitution of India, agriculture was a ‘state subject’, that is, each state had to pass laws relating to land reforms individually.
  • Thus, while the basic form of land reforms was common among all the states, there was no uniformity in the specific terms of land reform legislation among the states.

(a) Zamindari Abolition

  • Abolition of Zamindari was part of the manifesto of the Indian National Congress Party even before Independence.
  • What was Zamindari and who were the zamindars?
  • Zamindar referred to the class of landowners who had been designated during British rule as the intermediaries who paid the land revenue to the government under a Permanent Settlement.
  • They collected rent from peasants cultivating their land and were obliged to pay a fixed amount to the government as land taxes.
  • There was no legal limit to these demands, and zamindars generally extorted high rents from the cultivators leaving them impoverished.
  • In public opinion, these zamindars were considered to be a decadent, extravagant and unproductive class who were living on unearned income.
  • Abolishing their privileges and restoring land to the cultivators was therefore a prime objective of the government.
  • Three systems of revenue collection had been introduced by the British.
  • In Bengal and most of north India, the Permanent Settlement placed the responsibility of paying land revenue on the rentier class of zamindars.
  • In south India, the cultivators paid the land revenue demand directly to the government under the system known as ‘ryotwari’ (‘ryot’ means cultivator).
  • The third system, found in very small pockets of the country, was ‘mahalwari’ where the village was collectively responsible for paying the land revenue.
  • Most provinces in India had enacted laws abolishing the zamindari system even before the Constitution was framed.
  • By 1949, Uttar Pradesh, Madhya Pradesh, Bihar, Madras, Assam and Bombay had introduced such legislation.

Permanent Settlement was introduced

  • West Bengal, where the Permanent Settlement was first introduced, the act was passed only in 1955.
  • Land was taken away from the zamindars were distributed among the tenants.
  • The provincial legislatures also recommended the amount of compensation to be paid to the zamindars.
  • Zamindars in various parts of the country challenged the constitutionality of the zamindari abolition laws in court.
  • The government then passed two amendments to the Constitution, the First Amendment in 1951 and the Fourth Amendment in 1955, which removed the ‘right to property’ from the fundamental rights guaranteed under the Constitution and preempted the right of zamindars to question the expropriation of their land or the value of the compensation.
  • Finally, zamindari abolition was completed by 1956, and was possibly the most successful of the land reforms.
  • About 30 lakh tenants and sharecroppers gained ownership of 62 lakh hectares of land.
  • The total compensation actually paid to the zamindars amounted to Rs. 16,420 lakhs (which amounted to only about one-fourth of the total compensation amount due).
  • In sum, however, the reform only achieved a very small part of the original objective.
  • Many zamindars were able to evict their tenants and take over their land claiming that this land was under their ‘personal cultivation’.
  • Thus, while the institution of zamindari was dismantled, many landowners continued in possession of vast tracts of land.

(b) Tenancy Reform

  • Nearly half of the total cultivated land in India was under tenancy.
  • Tenancy refers to an arrangement under which land was taken on lease from landowners by cultivators under specific terms.
  • Not all tenants were landless peasants.
  • Many small landowners who wanted to cultivate additional land leased out land from other landowners.
  • Some richer landowners also took additional land for cultivation on lease.
  • In general, the rent was paid in kind, as a share of the produce from the land.
  • Most large landowners in India tended to belong to the upper castes – Brahmin and non-Brahmin.
  • It was common for them to lease out the land to tenants.
  • Usually these tenancy arrangements continued for long periods of time.
  • The rents received by the landowners generally amounted to about 50% or more of the produce from the land, which was very high.
  • Tenancy was a customary practice and agreements were rarely recorded.
  • Thus, tenants of long-standing were almost never deprived of tenancy rights. However, tenants could also be evicted at short notice, and tenants therefore always lived under some uncertainty.
  • Tenancy reform was undertaken with two objectives. One was to empower the cultivators by protecting them against the landowners.
  • The other was to improve the efficiency of land use, based on the assumption that tenancy was inefficient.
  • Landowners rarely had any incentive to invest in improving the land, and were interested only in deriving an income from their land.
  • Tenants, who had no ownership rights and were liable to pay high rents, had neither the incentive nor surplus money to invest in land.

Tenancy reform legislation was aimed at achieving three ends:

  1. to regulate the rent;
  2. to secure the rights of the tenant;
  3. to confer ownership rights on the tenants by expropriating the land of the land owners.
  • Legislation was passed in the states regulating the rent at one-fourth to one third of the produce.
  • But this could never be implemented successfully. The agricultural sector had a surplus of labour whereas land was a resource in short supply.
  • Price controls did not work in a situation when the demand exceeded the supply.
  • All that happened was that rent rates were pushed under the table without any official record.
  • Laws to secure the rights of the tenant and to make tenancy heritable were equally unsuccessful.
  • Tenancy agreements were made orally, and were unrecorded.
  • The tenant thus always had to live with the uncertainty that their land could be resumed by the landlord any time.
  • When tenancy reform laws were announced many landowners claimed to have taken back their land for ‘personal cultivation’ and that tenants were only being employed as labour to work the land.
  • Tenancy reform was bound to be ineffectual in the absence of a comprehensive and enforceable land ceiling programme.
  • The two Communist states, Kerala and West Bengal, were able to push through land reforms with greater success.
  • Reform measures in Kerala were remarkably successful, though some political compromises had to be made in a programme which started out to be completely radical.
  • The abolition of landlordism was remarkably successful.
  • But the programme to confer ownership on the tenants in four stages was not always successful, nor did it benefit the small tenants, since much of the tenanted land was held by richer farmers.
  • In West Bengal, the programme to confer tenancy rights was called Operation Barga.
  • This was quite successful, but the Communist government was criticized severely for giving official sanction to tenancy (as opposed to giving tenant farmers ownership rights to the land).

(c) Land Ceiling

  • Land ceiling refers to the maximum amount of land that could be legally owned by individuals.
  • Laws were passed after the 1950s to enforce it.
  • In Tamilnadu it was implemented first in 1961.
  • Until 1972, there was a ceiling on the extent of land that a ‘landholder’ could own. After 1972, the unit was changed to a ‘family’.
  • This meant that the landowners could claim that each member of the family owned a part of the land which would be much less than the prescribed limit under the ceiling.
  • Deciding the extent of land under land ceiling was a complex exercise, since land was not of uniform quality.
  • Distinctions had to be made between irrigated and unirrigated dry land, single crop and double crop producing land.
  • As all these issues were being debated in the policy forums, the landowners had plenty of time to manipulate the land records and create fictitious and fraudulent partition of the land among relatives or trusts.
  • Further, many categories of land were not subject to ceilings.
  • These included orchards, horticultural land, grazing land, land belonging to religious and charitable trusts, and sugarcane plantations.
  • These exemptions were also used to evade the land ceiling acts.
  • Ultimately, only about 65 lakh hectares of land was taken over as surplus land.
  • This was distributed to about 55 lakh tenants–an average of a little over 1 hectare per tenant.
  • Clearly, with their political power the dominant castes who were the big landowners managed to dilute and vitiate the entire legislation.
  • Efforts like Bhoodan started by Vinoba Bhave to persuade large landowners to surrender their surplus land voluntarily attracted much public attention.

  • But the end results were disappointing, since the land thus surrendered was usually unproductive land.

(d) Overall Appraisal

  • Land reform legislation has overall not been a great success.
  • In economic terms, the dream of an agricultural sector prospering under peasant cultivators with secure, ownership rights has remained just that – a dream – and there was no visible improvement in efficiency.
  • In more recent years, when agriculture has grown due to technological progress, a more efficient land market is seen to be operating which is more conducive for long term growth.
  • In terms of social justice, the abolition of the semi-feudal system of zamindari has been effective.
  • The land reform measures have also made the peasants more politically aware of their rights and empowered them.

Development of Agriculture

(a) Green Revolution

  • By the middle of the 1960s the scenario with regard to food production was very grim.
  • The country was incurring enormous expenditure on importing food. Land reforms had made no impact on agricultural production.

  • The government therefore turned to technological alternatives to develop agriculture.
  • High Yielding Variety (HYV) of seeds of wheat and rice was adopted in 1965 in select areas well endowed with irrigation.
  • Unlike traditional agriculture, cultivation of HYV seeds required a lot of water and use of tractors, chemical fertilizers and pesticides.
  • The success of the initial experimental projects led to the large-scale adoption of HYV seeds across the country.
  • This is generally referred to as the Green Revolution.
  • This also created an enormous demand for chemical fertilizers and pesticides, and these industries grew as well.
  • Finally, within twenty years, India achieved self-sufficiency in food production.
  • Total rice production increased from 35 million tonnes in 1960–61 to 104 million tonnes in 2011–12.
  • The increase in wheat production was even more impressive, from 11 million tonnes to 94 million tonnes during the same period.
  • Productivity also increased.
  • A large reserve stock of food grain was built up by the government through buying the surplus food grain from the farmers and storing this in warehouses of the Food Corporation of India (FCI).
  • The stored food grains were made available under the Public Distribution System (PDS) and to ensure food security for the people.
  • Another positive feature was been the sustained increase in the production of milk and eggs.
  • Due to this, the food basket of all income groups became more diversified.
  • While the Green Revolution has been very successful in terms of increasing food production in India, it has also had some negative outcomes.
  • First of all, it increased the disparities between the well-endowed and the less well-endowed regions.
  • Over the decades, there has been a tendency among farmers to use chemical fertilizers and pesticides in excessive quantities resulting in environmental problems.
  • There is now a move to go back to organic farming in many parts of the country.
  • The lesson to be learnt is that development comes at a certain cost.

(b) Rural Development Programmes

  • By the 1970s, the levels of poverty had not declined in spite of overall development of industry and agriculture.
  • The assumption that development would solve the problem of poverty was not realized, and nearly half the population was found to be living below the poverty line. (The poverty line was defined as the level of expenditure required to purchase food grains to supply the recommended calorie level to sustain a person.)
  • Though the percentage of the persons below the poverty line did not increase, as the population grew, the number of persons living below the poverty line kept increasing.
  • Poverty prevailed both in rural and urban areas.
  • But since nearly three-fourths of the population lived in rural areas, rural poverty was a much more critical problem requiring immediate attention.
  • Poverty levels were also much higher among specific social groups (Scheduled Castes and Scheduled Tribes), classes (small and marginal farmers, landless labourers) and in resource poor regions without irrigation and with poor soil, etc.
  • A whole range of rural development programmes were introduced by the government to tackle rural poverty.
  • These included Community Development Programmes, reviving local institutions like Panchayati Raj, and targeted programmes aimed at specific groups such as small and marginal farmers.
  • The thrust was on proving additional sources of income to the rural households to augment their earnings from agriculture.
  • Two major programmes are explained in greater detail below.

(c) Integrated Rural Development Programme (IRDP), 1980–1999

  • In 1980 a consolidated rural development programme called Integrated Rural Development Programme was introduced.
  • The purpose was to provide rural households with assets which would improve their economic position, so that they would be able to come out of poverty.
  • These could be improvements to the land, supply of cows or goats for dairying or help to set up small shops or other trade-related businesses.
  • Introduced in all the 5011 blocks in the country, the target was to provide assistance to 600 families in each block over five years (1980–1985), which would reach a total of 15 million families.
  • The capital cost of the assets provided was covered by subsidies (divided equally between the Centre and the states) and loans.
  • The subsidy varied according to the economic situation of the family receiving assistance.
  • For small farmers, the subsidy component was 25%, 33.3% for marginal farmers and agricultural labourers, and 50% for tribal households.
  • Banks were to give loans to the selected households to cover the balance of the cost of the asset.
  • About 53.5 million households were covered under the programme till 1999.
  • Dairy animals accounted for 50% of the assets, non-farm activities for 25% and minor irrigation works for about 15%.
  • The functioning and the effects of IRDP were assessed by many economists as well as government bodies.
  • These studies raised many questions about the end result.
  • One obvious drawback was that many non-poor households were also selected as beneficiaries in the programme.
  • Secondly, the average investment per household was not sufficient to generate additional income of about Rs.2000 per month for each household.
  • Third, there was a question as to how many households retained the assets that had been provided, especially dairy animals.
  • Last, and most importantly, how many households were able to move above the poverty line permanently?
  • In general, about 18per cent of the beneficiaries were able to cross the poverty line.
  • There were considerable variations across different regions on all these issues.
  • The ultimate conclusion was that the programme did not really deliver on the benefits that were intended.
  • The programme was restructured in 1999 as a programme to promote self-employment of the rural poor.

(Mahatma Gandhi) National Rural Employment Guarantee Act, 2005 (MGNREGA)

  • Over the years, due to concerted efforts, the percentage of households below the poverty line has come down substantially in India.
  • It is now widely recognized that eradicating rural poverty can be achieved only by expanding the scope for non-agricultural employment.
  • Many programmes to generate additional employment had been introduced over the years.
  • Many were merged with the employment guarantee scheme, which is now the biggest programme on this front in the country.

  • The National Rural Employment Guarantee Act (subsequently renamed MGNREGA) was passed in 2005, with the aim of providing livelihood security to poor rural households.
  • This was to be achieved by giving at least 100 days of wage employment each year to adult members of every household willing to do unskilled manual work.
  • This would provide a cushion to poor rural households which could not get any work in the lean agricultural season which lasted for about three months each year.
  • In this exercise, the work undertaken would create durable assets in rural areas like roads, canals, minor irrigation works and restoration of traditional water bodies.
  • The earlier targeted programmes of rural development were based on the identification of below poverty line families, which had led to several complaints that ineligible families had been selected.
  • MGNREGA, however, is applicable to all rural households.
  • The reasoning is that it is a self-targeting scheme, because persons with education or from more affluent backgrounds would not come forward to do manual work at minimum wages.
  • The earlier employment generation programmes did not give the rural poor any right to demand and get work.
  • The significant feature of this Act is that they have the legal right to demand work. The programme is implemented by Gram Panchayats.
  • The applicants have to apply for this work and are provided with job cards.
  • Work is to be provided by the local authorities within 15 days.
  • If not, the applicant is entitled to an unemployment allowance.
  • The work site should be located within 5 kilometres of the house of the applicant.
  • No contractors are to be involved. This is to avoid the profits which will be taken by the middlemen thus cutting into the wages.
  • The ratio of wages to capital investment should be 60:40. One-third of the workers would be women.
  • Men and women would be paid the same wage.
  • As with all government programmes, many studies have brought out the weaknesses in the implementation of MGNREGA.
  • The programme is not free of corruption, and employing contractors is also common.
  • On the positive side, agricultural wages have gone up due to the improved bargaining power of labour.
  • This has also reduced the migration of agricultural workers to urban areas during the lean period or during droughts.
  • One of the most important benefits is that women are participating in the works in large numbers and have been empowered by the programme.
  • Some of the corruption and leakages have been plugged now that the wages of the workers are paid directly into bank accounts or post office accounts.
  • The involvement of civil society organizations, non-governmental organizations and political representatives, and a more responsive attitude of the civil servants have improved the functioning of MGNREGA in states like Andhra Pradesh and Rajasthan.
  • Efficiency has increased up to 97%. Between 2006 and 2012, around Rs.1,10,000 crores had been distributed directly as wage payment under the programme, generating 1200 crore person-days of employment.
  • In spite of many shortcomings, the functioning of the programme has improved due to higher levels of consciousness among the rural poor and concerned civil society organizations.
  • Though many critics feel that the high expenditure involved in the programme increases the fiscal deficit, the programme remains popular and nearly one-fourth of all rural households participate in the programme each year.

Development of Industry

  • India was committed to the idea of promoting rapid industrial growth for economic development.
  • Development can be achieved through several pathways.
  • In a country like India with a large population where many raw materials were grown or were available, processing industries which were more labour intensive would have also led to industrial growth.
  • Alternatively, the Gandhian model stressed a model of growth with village and cottage industries as the ideal way to produce consumer goods, which would eliminate rural poverty and unemployment.
  • But the government adopted the Nehruvian model of focusing on large scale, heavy industry to promote wide ranging industrial development.
  • In keeping with the basic principle of a “socialistic society”, the state would play a major role in developing the industrial sector through setting up units wholly owned by the state.
  • The emphasis on heavy industry was to promote the production of steel and intermediate products like machines, chemicals and fertilizers for the developing industries.
  • The social purpose that would be achieved by this model of development was to restrict private capital which was considered to be exploitative and excessively profit-oriented, which benefited a small class of capitalists.

(a) Industrial Policy

  • A series of Industrial Policy statements were adopted to promote these objectives. The first policy statement was made in 1948.
  • It classified industries into four categories:
  1. Strategic industries which would be state monopolies (atomic energy, railways, arms and ammunition);
  2. 18 industries of national importance under government control (heavy machinery, fertilizer, heavy chemicals, defence equipment, etc.);
  3. Industries in both the public and private sectors;
  4. Industries in the private sector.
  • The most definitive policy statement was the Industrial Policy Resolution of 1956 which classified industries into three categories:
  • Schedule A industries were under the monopoly of the state;
  • Schedule B industries, the state could start new units but the private sector could also set up or expand their units;
  • Schedule C were the remaining industries.
  • The Industrial Development and Regulation Act of 1951 was an important instrument for controlling the private sector.
  • This Act stipulated that no new industrial units could be set up, nor the capacity of existing units expanded without a licence or permit from the Government.
  • There were severe criticisms of the way the policy of industrial licensing functioned.
  • Large business houses were able to use their economic and political influence to corner licences without using them, depriving smaller businesses defeating the purpose of licensing.
  • All these led to the “licence-permit raj” which was riddled with inefficiency and corruption.
  • The Policy Statement of 1973 encouraged large industrial houses to start operations in rural and backward areas to reduce regional imbalances in development.
  • The Policy Statement of 1977 was framed by the short lived Janata government which was aimed at promoting rural, village and small scale industries.
  • The Policy Statement of 1980 was announced by the Congress government which also aimed at promoting balanced growth.
  • Otherwise all these statements continued the ideology of a strong public sector owned by the state and control over the private sector and especially the large business houses.
  • There were also other interventions which intruded into the market economy.
  • For instance, inputs produced in the private sector like cement were rationed, and permits had to be obtained even for private construction of houses.
  • The manufacture of consumer goods was severely restricted under the licensing policy.
  • This was partly an expression of the ideology of reducing inequalities in consumption between the affluent and weaker sections of society.
  • But it was also a way to ensure that scarce resources like steel, cement etc. would be used in strategic industries for the long-term development of the economy.
  • Many important industries and services were nationalized. These included coal mines, petroleum companies, banking and insurance services.
  • Private entrants have been allowed into some of these activities only in recent years.

(b) Public Sector

  • There were only 5 public sector enterprises in India in 1951.
  • By 2012, this number had increased to 225.
  • The capital investment increased from Rs.29 crores in 1951 to 7.3 lakh crores in 2012.
  • The setting up of public sector enterprises in heavy industry was again dictated by two considerations.
  • First, at the ideological level, the government was committed to a socialistic pattern of development which involved a high degree of state control over the economy.
  • But at a more practical level, the government had to take over the responsibility for the establishment of heavy industrial units which required a very high level of investment.
  • These were known as “long gestation” projects, that is, it would take many years before such units would be able to start production.
  • In the 1950s, the private sector did not have the resources or the willingness to enter into such investment.
  • Steel plants in Bhilai, Rourkela, Durgapur and Bokaro, engineering plants like Bharat Heavy Electricals and Hindustan Machine Tools were all set up in the 1950s in collaboration with Britain, Germany and Russia which provided the technical support.
  • Steel Plant of Bokaro Units which did not have to be located near raw material sources were set up in backward areas to reduce regional disparities in industrial and economic development.

  • BHEL was first set up in Bhopal, and later in Tiruchirappalli, Hyderabad and Hardwar.

  • Steel plants were set up in the relatively backward belt of Orissa, Bihar and West Bengal.
  • Public sector enterprises also contributed to the national exchequer because their profits accrued in part to the central government.
  • Thus the growth of the public sector served many economic and social purposes, in addition to creating industrial capacity in the country.

(c) Crisis in Public Sector Industrial Units

  • By 1991 it was clear that public sector enterprises were facing severe problems.
  • While on the whole they were showing a profit, nearly half the profit was contributed by the petroleum units.
  • Many were making continuous losses.
  • Part of the problem lay in the expansion of the public sector into non-strategic areas like tourism, hotels, consumer goods (for instance, in the 1970s, television sets were produced only by public sector companies) and so on.
  • Services which depended on interactions with consumers were doing badly because of the attitude of the staff who behaved like administrative bureaucrats.
  • There were many factors which contributed to the poor performance of public sector enterprises.
  • Decisions on location were made for political rather than efficiency considerations.
  • Delays in construction resulted in cost overrun, so that the units were overcapitalized.
  • Administrative prices were not always economical and did not make sense when the intermediate goods produced in the public sector were used as inputs in the private sector.
  • Public sector units were also overstaffed, though the technology of heavy industries did not require so many workers.
  • This increased the operating cost of the units. Bureaucrats were entrusted with the management of public enterprises, leading to inefficiency in management.
  • Recognising all these problems, the government began a programme of disinvestment of the loss-making and nonstrategic units in 1991. In spite of all the shortcomings, the strategy of industrialization by concentrating on building up long-term industrial capacity through the establishment of heavy industries has been successful in making India into a modern, industrial economy.

(d) Liberalisation: Industrial Policy Statement 1991

  • The Indian government under Prime Minister P.V. Narasimha Rao finally announced a shift in its industrial policy to remove controls and licences, moving to a liberalized economy permitting a much larger role to the private sector.

  • The share of the public sector was to be reduced through a policy of disinvestment and closure of sick units.
  • This created a sea change in the economic outlook in the country, particularly from the point of view of the consumers.
  • It is not merely that the aspirations of the growing middle class for a better standard of living in terms of availability of goods and services have been met.
  • Even the lower income families could now buy such goods.
  • On the positive side, liberalization has certainly made India a more attractive destination for foreign investment.
  • State governments are keen to advertise that they are relaxing restrictions to improve the ease of doing business in their state.
  • All this has created a general air of prosperity which is reflected in the growth statistics of the economy as a whole.
  • On the negative side, liberalization and globalization have resulted in a significant increase in income disparities between the top income groups and the lower income groups.
  • The removal of ceilings on corporate salaries has widened the disparities between the salaried class of corporate executives and wage earners.
  • The formal sector has very limited potential for additional employment and most of the new employment is generated in the informal sector, and disparities have also increased across these two sectors.
  • However, neither the advocates of a free economy nor leftist economists are happy with the level of liberalization.
  • The former want more free play of market forces to eradicate imbalances and checks to progress which are still in place.
  • The leftists are unhappy that the state has abdicated its responsibility for ensuring and promoting social justice and welfare by allowing free play to private capitalists to exploit the economy.

Five Year Plans

  • India followed the example of the USSR in planning for development through five year plans.
  • The Planning Commission was set up in 1950 to formulate plans for developing the economy.
  • Each Plan assesses the performance of the economy and the resources available for future development.
  • Targets are set in accordance with the priorities of the government.
  • Resources are allocated to various sectors, like agriculture, industry, power, social sectors and technology, and a growth target is also set for the economy as a whole.
  • One of the primary objectives of planning was to build a self-sufficient economy.
  • The First Five Year Plan covered the period 1951–56.
  • Till now there have been twelve Five Year Plans in addition to three one year plans between 1966 and 1969.
  • The proposed outlays for a Plan take both private and public sector outlays into account.
  • The total outlay proposed for the First Play was Rs. 3870 crores.
  • By the Eleventh Plan, it had crossed Rs. 36.44 lakh crores, which is an indication of the extent to which the Indian economy had grown in less than sixty years.
  • Between the Second and Sixth Plans, public sector accounted for 60 to 70% of the total plan outlay.
  • But since then, the share of the public sector gradually came down, and private sector began to dominate in total plan outlay,
  • The First Plan (1951–56) focused on developing agriculture, especially increasing agricultural production.
  • The allocation for Agriculture and Irrigation accounted for 31% of the total outlay. After this, the emphasis shifted to industry, and the share of agriculture in total outlay hovered between 20 and 24%.
  • By the Eleventh Plan it had come down to less than 20%.

  • The Second Plan (1956–61), commonly referred to as the Mahalanobis Plan, stressed the development of heavy industry for achieving economic growth.
  • The share of industry in Plan outlay was only 6% in the First Plan, and increased to about 24% after the Second Plan.
  • But the share has been declining since the Sixth Plan, perhaps because the major investments in the public sector had been completed.
  • The allocation for power development was very low in the first four plans and this created a huge shortage of power in the country.
  • The first two Plans had set fairly modest targets of growth at about 4%, which economists described as the “Hindu rate of growth”.
  • These growth rates were achieved so that the first two Plans were considered to have been successful.
  • The targets in subsequent plans were not achieved due to a variety of factors.
  • From the Fourth Plan (1969–74) the emphasis was on poverty alleviation, so that social objectives were introduced into the planning exercise.
  • The targeted growth rates were reached from the Sixth Plan onwards.
  • The economy was liberalized during the Eighth Five Year Plan (1992–97). Since then, the growth rates have been in excess of 7% (except for a slowdown in the Ninth Plan).
  • There has been considerable emphasis on growth with justice, and inclusive and sustainable growth.
  • There are positive and negative assessments of the performance of planning in India.

Positive achievements

  1. The expansion of the economy
  2. The significant growth in national and per capita income
  3. Increase in industrial production
  4. Increased use of modern inputs in agriculture and increase in agricultural production
  5. A more diversified economy.

Failures of planning

  1. Failure to eliminate poverty. Poverty levels have fallen, but still an unacceptably high number of persons are below the poverty line
  2. Failure to provide full employment
  3. Failure to reduce inequalities and prevent concentration of economic power
  4. Failure to check the growth of black money.

Education, Science and Technology

(a) Education

  • Education and health constitute the social sectors, and the status of education and health indicators are yardsticks for assessing the level of social development in a country.
  • Sadly, India is far behind many less developed countries, especially on health indicators like maternal mortality and infant mortality, and education indicators with respect to school education.
  • These poor outcomes are a reflection of the low share of plan outlay set aside for the social sectors.
  • This hovered between 16 and 18% between 1956 and 1990 (Second to the Seventh Plans).
  • The outlay has increased only from the Eighth Plan onwards due to a greater emphasis on social justice and inclusive growth.
  • But it was still less than 30% of the total outlay.
  • It crossed the one-third mark only in the Twelfth Plan.
  • Expenditure on education as a percentage of total GDP has been less than 5% in India, and compares unfavourably with China and other Asian countries.
  • Literacy levels have increased in India from 18.3% in 1951 to 74% in 2011.
  • Female literacy still lags behind the male literacy rate at 65% as compared to 82% among men.
  • There has been a great increase in the number of schools from the primary to senior high school level and in the growth of institutions of higher learning.
  • In 2014-15 there were 12.72 lakh primary and upper primary schools, 2.45 lakh secondary and higher secondary schools, 38, 498 colleges and 43 Central Universities, 316 State Universities, 122 Deemed Universities and 181 State Privatem Universities in the country.
  • Enrolment in primary schools stood at 96%, and 40% in the secondary and higher secondary schools.
  • However, the drop-out rate is 51% in primary schools, and as high as 62% in secondary and high schools.
  • Children dropping out of school mostly belonged to the poorer families in rural and urban areas and socially backward castes (SCs and STs).
  • The drop-out rate is particularly high among girl children.
  • This is because they are often withdrawn from school either because the family is not able to afford to keep all the children in school and more often because they have to assist in household chores and looking after younger children in the family.
  • There are great inter-regional variations in the drop-out and enrolment rates, so that backward states and regions have the poorest record on school education.
  • A further problem is that government schools at all levels are perceived to be functioning very badly.
  • Teachers are often absent and seem to show little interest in providing good education to the students.
  • This has resulted in most parents, including low income parents, opting to take their children out of government schools (which are free) and putting them in private schools, paying high fees, because these are supposed to give better education.
  • Since private schools are rarely set up in backward regions with high levels of poverty, the regional disparities in school education have become more accentuated.

(b) Science and Technology

  • India has made great strides in developing institutions of scientific research and technology.
  • The only science research institute in India before Independence was the Indian Institute of Science (IISc) established in 1909 in Bangalore with funding from J.R.D. Tata and the Maharaja of Mysore.

  • The Tata Institute of Fundamental Research (TIFR) was set up in 1945 on the initiative of Homi J. Bhabha, with some funding from the Tatas.
  • It was intended to promote research in mathematics and pure sciences.
  • The National Chemical Laboratory, Pune and the National Physics Laboratory, New Delhi were the first institutes set up in India around the time of Independence.
  • Since then there has been a steady increase in the number of institutes doing research in pure sciences, ranging from astrophysics, geology/geo-physics, cellular and molecular biology, mathematical sciences and so on.

The Council of Scientific and Industrial

  • Research (CSIR) is the umbrella organization under which most of the scientific research institutions function.
  • The CSIR also advances research in applied fields like machinery, drugs, planes etc.
  • The Atomic Energy Commission is the nodal agency for the development of nuclear science which is strategically important, focusing both on nuclear power generation and nuclear weapons.
  • The Atomic Energy Commission also funds several institutes of pure science research.
  • Agriculture is another area where there has been a significant expansion of research and development.
  • The Indian Council of Agricultural Research (ICAR) is the coordinating agency for the research done not only in basic agriculture, but also associated activities like fishery, forests, dairy, plant genetics, bio-technology, varieties of crops like rice, potato, tubers, fruits and pest control, to name only a few of the activities covered by the Institute.
  • Agricultural universities are also actively engaged in teaching and research on agricultural practices.
  • There are 67 Agricultural Universities in India, and 3 in Tamil Nadu.

  • Indian Institutes of Technology (IITs) were set up as centres of excellence in different fields of engineering.
  • The first IIT was located in Kharagpur, followed by Delhi, Bombay, Kanpur and Madras (Chennai).
  • There are now 21 IITs in the country, in addition to 30 NITs (National Institutes of Technology) and about 10 IIITs (Indian Institutes of Information Technology).
  • There are about 3500 engineering colleges in the country, but government engineering colleges only number around 100.
  • There has been an explosion of private engineering colleges, particularly in Andhra Pradesh, Tamil Nadu and Maharashtra.
  • Unfortunately, the colleges vary significantly in the quality of education that they provide, and there are many graduates with engineering degrees who are not able to get jobs because they do not meet the standards and skill sets required by corporate employers.
  • In spite of advances, the general perception is that science research in India still has a long way to go to catch up with the more developed countries and China.
  • The research output in theoretical fields is rather disappointing and scanty in spite of the number of research institutions in the country.


  • Twelve five year plans have been made between 1951 and 2017.
  • Twelfth Five Year Plan (2012-2017) was the last plan.
  • In 2015, the Planning Commission was wound up and replaced by the Niti Ayog.

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