INTRODUCTION
India would economy with the private sector being encouraged to be part of the plan effort. The ‘Industrial Policy Resolution’ of 1948 and the Directive Principles of the Indian Constitution reflected this outlook.
The Goals of Five Year Plans – A plan should have some clearly specified goals. The goals of the five year plans were: growth, modernization, self-reliance and equity. This does not mean that all the plans have given equal importance to all these goals.
- Growth – It refers to increase in the country’s capacity to produce the output of goods and services within the country. It implies either a larger stock of productive capital, or a larger size of supporting services like transport and banking, or an increase in the efficiency of productive capital and services. A good indicator of economic growth, in the language of economics, is steady increase in the Gross Domestic Product (GDP). The GDP is the market value of all the final goods and services produced in the country during a year.
- Modernization – To increase the production of goods and services the producers have to adopt new technology. For example, a farmer can increase the output on the farm by using new seed varieties instead of using the old ones. Similarly, a factory can increase output by using a new type of machine. Adoption of new technology is called modernization.
- Self-reliance – A nation can promote economic growth and modernization by using its own resources or by using resources imported from other nations. The first seven five year plans gave importance to self-reliance which means avoiding imports of those goods which could be produced in India itself. This policy was considered a necessity in order to reduce our dependence on foreign countries, especially for food. It is understandable that people who were recently freed from foreign domination should give importance to self-reliance.
- Equity – Now growth, modernization and self-reliance, by themselves, may not improve the kind of life which people are living. A country can have high growth, the most modern technology developed in the country itself, and also have most of its people living in poverty. It is important to ensure that the benefits of economic prosperity reach the poor sections as well instead of being enjoyed only by the rich. So, in addition to growth, modernization and self-reliance, equity is also important. Every India should be able to meet his or her basic needs such as food, a decent house, education and health care and inequality in the distribution of wealth should be reduced. Let us now see how the first seven fiver year plans, covering the period 1950-1990, attempted to attain these four goals and the extent to which they succeeded in doing so, with reference to agriculture, industry and trade. You will study the policies and developmental issues taken up after 1991.
Agriculture – The policy makers of independent India had to address these issues which they did through land reforms and promotion the use of ‘High Yielding Variety’ (HYV) seed which ushered in a revolution in Indian agriculture.
- Land Reforms – At the time of independence, the land tenure system was characterized by intermediaries (variously called Zamindars, jagirdars etc.) who merely collected rent from the actual tillers of the soil without contributing towards improvements on the farm. The low productivity of the agricultural sector forced India to import food from the United States of America (U.S.A.). Equity in agriculture called for land reforms which primarily refer to change in the ownership of landholdings.
- Land ceiling – was another policy to promote equity in the agricultural sector. This means fixing the maximum size of land which could be owned by an individual. The purpose of land ceiling was to reduce the concentration of land ownership in a few hands. The abolition of intermediaries meant that some 200 lakh tenants came into direct contact with the government – they were thus freed from being exploited by the zamindars. The ownership conferred on tenants gave them the incentive to increase output and this contributed to growth in agriculture.
- The Green Revolution – At independence, about 75 percent of the country’s population was dependent on agriculture. Productivity in the agricultural sector was very low because of the use of old technology and the absence of required infrastructure for the vast majority of farmers. India’s agriculture vitally depends on the monsoon and if the monsoon fell short the farmers were in trouble unless they had access to irrigation facilities which very few had. The stagnation in agriculture during the colonial rule was permanently broken by the green revolution.
- This refers to the large increase in production of food grain resulting from the use of high yielding variety (HYV) seeds especially for wheat and rice.
- The HYV technology spread to a larger number of states and benefited more variety of crops. The spread of green revolution technology enabled India to achieve self-sufficiency in food grains; India no longer had to be at the mercy of America, or any other nation, for meeting its food requirements.
- The green revolution benefited the small as well as rich farmers. The risk of the small farmers being ruined when pests attack their crops was considerably reduced by the services rendered by research institutes established by the government. You should note that the green revolution would have favored the rich farmers only if the state did not play and extensive role in ensuring that the small farmer also gains from the new technology.
4. The Debate Over Subsidies – The economic justification of subsidies in agriculture is, at present, a hotly debated question. It is generally agreed that is was necessary to use subsidies to provide an incentive for adoption of the new HYV technology by farmers in general and small farmers in particulars. Some economists believe that once the technology is found profitable and is widely adopted, subsidies should be phased out since their purpose has been served. Further, subsidies are meant to benefit the farmers but a substantial amount of fertilizer subsidy also benefits the fertilizer industry; and among farmers, the subsidy largely benefits the farmers in the more prosperous regions.
Industry and Trade – Economists have found that poor nations can progress only if they have a good industrial sector. Industry provides employment which is more stable than the employment in agriculture; it promotes modernization and overall prosperity. It is for this reason that her five year plans placed a lot of emphasis on industrial development.
Public and Private Sectors in Indian Industrial Development – At the time of independence, Indian industrialists did not have the capital to undertake investment in industrial ventures required for the development of Indian economy; nor was the market big enough to encourage industrialists to undertake major projects even if they had the capital to do so. It is principally for these reasons that the erstwhile governments had to play and extensive role in promoting the industrial sector.
Small-Scale Industry – In 1955, the Village and Small-Scale Industries Committee, also called the Karve Committee, noted the possibility of using small-scale industries for promoting rural development. A ‘small-scale industry’s defined with reference to the maximum investment allowed on the assets of a unit. This limit has changed over a period of time. In 1950 a small-scale industrial unit was one which invested a maximum of rupees five lakh; at present the maximum investment allowed is rupees one crore.
TRADE POLICY : IMPORT SUBSITITUTION
The industrial policy that India adopted was closely related to the trade policy. In the first seven plans, trade was characterized by what is commonly called an inward looking trade strategy. Technically, this strategy is called import substitution. This policy aimed at replacing or substitution 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.
Effect of Policies on Industrial Development – The rise in the industry’s share of GDP is an important indicator of development. The six per cent annual growth rate of the industrial sector during the period is commendable. No longer was Indian industry restricted largely to cotton textiles and jute; in fact, the industrial sector became well diversified by 1990, largely due to the public sector. The promotion of small-scale industries gave opportunities to those people who did not have the capital to start large firms to get into business.
An example – is the provision of telecommunication service. This industry continued to be reserved for the Public sector even after it was realized that private sector firms could also provide sector firms could also provide it. Due to the absence of competition, even till the late 1990s, one had to wait for a long time to get a telephone connection.
Another instance could be the establishment of Modern Bread, a bread-manufacturing firm, as if the private sector could not manufacture bread! In 2001 this firm was sold to the private sector. The point is that after four decades of Planned development of Indian Economy no distinction was made between (i) what the public sector alone can do and (ii) what the private sector can also do. For example, even now only the public sector supplies national defense. And even though the private sector can manage hotels well, yet, the government also runs hotels.
CONSCLUSION –
The progress of the Indian economy during the first seven plans was impressive indeed. Our industries became far more diversified compared to the situation at independence. India became self – sufficient in food production thanks to the green revolution. Land reforms resulted in abolition of the hated Zamindari system. In industrial sector, many economists became dissatisfied with the performance of many public sector enterprises. Excessive government regulation prevented growth of entrepreneurship. In the name of self-reliance, Indian producers were protected against foreign competition and this did not give them the incentive to improve the quality of goods that they produced.
