NCERT Solutions for Class 12 Economics Part B Chapter 2 Indian Economy 1950-1990

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    1. Define a plan.

    Ans. A plan is defined as a proposed list of goals that an economy wants to achieve within a specific period of time in its available resources. It lays down the optimum ways to utilise the scarce available resources to achieve the pre-determined goals. In India, planning is usually done for a span of five years, which is called five year plan. Plans broadly consist of specific and general goals. Some of the common goals which are to be included in a plan are economic growth, modernisation, self-reliance and equity. Plans entail the basic framework on the basis of which the policies are designed. Often various goals are conflicting to each other, for example, modernisation reduces labour employment. Therefore, there is a need to maintain a balance among different goals.

    2. Why did India opt for planning?

    Ans. Soon after independence, India had to opt either for capitalism or socialism. Finally, India, took inspiration from the success of planning in Soviet Union and likewise opted for socialism. Although, India's political and economical conditions were not as favourable as it were for Soviet Unions. So, it could opt for socialism, yet India adopted socialism but with a difference. India zeroed the socialist idea with a bit strong emphasis on public sector and also involved active participation of the private sector in a democratic framework. Then the Planning Commission (1950) was established with the motive that the government will be responsible to undertake comprehensive planning for the nation as a whole, where public sector would lay down the basic economic framework and would also encourage private sector for their active participation and contribution to the economic growth.

    3. Why should plans have goals?

    Ans. Every plan should have some specified goals. As it is said that a plan without goal is very much similar to the life without soul. A plan comprehensively deals with the means and ways to allocate scarce resources in order to achieve proposed targets, goals are the ultimate targets and only by achieving them, success of plan will be ensured. Thus, plans must include the goals.

    4. What are High Yielding Variety (HYV) seeds ?

    Ans. High Yielding Variety of seeds was a very prominant contribution by the Nobel Laureate Dr. Norman Borlaug in Mexico. These seeds are comparatively more productive and require regular and adequate irrigation facilities along with greater use of fertilisers and pesticides. Back in 1966, after using HYV seeds, Indian agricultural sector experienced Green Revolution, especially in the crops of rice and wheat. HYV seeds grow faster than the normal seeds and hence, crops can be harvested in a much shorter time period. Initially, HYV seeds were widely used in states like Punjab, Andhra Pradesh and Tamil Nadu (as these states had more suitable irrigation facilities) and later on to the other states as well. As a result, the use of HYV seeds, the production of food grains in 1967-68 was significantly increased by 25% (approx).

    5. What is marketable surplus?

    Ans. Marketable surplus is defined as the difference between the total output produced by a farmer and his on-farm consumption. In simple words, it is that portion of the total output which is sold by the farmer in the market.
    Marketable surplus = Total farm output produced by farmer – Own consumption of farm output

    6. Explain the need and type of land reforms implemented in the agriculture sector.

    Ans. The need for land reforms in India was very necessary due to the following reasons:

    (i) Land Tenure System: There used to be three types of land tenure systems namely, the Zamindari System, the Mahalwari System and the Ryotwari System being previously prevalent in the Indian agricultural sector at the time of independence. These was some similarities among these three systems was that the land was mostly cultivated by the tenants and the tenants used to pay the land revenues to their respective landlords. This led to the exploitation of tenants in the form of exorbitant rents.

    (ii) Size of Land Holdings: The lands held by the farmers used to be very small in size. Additionally the land holdings were disintegrated. This restricted the use of modern techniques.

    (iii) Lack of Initiative: Most of the land was owned by the landlords, as a result, the farmers lacked initiative and couldn’t have enough means to undertake mechanised methods of cultivation.

    (iv) Traditional Approach and Low Productivity: Indian farmers majorly relied on the conventional and the traditional inputs and methods and climatic conditions that led the productivity of agricultural sector to be very low and delayed.

    (v) Absence of Marketing System: As there was no well developed marketing system, the farmers relied on the intermediaries to sell their product in the market. These intermediaries used to purchase the farm produce at a very low price and sell them at comparatively higher price at market and keeping all the profits with themselves only. Hence, this led to the lack of finance and investment on farm.

    (vi) Nature of Farming: The basic motive behind farming was for subsistence. That is, farming was done merely to ensure survival and not for sale and to earn profit.

    Due to the above problems in the Indian agriculture, it was very necessary to undertake land reforms.

    Land reforms comprise of the following steps:

    (i) Abolishing Intermediaries: The main concern of land reforms was to abolish intermediaries like Zamindars, Jagirdars, etc. Many steps were undertaken to make the tillers, the owners of the land.

    (ii) Regulation of Rent: The cultivators were exploited by forcing to pay exorbitant rents. In the first five year plan, the maximum rent was fixed to be one-fourth or one-fifth of the total farm produce (except in Punjab and Haryana, where it was 1/3rd). The regulations of rent not only resulted in reduced burden from the tenants but also to share them provided greater portion of finance to invest on farm.

    (iii) Consolidation of Holdings: The land holdings were small and also fragmented, because of which it became necessary to consolidate the land holdings for the use of modern and advanced technology. The farmers were then given consolidated holdings which was equal to the total of the land in their various fragmented plots. This enabled the farmers to enjoy the benefits associated with the large scale production.

    (iv) Land Ceilings: It refers to legislated fixed amount of land that an individual may hold. The basic concern behind this step was to promote equality of ownership of land holdings. This helped in reducing the concentration of land holdings in few hands. Government used to confiscate the excess land over the pre-defined amount of land and distributed it among the landless farmers.

    (v) Co-operative Farming: This step was taken for the purpose of tackling the problems due to the sub-division of holdings. Small scale farming by an individual land holder is neither profitable nor productive, hence, these measures encouraged different farmers to aggregate their farms and perform farming jointly. This increased the productivity significantly and greater profits were shared by the individual farmers.

    7. What is Green Revolution? Why was it implemented and how did it benefit the farmers? Explain in brief.

    Ans. Because of low productivity, frequently occurring of famines and significantly lower levels of agricultural products in the latter half of second five year plan, a team was formed to suggest various ways to tackle down these problems. In accordance with the recommendations of the team, government introduced the use of HYV seeds, modern techniques and inputs like fertilisers, irrigation facilities and subsidised credit. These steps collectively are known as Intensive Area Development Programme (IADP). In the year 1967-68, food grains production witnessed an increament of about 25%. Due to this substantial increase in the production of food grains the outcome was termed as ‘Green Revolution’. The word Green Revolution comprises of two words ‘Green’ which infers to crops and ‘Revolution’ which infers to the substantial increase.
    Need of Green Revolution: The needs of Green Revolution are as follows.

    (i) Low Irrigation Facility: The well irrigated and permanent irrigated area was measured to be around 17% only in 1951. The rest of the of area was dependent on rainfall because of which the agriculture suffered from low level of production.

    (ii) Conventional and Traditional Approach: The intensive use of conventional inputs and lack of adequate modern techniques have consequently hampered the agricultural productivity.

    (iii) Frequent Occurrence of Famines: Famines in India used to occur quite frequently during the time span of 1940s to 1970s. Furthermore, because of higher growth rate of populations, agriculture failed to grow at the same speed.

    (iv) Lack of Finance (credit): Small and marginal farmers found it almost impossible to get finance and credit at reasonable or cheap rate from the government and banks ,hence, they became an easy prey to the money lenders.

    (v) Self-sufficiency: Because of the constant practice of traditional agricultural practices, low productivity, and to feed growing population, often food grains were imported that drained away scarce foreign reserves. It was expected that with the increased production due to Green Revolution, government would be able to maintain a buffer stock and India can hence achieve self-sufficiency and become self-reliable.

    (vi) Marketing Agriculture: Agriculture was basically for ensuring survival and not making profits so that, less amount of agricultural product was offered for sale in the market. Hence, the need was felt to encourage and support the farmers to increase their farm produce and offer a greater portion of their products for sale in the market.

    8. Explain ‘growth with equity’ as a planning objective.

    Ans. Both growth and equity are the two equally important aspects of India’s five year plans. While growth signifies the increase in GDP over a long period of time equity signifies the equitable distribution of GDP in such a way that the benefits incurred due to higher economic growth are shared by all sections of population. Equity refers social justice. Growth itself is desirable but growth in itself does not guarantee the welfare of people. Growth is estimated by the market value of Goods and Services (GDP) and many a time it may be possible that the goods and services that are produced are not benefiting the majority of the population. In simple words, only a few already having high level of living and money income may get the share of GDP. Hence, growth with equity is a rational and desirable objective of planning. This objective makes sure that the benefits of high growth and prosperity are shared by all the people equally and, hence, this had led to the eradication of inequality of income, poverty promotion of egalitarian society and also enables everyone to be self-reliant. Consequently, it can be said that growth with equity is the most important and desirable objective of an economic planning.

    9. Does modernisation as a planning objective create contradiction in the light of employment generation? Explain.

    Ans. No, modernisation as a planning objective and employment generation does not contradict to each other. In fact, both modernisation and employment generation go hand-in-hand. While modernisation signifies the use of new and modern technology in production process that may make some people lose their jobs in the initial stages. But eventually, the use of modern technology and input will result in increased productivity and, consequently, the income of the people will also rise, that will further raise the demand for goods and services. In order to fulfill this increased demand, more job opportunities will open up that will lead more people to be hired and, hence, more employment opportunities will be generated. Hence, both modernisation and employment generation are not contradictory, instead they are complementary to each other.

    10. Why was it necessary for a developing country like India to follow self-reliance as a planning objective?

    Ans. Self-reliance directly implies discouraging the imports of such goods which could be produced domestically. Achieving self-reliance is of prime importance for a developing country like, India as otherwise, it would make the country dependent on foreign products. Dependence on foreign goods and services might promote the economic growth of India but this would definitely not contribute to the development of domestic productive resources. Dependence on foreign goods and services provides impetus to foreign country’s industries at the cost of domestic infant industries. Further, the scarce foreign reserves that are of prime importance to any developing and underdeveloped economy are drained out of the country. Therefore, achieving self-reliance by developing countries is an utmost important objective in order to avoid themselves from being acquiescent to the developed nations.

    11. What is sectoral composition of an economy? Is it necessary that the service sector should contribute maximum to GDP of an economy? Comment.

    Ans. The sectoral composition of an economy is the contribution of different sectors to total GDP of an economy during a year. That is, the share of agricultural sector, industrial sector and service sector in GDP.
    Yes, it is necessary for the service sector to contribute the maximum to the total GDP at the later stages of development. This phenomenon is termed as Structural Transformation. This implies that gradually the country’s dependence on the agricultural sector is shifting from the maximum to minimum and, at the same time there is an increase in the share of industrial and service sector in the total GDP. This structural transformation together with the economic growth is defined as economic development.

    12. Why was public sector given a leading role in industrial development during the planning period?

    Ans. Indian economic conditions were very poor and weak during the time of independence. Neither the foreign reserves were sufficient, nor did India have international investment credibility. In the wake of such poor economic condition, the public sectors were the one who had to take the initiative.

    The following are the reasons that explains the driving role of the public sector in the industrial development:

    (i) Need of Heavy Investment: There was an urgent need of huge investment for industrial development. For the private sector to invest such a big amount was almost impossible. Further, these projects involved high risk and also these projects came with long gestation period. Hence, the government stepped in and played the leading role to provide the basic framework of heavy industries.

    (ii) Low Level of Demand: At the time of independence, a major part of our population was poor and had significant lower level of income, resultant to which there was low level of demand so, there was no impetus for any private sector to undertake investment in order to fulfill these demands. Thus, India found itself to be trapped into a vicious circle of low demand. The only way to encourage demand was investments to be made by the public sector.

    13. Explain the statement that green revolution enabled the government to procure sufficient food grains to build its stocks that could be used during times of shortage.

    Ans. The production of food grains was significantly increased by the Green Revolution. A substantial increase was witnessed in agriculture produce and product per farm land with the use of modern technology, extensive use of fertilisers, pesticides and HYV seeds. Further more, the spread of marketing system, abolition of intermediaries and easy availability of credit has made the farmers enjoy that greater portion of marketable surplus. All these factors enabled the government to procure sufficient food grains and to build the buffer stock and to provide a support against the contingencies, like of famines and shortages.

    14. While subsidies encourage farmers to use new technology, they are a huge burden on government finances. Discuss the usefulness of subsidies in the light of this fact.

    Ans.Subsidy refers to providing some important inputs to farmers at a fairly concessional rate which is much lower than its market rate. Inputs were provided to farmers at concessional rates. During 1960s, in order to adopt new technology HYV seeds and use of modern fertilisers and insecticides. The role of public sector was to invest heavily, so as to raise the income of people that will in turn raise the demand and so on.
    The following arguments are given in favour of subsidy:

    (i) Subsidies are very much important for marginal land holders and poor farmers who are unable to avail any of the essential farm inputs at the ongoing market rate.

    (ii) Subsidy in 1960s was no less than an incentive for the farmers to adopt modern techniques and vital inputs like fertilisers, HYV seeds, etc. The subsidy was mainly of convincing and lucrative nature which allowed the farmers to use these modern techniques without any hesitation.

    (iii) Subsidy is usually given to the poor farmers with the bonafide motive of reducing inequality of income between rich and poor farmers and also to promote an egalitarian distribution of income.

    (iv) It is argued that the adoption of new technology and techniques are very risky and therefore only daring farmers are the one who willingly adopt them.

    Following arguments are given against subsidy.

    (i) It is generally argued that fertilizer industries are favoured through subsidies and not the farmers. Subsidies act as a protective shield against the market conditions and, consequently, these industries need not to bother about their market share and competition.

    (ii) Subsidies are also enjoyed by the potential farmers who do not need them. This often leads to the misallocation and wastage of the scarce resources.

    (iii) Subsidies may lead to the wastage of resources if provided at a much lower rate than the market rate. For example, subsidised electricity leads to the wastage of energy

    (iv) It is often stated that subsidy should be provided in order to assess the benefit and feasibility of a particular technique, but once the performance has been judged subsidies should be stopped.

    Therefore, on the basis of above stated pros and cons, it can be said that although subsidies are very useful and necessary for poor farmers and to overcome uncertainties associated with farming, it burdens the scarce government finances. Thus, a proper planning, suitable reforms and allocation of subsidies only to the needy farmers is required.

    15. Why, despite the implementation of green revolution, 65 per cent of our population continued to be engaged in the agriculture sector till 1990?

    Ans. Although there has been a substantial increase in the agricultural produce in India, which had enabled India to attain the status of self-sufficiency in food grains but this increment is substantial only if compared to food grain production in the past. Further, India failed to achieve structural transformation associated with the agricultural revolution and development. In simple words, industrial and service sector were not fully developed. So, they failed to generate any significant employment opportunities to attract and absorb excess agricultural labour. Hence, the industrial and service sector growth was not very significant and, hence, failed to employ and attract surplus labour from agricultural sector. This may be because of the flaws in the economic policies that became the bottleneck for the growth of secondary and tertiary sector.

    16. Though public sector is very essential for industries, many public sector undertakings incur huge losses and are a drain on the economy’s resources. Discuss the usefulness of public sector undertakings in the light of this fact.

    Ans. Although, the mismanagement and wrong planning in PSUs may lead to misallocation and, consequently, to wastage of the scarce resources and finance but PSUs do have some positive and useful advantages.

    (i) Enhancing Nation’s Welfare: The main motive of the PSUs was to provide goods and services that add to the welfare of the country as a whole. For example, schools, hospitals, electricity, etc. These services not only enhance welfare of country’s population but also the future prospects of economic growth and development.

    (ii) Long Gestation Projects: It was not feasible and economically viable for the private sectors to invest in the big and wide projects like basic industries and electricity, railways, roads, etc. As these projects need a very huge initial investment and have long gestation period. Hence, PSUs are the most appropriate to invest in these projects.

    (iii) Basic Framework: An important ideology that was inherited in the initial five year plans was that the public sector should lay down the basic framework for industrialisation that would encourage the private sector at the latter stage of industrialisation.

    (iv) Socialist Track: In the initial years after independence, Indian planners and thinkers were more leaned towards socialist pattern. It was justified on the rational ground that if the government controls the productive resources and production, then it won’t mislead the country’s economic growth. This was the basic rationale to set up PSUs. These PSUs produce goods not according to the price signals but according to the social needs and economic welfare growth of the country.

    (v) Reduce Inequality of Income and Generate Employment Opportunities: It was assumed that in order to reduce inequalities of income, eradicate poverty and to raise the standard of living, government sector should invest in the economy via PSUs.

    17. Explain how import substitution can protect domestic industry.

    Ans. In the initial seven five year plans, India opted for import substitution strategy, which resulted in discouraging the imports of those goods that could be produced domestically. Import Substitution Strategy not only reduces an economy’s dependence on the foreign goods but also provides impetus to the domestic firms. Government provides various financial encouragements, incentives, licenses to the domestic producers to produce domestically. This would not only allow the domestic producers to sustain but also enables them to grow as they enjoy the protective environment. They need not to fear from any competition and also not to worry about their market share as license gives them the monopoly status in the domestic market. Being monopolist, they earn more profits and invest continuously and always look for new and innovative techniques. This gradually improves their competitiveness and when they are exposed to the international market they can survive and compete with their foreign counterparts.

    18. Why and how was private sector regulated under the IPR 1956?

    Ans. IPR 1956 was adopted in order to accomplish the aim of state controlling the commanding heights of economy. This policy was aligned with the Indian economy’s inclination towards socialist pattern of system of Soviet Union.
    According to this resolution, industries were classified into following three categories:
    Category 1: Industries that are established and owned exclusively by the public sector.
    Category 2: Industries in which public sector will perform the primary role while the private sector will play the secondary role. Which means the private sector supplements the public sector in these industries.
    Category 3: Industries that are not included in Category 1 and Category 2 are left to the private sector.
    These industries that were left to the private sector, the government owns an indirect control by the way of license. In order to initiate a new industry, private entrepreneurs should obtain license (or permit) from the government. By licensing system, tax holidays and subsidies government can promote industries in a backward region that will, in turn, promote the welfare and development of that region. This was supposed to reduce regional disparities.
    Further, in order to expand the scale of production, private sector needs to obtain license from government. This was supposed to keep a check on the production of goods that are socially undesirable and unwanted. Hence, the state fully controlled the private sector either directly or indirectly.

    19. Match the following:

    1. Prime Minister A. Seeds that give large proportion of output.
    2. Gross Domestic Product B. Quantity of goods that can be imported.
    3. Quota C. Chairperson of the Planning Commission.
    4. Land Reforms D. The money value of all the final goods and services produced within the economy in one year.
    5. HYV Seeds E. Improvements in the field of agriculture to increase its productivity.
    6. Subsidy F. The monetary assistance given by government for production activities.

    Ans.

    1. Prime Minister C. Chairperson of the Planning Commission.
    2. Gross Domestic Product D. The money value of all the final goods and services produced within the economy in one year.
    3. Quota B. Quantity of goods that can be imported.
    4. Land Reforms E. Improvements in the field of agriculture to increase its productivity.
    5. HYV Seeds A. Seeds that give large proportion of output.
    6. Subsidy F. The monetary assistance given by government for production activities.

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