VIDYARJAN TUTORIAL

4 Economic Development

We are going to study India’s For mixed economy to run smoothly

economic policy in this chapter. That there is a need for coordination between
includes a study of the mixed economy, the private sector and the public sector.
five year plans and their successes and This system aims at maximisation of
failures, nationalisation of banks, 20-point production and popular participation on a
programme, mill workers’ strike and large scale. An effort has been made in
especially the New Economic Policy of this system to bring together the good
1991. aspects of both the capitalist and the
Mixed Economy : Brainstorming socialist systems. A mixed economy
about the kind of economy we would cannot ignore the profit motive,
adopt after independence started much entrepreneurship, discipline, time bound
before India got independence. Our Prime planning, etc.
Minister Pandit Nehru adopted the middle A mixed economy also naturally
path rather than taking recourse to any tends to give priority to national interest.
extremes. Some countries had adopted Long term development is stressed upon
capitalism, while some had adopted with priority. The industries like defence,
socialism. Each type of economy had its scientific research, education, roads,
own advantages. railways, waterways, sea port and airport
In a capitalist system, the means development require huge capital
of production are privately owned. In a investment but the returns in these areas
socialist economy, the means of production are delayed. Not many private industrialists
are owned by the State in the name of are keen to invest in these areas. In such
the society. A mixed economy works both a situation, the government has to take
in the private and the public sector. In the initiative.
order to achieve economic development of Thus, India adopted the mixed
modern India, we gave preference to a economy model and five year plans and
model of ‘mixed economy’. We can see started off on its path of development.
three parts in this kind of economy : The industrial policy of 1973 increased
(1) Public Sector : The industries in the speed of development. Priority was
this sector are completely under the given in this policy to control the influence
control and management of the of heavy industries, industrial families
government. For example, production of and foreign industries and remove the
defence equipment. imbalance in regional development. The
(2) Private Sector : The industries in government focused on the development
this sector are owned by private of small scale industries and cottage
industrialists. Of course, the government industries. Government also started paying
supervises and controls them too. For more attention to the cooperative sector.
example, consumer goods. Five Year Plans
(3) Joint Sector : In this sector, some The colonial power had exploited India
industries are owned by private economically. The country faced severe
industrialists, while some are run under problems like poverty, unemployment,
government management. population growth, low standards of living,
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low productivity of agriculture and industries First Five Year Plan (1951-1956) :
and backwardness in the fields of knowledge, The expenditure in this plan was primarily
science and technology. Planning was on agriculture, social development,
essential to solve these problems. irrigation and flood control, sources of
India established the Planning energy, rural and small industries, heavy
Commission in 1950 with Prime Minister industries and minerals, transport and
Pandit Jawaharlal Nehru as its Chairman. communication, education and health.
It formulated India’s five year plans This plan consisted of measures to lay
that included rural and agricultural the foundations of planned economic
development, balanced industrialisation, development.
provision for a minimum standard of Second Five Year Plan (1956-1961) :
living and economic development This plan had ambitious goals of
consistent with democratic ideals. It industrialisation. Iron and steel industries
focused on people’s participation and at Durgapur, Bhilai and Rourkela;
individual development in the formulation Chemical fertilisers plant at Sindri; rail
and implementation of the five year plans. engine factory at Chittaranjan; factory of
Fundamental Principle of planning : railway bogies at Perambur; Ship building
A general principle of planning is the factory at Vishakhapattanam and other
proportionate distribution of the resources heavy industries were set up in the Public
of a country and the appropriate use of Sector. Huge dams like Bhakra- Nangal,
the human resources to fulfil the needs of Damodar, etc. were built to make water
the people. available for agriculture. It led to increase
in the national income.
Goals of Plans
The general goals of the economic
planning of India are as follows:
(1) Increase in the national income.
(2) Bring about rapid industrialisation by
focusing on the basic industries.
(3) Bring about an increase in agricultural
production so that the country becomes
self-sufficient in food grain production.
(4) Use the human resource in the country
optimally by making increasing
employment opportunities available.
(5) Remove the inequality in earnings Bhilai Steel Plant
and wealth.
Third Five Year Plan (1961-1966) :
(6) Maintain stable prices of commodities.
This plan was aimed at bringing about a
(7) Bring the growth in population under balance in industries and agriculture. The
control by family planning. other goals of the plan included increase
(8) Improve the standards of living by in national income, heavy industries,
eradicating poverty. development in transport and mineral
(9) Develop social services. industry, alleviation of poverty and to
(10) Make the economy self-sufficient. expand the opportunities for employment.

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 After the third five year plan, three During the fifth plan, it was not
one year plans were implemented (1966 possible to achieve the goals of removal
to 1969). This was a period of intense of poverty and increase in employment.
famine. Due to the invasion by China and In the 1977 general elections, the
war with Pakistan, the government had to Congress Party was defeated. The Janata
focus on defence rather than development Party came to power. The new government
related tasks. Also the famine required ended the fifth plan towards the end of
the government to undertake measures to March 1978 and started the Rolling Plan
tackle the effects of famine. All these from April 1978, but it failed. In 1980,
issues stressed the Indian economy greatly. general elections were held for Lok
Fourth Five Year Plan (1969-1974) : Sabha. The Congress party came to
The intentions behind setting the goals of power. The Congress government closed
this plan were that India should become the system of the Rolling Plan and again
self-reliant, government should develop started planning like before.
the basic industries, increase the speed of Sixth Five Year Plan (1980-1985) :
economic development and pay attention This plan also stressed upon alleviation
to establishing a socialistic pattern of of poverty and employment generation.
society. 14 major banks in the country This plan had the following objectives :
were nationalised. This plan did not significantly increase the growth rate in
succeed as expected. The economy had to the economy, reduce the rate of poverty
bear the burden of the Bangladesh War. and unemployment, shape and implement
The expenditure over the refugees had to a population policy so that people adopted
be borne as well. The Indian economy the small family norm voluntarily and
suffered due to the pay raise of government thus keep the population under control.
and railway servants and rise in the prices The following programmes were
of petrol in the international markets. implemented in the sixth five year plan :
Fifth Five Year Plan (1974-1979) :
* Integrated Rural Development
This plan was designed with the goal of
Programme (IRDP).
making India economically self-sufficient
by alleviating poverty. The objectives of * Rural Landless Employment Guarantee
the Fifth Plan were as follows : increase Programme (RLEGP).
the national income, make large scale * National Rural Employment
employment available, supply education, Programme (NREP).
nutritious food and drinking water, to * Salem Steel Plant. TN
make facilities of medical treatment
available in rural areas, to supply Seventh Five Year Plan (1985-1990) :
electricity and means of communication, This plan laid stress on food, employment
implement social welfare schemes on a and productivity. The objectives of the plan
wide scale, bring about the development included : Development, modernisation,
of agriculture, increase the basic industries, self-reliance, social justice, improving the
purchase food grains and other life techniques of production, to achieve an
sustaining goods by monopoly purchase yearly increase in national income of 5%
and make them available to the poor at and increase food grain production.
reasonable prices through a public The following programmes were
distribution system. started in this plan :

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 Indira
* Jawahar Rojgar Yojana * India In this plan, the progress of
Awaas Yojana * Scheme of 10 lakh communication system and service sector
wells. was achieved as per the expectations.
The Seventh plan proved to be There was a growth in the fields of
important from the point of view of construction and communication.
employment generation. Nationalisation of Banks
Eight Five Year Plan (1992-1997) : During the tenure of Prime Ministers
This plan gave a lot of scope to the Pandit Nehru and Lal Bahadur Shastri,
private sector. banking was a monopoly of the private
The plan had the following features : sector. These banks represented different
to maintain the rate of growth in national industrial groups. The Directors of these
income at 6.5%, to control the growth of banks were working towards developing
population, to encourage the programme industrial sector and increasing its profits.
of family planning, to remove illiteracy In order to stop this, the government
by expansion of primary education. nationalised the ‘Imperial Bank’ in 1955
The following programmes were and it got converted into State Bank of
started during this plan : India. This Bank opened several branches
* Pradhanmantri Rozgar Yojana all over the country in a short while and
* Mahila Samriddhi Yojana * Rashtriya played a major role in development.
Samajik, Arthik Sahayya Yojana Background of Nationalisation :
* Midday Meal Scheme * Indira Mahila India had adopted a mixed economy after
Scheme * Ganga Kalyan Scheme independence. Nationalisation of banks
During the eighth plan, the importance was essential to cover the deficits if they
of the private sector grew. This plan is a occurred while implementing different
reflection of the liberalisation and free schemes. Also the profits of these banks
market policy adopted in 1991.
Ninth Five Year Plan (1997-2002) : Do you know ?
This plan focused on agriculture and rural
development. The objectives of this plan Prime Minister Indira Gandhi
were : to increase the rate of growth of nationalised 14 banks on 19th July
the economy, create healthy competition 1969. These include : Allahabad
in the infrastructure sector, give a new Bank, Bank of Baroda, Bank of
direction to industrial policy for ensuring India, Bank of Maharashtra, Canara
foreign investment. Bank, Central Bank of India, Dena
The following schemes were started Bank, Indian Bank, Indian Overseas
during this plan : Swarna Jayanti Shahari Bank, Punjab National Bank,
Rozgar Yojana, Bhagyashree Child
Syndicate Bank, United Bank of
Welfare Policy, Rajrajeshwari Mahila
Kalyan Yojana, Swarnjayanti Gram India, United Commercial Bank
Swarozgar Yojana, Jawahar Gram (UCO Bank), Union Bank of India.
Samruddhi Yojana, Antyodaya Anna In 1980, six more banks were
Yojana, Pradhanmantri Gram Sadak nationalised.
Yojana, etc.

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would come into the government treasury
once they were nationalised. Along with
this, the policy of developing small
industries and pharmaceutical industries
had to be implemented. Lal Bahadur
Shastri undertook the experiment of the
Green Revolution in order to overcome
food shortages and drought. During the
tenure of Prime Minister Indira Gandhi,
‘Congress Forum for Socialist Action’, a
group in the Congress party inspired by
socialist ideas made a demand for
nationalisation of commercial banks. Even Textile Mill
the Communist Party supported this be known as Girangaon or ‘town of
demand. mills’.
20-Point Programme : Prime Minister In the 1980s, the increasing unrest
Indira Gandhi announced the 20-point among workers was due to the economic
programme on 1st July 1975 and resolved conditions in other sectors. In some
to make efforts towards rapidly becoming industries the wages of the workers were
a developed nation. The main provisions increasing. They were also getting more
of the 20 point programme are as follows : amounts as bonus. They were getting more
(1) Land ceiling for cities and facilities than the textile mill workers.
agricultural land, equal division of wealth,
minimum wages for workers, increase in Do you know ?
water conservation schemes.
(2) Workers’ participation in industry, Mahatma Jotirao Phule’s associate
national training scheme, freeing bonded Narayan Meghaji Lokhande’s efforts
labour. resulted in the weekly Sunday holiday
for mill workers from 1st January 1882.
(3) Prevention of tax evasion,
economic crimes and smuggling.
In the Diwali of 1981, the workers
(4) Regulation of prices of basic expected to get a bonus of 20%. The
necessities, improvements in the public Rashtriya Mill Mazdoor Sangh, which was
distribution system. negotiating with the employers, agreed
(5) Improvement in the textile industry upon 8 to 17% bonus without taking the
by developing handloom sector, waiving workers into confidence. The cut in the
loans for weaker sections, housing, bonus proved to be the cause of unrest.
communication facilities, making Some workers went to Dr Datta Samant.
educational equipment available to They asked him to accept their leadership.
schools. Workers of 65 mills came together and
Issues of workers : The first textile Dr Datta Samant led the strike. On 18th
mill was started in Mumbai in 1854 by January 1982, two and a half lakh workers
Kawasjee Dawar. Eventually, mills started went on a strike. Girangaon mills stopped
in Dadar, Paral, Bhaykhala, Shivdi, running making it seem like Mumbai’s
Prabhadevi and Worli. This part came to heart stopped throbbing.

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 13 textile mills. Appointment of arbitrators
Do you know ? did not help to resolve the issue.
New Economic Policy : The year
The working class has contributed
1991 is very important in the history of
culturally as well through folk theatre, modern India. After the 10th General
folk art and literature. Anna Bhau Elections, P. V.
Sathe, Shahir Amar Sheikh, Shahir Narasimha Rao
Sable were popular for their programmes became the
aimed at public education. Poets like Prime Minister
Narayan Surve, Namdev Dhasal, etc. of India. With
portrayed the real life of the workers Dr Manmohan
through their poems. Singh as Finance
The Chief Minister of Maharashtra, Minister, he
Barrister A. R. Antulay set up a committee P. V. Narasimha Rao adopted the new
to solve this issue. Later Babasaheb economic policy of linking India’s
Bhosale became the Chief Minister of economy with the global economy. For
Maharashtra State. He insisted that as per this, fundamental changes were brought
law, he would talk only with the Rashtriya about in the Indian economy. Indian
Mill Mazdoor Sangha. Dr Datta Samant economy was brought in tune with the
demanded that the law be revoked. global mainstream.
In the beginning, the striking workers During this period, Indian economy
received help from their native villages. was in a crisis situation. Before the P. V.
It was also not very difficult for them to Narasimha Rao government took charge,
help each other. They set up departmental Chandra Shekhar was the Prime Minister.
committees and distributed food grains, During his tenure the rate of inflation
assistance in the form of funds, etc. The was 17%.
left parties had supported the strike. As Economic growth rate had gone down
the strike dragged on, efforts were made by 1.1%. India had foreign exchange
to split the striking workers' ranks. Even reserves only enough to last for imports
as the strike completed 6 months, the for a week. It had become difficult to pay
central government completely ignored it. back its loan and even give the interest
The workers started a ‘Jail Bharo on it. In May 1991, the government had
Agitation’. In September 1982, one and a tried to control the situation by selling
half lakh workers took a march on the some of its gold reserves and by
Legislative Assembly of Maharashtra mortgaging some. Before the Chandra
State. It didn’t help at all. The strike Shekhar government, the V. P. Singh
completed a year. This was the first strike government had incurred a liability of
to have gone on for a year. In this period, over 10 thousand crore rupees on the
about one and a half lakh workers became economy by waiving off the loans of all
unemployed. farmers. The Proportion of internal loans
As polyester had come into greater of central and state governments together
demand than cotton cloth, the sale of mill to the gross Domestic Product was 55%.
cloth had already got affected. The mills In 1980-81 foreign loan was 2350 crore
moved from Mumbai to Surat in Gujarat. dollars. It increased to 8380 crore dollars
The Central government nationalised in 1990-91. At this time, India had foreign

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exchange reserves of only 100 crore organisation had the following objectives :
dollars. This also had the background of to free trade between countries, to put to
the increased oil prices due to the invasion an end all those discriminatory laws,
of Kuwait by Iraq. It became difficult for restrictions, rules and policies that are
India to raise a loan. Even the non- hurdles in the way of international free
resident Indians started withdrawing their trade, and to regulate global trade with
deposits in foreign currency from India. the help of a formal multi party
Remedies : mechanism.
P. V. Narasimha General Agreement on Tariffs and
Rao appointed Trade (GATT) existed at the international
Dr Manmohan level before the World Trade Organisation
Singh as Finance came into being. It regulated commerce. In
Minister in order India there were opposed, extreme views
to find a way out about the World Trade Organisation. Yet
of this situation. Dr Manmohan Singh India decided to take its membership. The
Dr Singh undertook many corrective provisions of the World Trade Organisation
measures. The situation began to change. are regarding grants, import-export, foreign
He removed the restrictions on foreign investment, agriculture, technology and
investments. He restricted the licence services. The sectors of electricity, water
system to 18 industries. In view of the transportation, education and health rapidly
increasing losses in the public sector commercialised since India became a
industries, he opened up the public sector member of the World Trade Organisation.
for investment by private industries. In As per the various reports of the World
order to bring the share market under Trade Organisation, India has made a
control, he established the Securities and considerable improvement in different areas
Exchange Board of India (SEBI) in 1988. like reduction in the below poverty line
National Stock Exchange was (BPL) population, decline in infant mortality,
computerised. He gave priority to remove availability of facilities regarding drinking
the spectre of recession. water and waste water management.
Foreign Investment in India grew India signed the South Asian
during the first tenure of Dr Manmohan Preferential Trade Arrangement (SAPTA)
Singh as Finance Minister. India could
along the lines of the World Trade
recover the gold mortgaged with the Bank
Organisation. India removed the import
of England. The government got the
restrictions on several commodities for
support of the capitalist class as well as
SAARC countries. India also gave
the middle class. As the government
discounts on import duties. India opened
opened up the telecom sector, mobile
phone services started all over the country. up the insurance sector to private and
Dr Manmohan Singh signed the agreement foreign investment.
with the World Trade Organisation and In this way, we have learnt about
launched the policy of privatisation, the journey of India’s economy. We have
liberalisation and globalisation. come a long way from mixed economy
World Trade Organisation : In to globalisation. In the next chapter, we
1995, India became a member of the are going to study India’s progress in
World Trade Organisation (WTO). The other fields.

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 Exercises

1. (A) Choose the correct option from (B) Write short notes on-
the given options and complete the (1) Mixed Economy
statements. (2) 20-point Programme
(1) On 19th July 1969 .......... major banks
in India were nationalised. 3. (A) Explain the following statements with
(a) 12 (b) 14 (c) 16 (d) 18 reasons.
(2) ............... declared a 20 point (1) Independent India opted for mixed
programme. economy.
(a) Pandit Nehru (b) Lal Bahadur (2) Banks were nationalised in 1969.
Shastri (c) Indira Gandhi (d) P. V. (3) Mill workers went on strike.
Narsimha Rao
(B) Answer the following questions in
(B) Identify and write the wrong pair.
detail.
(1) Kavasaji Davar - Iron and Steel
(1) Which programmes were started in the
factory
8th five-year plan ?
(2) Dr Datta Samant - Leadership of mill
(2) Which projects were started in the 2nd
workers
five-year plan ?
(3) N. M. Lokhande - Holiday for mill
workers
   Projects
(4) Narayan Survey - Depiction of lives of
workers through poems (1) With the help of the internet, get the
following information about the World
2. Complete the activity as per given
Trade Organisation - logo, member
instruction.
countries, aims, programmes, etc.
(A) Complete the following chart.
(2) Visit a nationalised bank / branch
Five- and get to know about the work of
year Duration Purposes nationalised banks.
plan
First ......... Agriculture,
Social
development
Second 1956-1961 Industrialisation
Third ......... Elimination
of inequality,
increasing the
opportunities
for employment,
increase in
national income
......... 1969-1974 Scientific
research, health
and family
planning
Fifth ......... ......................

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