Indian Economy and Five year Plan In India

1. INDIAN ECONOMY(1950-1990)/
FIVE YEAR PLAN IN INDIA
IMRAN SIR SUCCESS POINT
IMRAN KHAN (PGT)
www.imransirsuccesspoint.in

2. Introduction
• In 15 August 1947 India woke to a new dawn of Freedom.
• It is necessary to reconstruct the backward and stagnant Indian economy into a
developed economy.
• The important task before the government of independent India was to decide the
type of economic system.
• Economic system refers to an arrangement by which central problems of an economy
are solved.
• It is a system which would promote the welfare of all rather than a few.
• After adopting the economic system the next important step for the government was
to revive the poor, backward and stagnant economy, inherited from the British rule.
• For the development of Indian economy it was necessary for the government to plan
for the economy known as Economic planning.
• Economic planning refers to a system under which a central authority sets a set of
targets and specifies a set of programmes and policies to achieve those targets within
the specified period of time.

3. • To make economic planning effective the government of India set up Planning
commission in 1950 with the Prime Minister as a chairman and under the
chairmanship of Prof. P.C. Mahalanobis.
• It is important to note that the planning commission has now been abolished. In 2015
it has been replaced by NITI Aayog. The role of NITI Aayog is to make such policies
that accelerate the pace of GDP growth.

4. Central Problem of an Economy
• The three major central problems of an economy are:-
• 1.What to Produce:- It involves selection of goods and services and the quantity of
each that the economy should produce.
• 2. How to Produce:-It involves deciding the techniques of production.
• 3. For whom to produce:-It involves the selection of the category of people who will
ultimately consume the goods.

5. Types of Economic System
• Economic system are generally of 3 different types.
• Capitalist Economy:- A capitalist economy is the one in which the means of production
are owned controlled by the private sector or by the individuals.
• Individuals or the private sector are free to take their economic decision as guided by the
principle of profit maximisation.
• Advantage:- The principal merit of this system is that it promotes selfinterest.
• Profits are maximised and GDP growth is accelerated.
• Disadvantage:- The principal demerits of this system is that it ignores collective interest of
the society.
• Only those goods are produced which yield high profit.
• Under capitalist economy the three central problems are solved in the following manner.
• What to produce:- Under this system only those goods are produced that can be sold
profitably either in the domestic or in the foreign market.
• How to Produce:- Goods are produced using cheaper techniques of production. In this
system we can use capital intensive methods of production.
• For whom to produce:-In this method goods produced are distributed among people not
on the basis of their needs but on the basis of their income or purchasing power .

7. • Socialist Economy:- A socialist economy is the one in which the means of
production are owned, controlled and operated by the government.
• Means of production are used in a manner such that social welfare is maximised.
• There is a direct participation of the government in the process of production.
• Advantage:- It achieves equality in the distribution of income.
• Disadvantage:- The principle demerits is that GDP growth remains a slow process.
• Only those goods are produced which yield high profit.
• Like soviet union and china had to switch over to market economy form the
controlled economy.
• Under Socialist economy the three central problems are solved in the following
manner.
• What to produce:- The government are decided what to produce in accordance with
needs of the society.
• How to Produce:- In this method we can use labour intensive method.
• For whom to produce:-In this method socialism is supposed to be based on what
people need and not on what they can afford to purchase .

9. • Mixed Economy:- It refers to a system in which the public sector and the private
sector are allotted their respective roles for solving the central problems of the
economy.
• In the private sector production decisions are governed by the principles of profit
maximisation while in the public sector social welfare rules the roost.
• Both private and public sectors play a significant role in the process of production.
• Advantage:- The principles merit of a mixed economy is that it combines the merits
of capitalist as well as a socialist economy.
• GDP growth is encouraged because private entrepreneurs are free focus on profit
maximisation on the other hand social justice or equality is promoted.
• Disadvantage:- The principle demerit is that the government sector is often inflicted
with corruption, leading to low level of efficiency/productivity.
• It is owing to this demerits that the mixed economies like India are gradually opting
for privatisation of the public enterprises.
• What to produce:- The private sector provides whatever goods and services it can
produce well and the government provides essential goods and services which the
market fails to do.
• How to Produce:- In this method we can use labour intensive method.
• For whom to produce:-Poor as well as Rich.

11. India Adopted the Mixed Economy
• After the freedom leaders of Independent India Like Jawaharlal Nehru were confused
with regard to economic system to be followed in India.
• Some leaders were in Favour of Socialist Economy. In a democratic country like
India complete dilution of private ownership was not possible.
• Capitalist economic system did not appeal to jawahar lal Nehru our First Prime
Minister of India as under this system there would be less chances for improvement
in quality of life of Majority of people.
• As a result Mixed economy was adopted by the Indian Economy.
• India would be a socialist society with a strong public sector but also with private
property and democracy.

13. Economic Planning
• After adopting the economic system the next important step for the government was to
revive the poor, backward and stagnant economy, inherited from the British rule.
• For the development of Indian economy it was necessary for the government to plan for
the economy known as Economic planning.
• Now we understand what is plan, plan is a document showing detailed scheme, program
and strategy, worked out in advance for fulfilling an objective.
• In India plans are of five years duration and are called five year plans.
• Our plan documents not specify the objectives to be attained in the five year of a plan but
also what is to be achieved over a period of twenty years. This long term plan is called
perspective plan.
• Economic planning refers to a system under which a central authority sets a set of targets
and specifies a set of programmes and policies to achieve those targets within the specified
period of time.
• To make economic planning effective the government of India set up Planning
commission in 1950 with the Prime Minister as a chairman and under the chairmanship of
Prof. P.C. Mahalanobis.
• It is important to note that the planning commission has now been abolished. In 2015 it
has been replaced by NITI Aayog. The role of NITI Aayog is to make such policies that
accelerate the pace of GDP growth.

14. • It was also called Modi effect.
• The Constitution came into force on 26 January 1950. Subsequently, Planning Commis-
sion was set up on 15 March 1950 and the plan era started from 1 April 1951 with the
launching of the First Five Year Plan (1951-56).
• The purpose of the commission was to carefully assess the human and physical resources
of the country and to prepare the plans for the effective use of resources.
• Objectives of Economic Planning in India
• The following were the original objectives of economic planning in India:
• Economic Development: This is the main objective of planning in India. Economic
Development of India is measured by the increase in Gross Domestic Product (GDP) and
Per Capita Income
• Increased Levels of Employment: An important aim of economic planning in India is to
better utilise the available human resources of the country by increasing the employment
levels.
• Self Sufficiency: India aims to be self-sufficient in major commodities and also increase
exports through economic planning. The Indian economy had reached the take-off stage of
development during the third five-year plan in 1961-66.
• Social Justice: This objective of planning is related to all the other objectives and has
been a central focus of planning in India. It aims to reduce the population of people living
below the poverty line and provide them access to employment and social services.

15. • Economic Stability: Economic planning in India also aims at stable market conditions in
addition to the economic growth of India. This means keeping inflation low while also
making sure that deflation in prices does not happen.
• Social Welfare and Provision of Efficient Social Services: The objectives of all the five
year plans as well as plans suggested by the NITI Aayog aim to increase labour welfare,
social welfare for all sections of the society. Development of social services in India, such
as education, healthcare and emergency services have been part of planning in India.
• Regional Development: Economic planning in India aims to reduce regional disparities in
development. For example, some states like Punjab, Haryana, Gujarat, Maharashtra and
Tamil Nadu are relatively well developed economically while states like Uttar Pradesh,
Bihar, Orissa, Assam and Nagaland are economically backward.
• Comprehensive and Sustainable Development: Development of all economic sectors
such as agriculture, industry, and services is one of the major objectives of economic
planning.
• Reduction in Economic Inequality: Measures to reduce inequality through progressive
taxation, employment generation and reservation of jobs has been a central objective of
Indian economic planning since independence.
• Increased Standard of Living: Increasing the standard of living by increasing the per
capita income and equal distribution of income is one of the main aims of India’s
economic planning.

16. Flow Chart for plan wise objective from the first to twelfth plan in India

17. Features of Economic Planning policy pursued under Planning Till 1991
• Heavy reliance on public sector
• Regulated development of private sector.
• Focus on saving and investment
• Protection from foreign competition.
• Centralised Planning

18. Goals of Five Year Plans
• The five year plan have been concerned with the removal of economic backwardness
of the country and to make India a developed economy.
• The five year plans have also take care to ensure that the weaker sections of the
population benefit fro the economic progress of the country.
• The first five year plan was launched for a period starting from 1April 1951 to 31
March 1956..
• Each five year plan listed the basic goals of India’s development which served as the
guiding principles of Indian planning.

19. Growth
• It refers to increase in the country’s capacity to produce the output of goods and
services with in the country.
• It imples either a larger stock of productive capital or a large size of supporting
services like transport and banking or an increase in the efficiency of productive
capital and services.
• A good indicataor of economic growth in the language of economics, is steady
increase in the GDP.
• GDP refers to market value of all final goods and services produced in the country
during a period of one year.
• Increase in GDP or availability of goods and services enables people to enjoy a more
rich and varied life.

20. Modernisation
• 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 seeds
varieties instead of using the old ones. Similarly a factory can increase output by
using a new types of machine.
• Adoption of new technology is called modernisation.
• It does not refers only to the use of new technology but also to changes in social
outlook such as the recognition that women should have the same rights as men.
•

21. Self Reliance
• It means to have development through domestic resources.
• It promotes economic growth and modernisation, the five year plans stressed on the
use of own resources, in order to reduce our dependence on foreign countries.
• The policy of self reliance was cconsidered a necessity because of two reasons.
• 1. To reduce foreign dependence.
• 2. To avoid foreign Interference.
• This goal was accorded a high priority during the first seven plans.

22. Equity
• Growth, Modernisation 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 improtant to ensure that the benefits of economic prosperity reach the poor
section as well instead of being enjoyed only by the rich.
• In addition to growth , modernisation, self –reliance equity is also important.
• Every Indian 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.

23. Agricultural Development
• In the previous chapter we have discussed about how the colonial government
exploited the agriculture sector.
• At the time of independence the Zamindar Collect the lagan from the actual tiller of
the soil and these lagan directly send to the Britisher.
• The low productivity of the agriculture sector forced to India to import food from
USA.
• About 70-75 % population was engaged in agriculture.
• So agriculture sector was focused right form the first five year plan.
• The measures undertaken to promote the growth in the agricultural sector can be
broadly categorized as Land Reform and Green revolution.

24. Land Reform
• It refers to change in the ownership of landholdings.
• Land reform measures have been introduced by various underdeveloped and
developing countries for attaining a rational land distribution pattern and viable
farming structure.
• Land reform were needed to achieve the objective of equity in agriculture.
• At the time of independence the land tenure system was characterised by
intermediaries (called Zamindar ) Where collected rent form the actual tillers of the
soil without contributing towards improvement in agriculture.
• The Idea behind this step was that ownership of land would given incentives to the
actual tillers to make improvements.
• The abolition समाप्ति of intermediaries बिचौलियों brought 200 lakh teanants into
direct contact with the government.

25. • The rights granted to tenants gave them incentive to increase output and this contributed to
growth in agriculture.
• The goal of equity was not fully served by abolition of intermediaries because of following
reasons.
• 1. The former Zamindar continued to own large areas of land by making use of some
loopholes in the legislation.
• 2. In some cases tenants were evicted and zamindar claimed to se self cultivators.
• 3. Even after getting the ownership of land the poorest of the agriculture laboures did not
benefit from land reforms.
• Land Ceiling:- It refers to fixing the specified limit of land, which could be owned
by an individual.
• Beyond the specified limit all lands belonging to a particular person would be taken over
by the government and will be allotted to the landless cultivators and small farmers.

26. • It was to reduce the concentration of land ownership in few hands.
• It helps to promote equity in the agricultural sector.
• The land ceiling legislation was challenged by the big landlords. They delayed its
implementation.
• This delay time was used by them to get the land registered in the name of close relatives,
thereby escaping from the legislation.
• Green Revolution:- It refers to the large increase in production of food grains due
to use of high yielding variety seeds.
• We have discussed earlier that about 75% of the country’s population was dependent on
agriculture and the farmers vitally depends on the monsoon and in case of shortage of
monsoon the farmers had to face lot of troubles.
• Agriculture sector was very low due to use of outdated technology and absence of required
infrastructure as a result of intensive and continued of many agricultural scientists
stagnation in agriculture was broken by the green revolution.

27. • High Yielding variety Seeds:-
• In the Kharif season 1966 India adopted HYV programme for the first time.
• The programme was successful due to:-
• HYV seeds
• Adequate irrigation facilities.
• These seeds can be used in those place where there are adequate facilities for
drainage and water supply.
• These needs heavy does of chemical fertilizer. 4-10 time more than ordinary seeds.
• Important Effects of Green Revolution:-
• Attaining marketable surplus.
• Buffer stock of food grains.
• Benefit to low income groups.
• Risks involved under Green Revolution:-
• Risk of pest Attack
• Risk in increase in income inequalities.

28. Industrial Development
• The developing countries like India can progress only if they have a good industrial
sector.
• Industry provides employment, which is more stable than the employment in
agriculture.
• Industrialisation promotes modernisation overall prosperity.
• At the time of independence the variety of industries was very limited.
• Role of public sector in Industrial Development:-
• 1. Shortage of Capital with private sector.
• 2. Lack of Incentive for private sector.
• 3. Objective of Social Welfare.

29. Industrial Policy Resolution 1956
• It is a comprehensive package of policy measures which covers various issues connected
with different industrial enterprises of the country.
• Industrial policy is essential for devising various procedures, principles, rules and
regulations for controlling industrial enterprise of the country.
• After the Industrial policy, 1948 Indian economy had to face a series of economic and
political changes, which necessitated the need for a fresh industrial policy for the country.
• On 30th April 1956 a second Industrial policy resolution was adopted in India.
• Classification of Industries:-
• Schedule A:- The first category comprised industries which would be exclusively owned
by the state. In this schedule 17 industries were included like arms and ammunitions;
atomic energy, heavy and core industries; aircraft, oil, railways, shipping etc.
• Schedule B:- In this schedule 12 industries were placed, which would be progressively
state-owned. The state would take the initiative of setting up industries and private sector
will supplement efforts of the state. Like Mining, fertilizer, machine tools
• Schedule C:- This schedule consisted of the remaining industries which were to be in the
private sector. The state would facilitate and encourage the development of all these
industries. These industries were controlled by the state through a system of licenses,
enforced under Industries (Development and Regulation) Act. 1951.

30. Industrial Licensing
• An Industrial license is a written permission from the government to an industrial
unit to manufacture goods.
• The Industries Act 1951 empowered the government to issue licenses for
• Setting up new industries
• Exapnsion of existing ones
• Diversification of products.
• According to Industrial Licensing
• 1. No new industry was allowed unless a license is obtained from the government.
• 2. It was easier to obtain license if the industrial unit was established in an
economically backward areas.
• 3. License was need even if an existing industry wants to expand output or diversify
production.
• Small scale Industry:-It is defined with the reference to the maximum investment
allowed on the assets of a unit.
• Important points about small scale industries
• Employment Generation.
• Need for protection from Big Firms

31. Success of Planning In India
• Growth and diversification of Industry:- Five year plans gave a big
push to the basic and capital good industries (iron and steel,
machinery, chemical fertilizers etc.)
• Economic Infrastructure:- Means of transport & communication,
irrigation, facilities & power generation capacity, banking and
insurance facilities are the key element of economic infrastructure.
• Social Infrastructure:- Health and educational facilities are the key
parameter of social infrastructure. These have recorded a significant
rise over time.
• Technical Change in Agriculture:-Five year plans have contributed
to the development of agriculture in two ways:- (1) Through land
reform (2) Through improvement in technology.

32. Failure of Planning in India
• Abject Poverty:-िहुि ज़्यादा गरीिी
• High Rate of Inflation:-
• Unemployment crises:-
• Inadequate Infrastructure
• Skewed विषम Distribution:-