11 NCERT CBSE Indian Economy 1950–1990
Theme Analysis
Main ThemeIndian Economic Development 1950-1990
Subject CategoryEconomics
Key Concepts
Question FocusQuestions cover the evolution of India's economic system, the objectives and implementation of the Five Year Plans, and specific policies in agriculture and industry/trade between 1950 and 1990. Focus is on conceptual understanding, policy rationale, and their achievements and limitations. Difficulty is mixed, ranging from recall of definitions to analysis of policy impacts.
Which type of economic system did independent India's leaders, including Jawaharlal Nehru, choose for the nation?
Hint: Consider Nehru's preference for a socialist outlook but his rejection of extreme state ownership.
Answer
Independent India opted for a mixed economy, combining features of socialism (strong public sector, planning) with capitalism (private property, democracy).
Explanation
Jawaharlal Nehru and other leaders sought an alternative to the extreme versions of capitalism and socialism. They found the answer in a mixed economic system that combined the best features of socialism without its drawbacks, allowing for a strong public sector alongside private property and democracy.
In a capitalist society, how are goods and services primarily distributed among people?
Hint: Think about how market forces influence who gets what in a capitalist system.
Answer
In a capitalist society, distribution is based on purchasing power, meaning one needs money to buy goods and services.
Explanation
The text states that in a capitalist society, goods produced are distributed among people not on the basis of what people need but on the basis of Purchasing Power—the ability to buy goods and services. This means one has to have the money to buy it.
When was the Planning Commission set up in India, and who served as its Chairperson?
Hint: Recall the historical context of India's post-independence economic planning.
Answer
The Planning Commission was set up in 1950, with the Prime Minister as its Chairperson.
Explanation
The text explicitly states: 'In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson. The era of five year plans had begun.'
Which of the following is NOT one of the four main goals of India's Five Year Plans?
Hint: The document lists four key objectives for the Five Year Plans.
Answer
Privatisation was not one of the explicitly stated goals of the early Five Year Plans. The four main goals were growth, modernisation, self-reliance, and equity.
Explanation
The text clearly lists the goals of the five year plans as: growth, modernisation, self-reliance and equity. Privatisation is not mentioned as a goal during this period.
What is considered a good indicator of economic growth in the language of economics?
Hint: Recall the definition of growth provided in the context of planning goals.
Answer
Steady increase in the Gross Domestic Product (GDP) is a good indicator of economic growth.
Explanation
The text states: 'A good indicator of economic growth, in the language of economics, is steady increase in the Gross Domestic Product (GDP).'
Beyond adopting new technology, what other aspect does 'modernisation' as a planning goal refer to?
Hint: Consider the broader implications of a 'modern society' as described in the text.
Answer
Modernisation also refers to changes in social outlook, such as recognizing that women should have the same rights as men.
Explanation
The text explains: 'However, modernisation does not refer 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.'
Why was the policy of self-reliance considered a necessity for India in its initial Five Year Plans?
Hint: Think about the concerns of a newly independent nation regarding external influence.
Answer
Self-reliance was crucial to reduce dependence on foreign countries, particularly for food, and to safeguard India's sovereignty from foreign interference.
Explanation
The text explains that self-reliance was considered a necessity 'in order to reduce our dependence on foreign countries, especially for food.' It further states that 'dependence on imported food supplies, foreign technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our policies.'
What is the primary objective of 'equity' as a planning goal?
Hint: Consider how the other goals (growth, modernization, self-reliance) might not automatically lead to improved lives for all.
Answer
The primary objective of equity is to ensure that the benefits of economic prosperity reach the poor sections as well, instead of being enjoyed only by the rich, and to reduce inequality.
Explanation
The text states: '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, modernisation and self-reliance, equity is also important.'
How can the goal of introducing modern technology (modernisation) potentially conflict with the goal of increasing employment?
Hint: Think about how automation and efficiency gains from new technology might affect the workforce.
Answer
Modern technology can conflict with employment goals if it reduces the need for labour, leading to job displacement.
Explanation
The document explains this potential conflict: 'For example, the goal of introducing modern technology may be in conflict with the goal of increasing employment if the technology reduces the need for labour.'
Who is regarded as the 'architect of Indian planning' due to his significant contributions to the Second Five Year Plan?
Hint: Look for the statistician mentioned in connection with the Second Five Year Plan.
Answer
Prasanta Chandra Mahalanobis is regarded as the architect of Indian planning, particularly for his ideas underlying the Second Five Year Plan.
Explanation
The text states: 'Planning, in the real sense of the term, began with the Second Five Year Plan. The Second Plan, a landmark contribution to development planning in general, laid down the basic ideas regarding goals of Indian planning; this plan was based on the ideas of Mahalanobis. In that sense, he can be regarded as the architect of Indian planning.'
What was the primary aim of 'land reforms' in the agricultural sector after independence?
Hint: Think about the land tenure system that existed during colonial rule and its impact on farmers.
Answer
Land reforms primarily aimed to change the ownership of landholdings and abolish intermediaries like zamindars to bring equity and incentives to tillers.
Explanation
The text states: 'Equity in agriculture called for land reforms which primarily refer to change in the ownership of landholdings. Just a year after independence, steps were taken to abolish intermediaries and to make the tillers the owners of land.'
The policy of 'land ceiling' was introduced primarily to achieve which of the following goals?
Hint: Consider the meaning of 'ceiling' in the context of land ownership and its social objective.
Answer
Land ceiling aimed to fix the maximum size of land an individual could own, thereby reducing the concentration of land ownership and promoting equity.
Explanation
The text states: '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.'
What does the 'Green Revolution' primarily refer to in the context of Indian agriculture?
Hint: Recall the specific agricultural innovation that led to a surge in food output.
Answer
The Green Revolution refers to the significant increase in food grain production, mainly wheat and rice, achieved through the use of High Yielding Variety (HYV) seeds.
Explanation
The text defines the Green Revolution as: 'This refers to the large increase in production of food grains resulting from the use of high yielding variety (HYV) seeds especially for wheat and rice.'
Which of the following inputs was NOT essential for the successful implementation of HYV seeds during the Green Revolution?
Hint: Think about the advanced requirements of the new seed technology.
Answer
The use of HYV seeds required modern inputs like fertiliser, pesticide, and regular water supply, not traditional farming tools.
Explanation
The text states: 'The use of these seeds required the use of fertiliser and pesticide in the correct quantities as well as regular supply of water; the application of these inputs in correct proportions is vital.'
What is 'marketed surplus' in the context of agricultural produce?
Hint: Consider the part of the harvest that enters the wider economy for sale.
Answer
Marketed surplus refers to the portion of agricultural produce that farmers sell in the market after meeting their own consumption needs.
Explanation
The text defines it as: 'The portion of agricultural produce which is sold in the market by the farmers is called marketed surplus.'
How did the increased marketed surplus during the Green Revolution benefit low-income groups?
Hint: Think about the basic economic principle of supply and demand concerning prices.
Answer
The increased marketed surplus led to a decline in the relative prices of food grains, which significantly benefited low-income groups who spend a large portion of their income on food.
Explanation
The text states: 'As a result, the price of food grains declined relative to other items of consumption. The low-income groups, who spend a large percentage of their income on food, benefited from this decline in relative prices.'
Which of the following is a common argument AGAINST the continuation of agricultural subsidies once new technology is widely adopted?
Hint: Consider the financial implications for the government and who truly benefits from long-term subsidies.
Answer
A major argument against continuing subsidies is that they become a huge burden on government finances, and a substantial amount may benefit the fertiliser industry and farmers in more prosperous regions rather than the intended small farmers.
Explanation
The text discusses the debate over subsidies: 'Further, subsidies are meant to benefit the farmers but a substantial amount of fertiliser subsidy also benefits the fertiliser industry; and among farmers, the subsidy largely benefits the farmers in the more prosperous regions. Therefore, it is argued that there is no case for continuing with fertiliser subsidies; it does not benefit the target group and it is a huge burden on the government’s finances.'
Despite the success of the Green Revolution in achieving food self-sufficiency, what 'important failure' of India's policies during 1950-1990 did economists identify regarding the agricultural sector?
Hint: Think about the expected shift in occupational structure as an economy develops.
Answer
Economists pointed out that the industrial and service sectors did not absorb the large proportion of the population working in agriculture, leading to continued high dependence on the sector for employment.
Explanation
The text states: 'Why was such a large proportion of the population engaged in agriculture although agricultural output could have grown with much less people working in the sector? The answer is that the industrial sector and the service sector did not absorb the people working in the agricultural sector. Many economists call this an important failure of our policies followed during 1950-1990.'
What was a key reason for the government to play an extensive role in promoting the industrial sector after independence?
Hint: Consider the state of India's industrial base and capital availability at independence.
Answer
The government had to play an extensive role because Indian industrialists lacked the capital for large industrial ventures, and the market was not big enough to incentivize them.
Explanation
The text explains: '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 an extensive role in promoting the industrial sector.'
Which resolution formed the basis of the Second Five Year Plan and classified industries into three categories?
Hint: Look for the specific policy document related to industrial development in the mid-1950s.
Answer
The Industrial Policy Resolution of 1956 formed the basis of the Second Five Year Plan and categorized industries.
Explanation
The text states: 'In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society. This resolution classified industries into three categories.'
Under the Industrial Policy Resolution of 1956, how was the private sector generally controlled?
Hint: Recall the term used to describe the regulatory framework for industries during this period.
Answer
The private sector was kept under state control through a system of licenses, which were required to establish new industries or expand existing production.
Explanation
The text mentions: 'Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. No new industry was allowed unless a license was obtained from the government.'
What was a key purpose of making it easier to obtain an industrial license if the unit was established in an economically backward area?
Hint: Consider the social and economic objective of distributing development across the country.
Answer
This policy aimed to promote regional equality by encouraging industrial development in less developed areas.
Explanation
The text states: 'This policy was used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit was established in an economically backward area... The purpose of this policy was to promote regional equality.'
Which committee, in 1955, noted the possibility of using small-scale industries for promoting rural development?
Hint: Look for the specific committee mentioned in connection with small-scale industries.
Answer
The Village and Small-Scale Industries Committee, also known as the Karve Committee, identified the potential of small-scale industries for rural development.
Explanation
The text mentions: '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.'
Small-scale industries are considered more 'labour intensive.' What does this characteristic imply?
Hint: Think about the resource that 'labour intensive' refers to.
Answer
Being 'labour intensive' means small-scale industries utilize more human labour compared to large-scale industries, thus generating more employment opportunities.
Explanation
The text states: 'It is believed that small-scale industries are more ‘labour intensive’ i.e., they use more labour than the large-scale industries and, therefore, generate more employment.'
What was the technical term for the 'inward looking trade strategy' adopted by India in its first seven plans?
Hint: Recall the policy aimed at producing goods domestically instead of buying them from abroad.
Answer
The inward-looking trade strategy was technically called 'import substitution'.
Explanation
The text states: 'In the first seven plans, trade was characterised by what is commonly called an inward looking trade strategy. Technically, this strategy is called import substitution.'
How did tariffs protect domestic industries from foreign competition?
Hint: Think about the financial impact of tariffs on goods coming into a country.
Answer
Tariffs are a tax on imported goods, which makes them more expensive and thus discourages their use, protecting domestic industries.
Explanation
The text states: 'Tariffs are a tax on imported goods; they make imported goods more expensive and discourage their use.'
What is the primary function of 'quotas' in trade policy?
Hint: Think about a quantitative limit on imports.
Answer
Quotas specify the maximum quantity of goods that can be imported, thereby restricting imports and protecting domestic firms.
Explanation
The text states: 'Quotas specify the quantity of goods which can be imported. The effect of tariffs and quotas is that they restrict imports and, therefore, protect the domestic firms from foreign competition.'
One criticism of the protection from foreign competition (import substitution) was that it led to a lack of incentive for Indian producers to improve quality. Why was this the case?
Hint: Consider the effect of a lack of competition on producer behavior.
Answer
Due to import restrictions, Indian consumers had to buy domestically produced goods, creating a 'captive market' where producers had no incentive to improve quality.
Explanation
The text explains: 'Due to restrictions on imports, the Indian consumers had to purchase whatever the Indian producers produced. The producers were aware that they had a captive market; so they had no incentive to improve the quality of their goods. Why should they think of improving quality when they could sell low quality items at a high price?'
What was a major criticism leveled against many public sector enterprises in India during the 1950-1990 period?
Hint: Think about the financial viability and operational efficiency of state-owned businesses.
Answer
Many public sector firms were criticized for incurring huge losses and continuing to operate, thus becoming a drain on the nation's limited resources.
Explanation
The text states: 'Many public sector firms incurred huge losses but continued to function because it is difficult to close a government undertaking even if it is a drain on the nation’s limited resources.'
The 'permit license raj' refers to:
Hint: Recall the term used for the regulatory environment that industrialists faced.
Answer
The 'permit license raj' describes the excessive government regulation and control over industries through a complex system of licenses and permits.
Explanation
The text states: 'The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient.'
How did the 'permit license raj' negatively impact industrial development?
Hint: Consider the opportunity cost of time and resources spent on navigating regulations.
Answer
The permit-license raj prevented firms from becoming more efficient, as industrialists spent more time obtaining licenses or lobbying rather than improving products.
Explanation
The text states: 'The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient. More time was spent by industrialists in trying to obtain a license or lobby with the concerned ministries rather than on thinking about how to improve their products.'
When was a new economic policy initiated in India to make the economy more efficient?
Hint: This date marks a significant shift mentioned at the end of the chapter.
Answer
A new economic policy was initiated in 1991 to address the limitations of the previous policies and make the Indian economy more efficient.
Explanation
The conclusion section states: 'The need for reform of economic policy was widely felt in the context of changing global economic scenario, and the new economic policy was initiated in 1991 to make Indian economy more efficient.'
What distinguishes India's mixed economy model from the socialism established in the former Soviet Union?
Hint: Recall Nehru's specific reservations about the Soviet model of socialism.
Answer
India's mixed economy combined a strong public sector with private property and democracy, whereas the Soviet model involved complete government ownership of production means and no private property.
Explanation
The text mentions Nehru 'was not in favour of the kind of socialism established in the former Soviet Union where all the means of production... were owned by the government. There was no private property.' India's chosen system, in contrast, would be 'a socialist society with a strong public sector but also with private property and democracy.'
What does Gross Domestic Product (GDP) measure?
Hint: This is a fundamental economic definition related to national output.
Answer
GDP is the market value of all the final goods and services produced in the country during a year.
Explanation
The text defines GDP as: 'The GDP is the market value of all the final goods and services produced in the country during a year.'
What makes up the 'structural composition' of an economy?
Hint: Think about the main divisions of economic activity in a country.
Answer
The structural composition of an economy is determined by the contribution of its different sectors—agricultural, industrial, and service—to the Gross Domestic Product (GDP).
Explanation
The text states: 'The GDP of a country is derived from the different sectors of the economy, namely the agricultural sector, the industrial sector and the service sector. The contribution made by each of these sectors makes up the structural composition of the economy.'
The text describes India's structural change as 'peculiar.' What was this peculiarity by 1990?
Hint: Recall the typical pattern of sectoral contribution during development and how India deviated.
Answer
By 1990, the service sector's share in India's GDP (40.59%) surpassed that of agriculture or industry, which is typically seen in more developed economies, making India's structural change peculiar for a still-developing nation.
Explanation
Box 2.4 states: 'Usually, with development, the share of agriculture declines and the share of industry becomes dominant. At higher levels of development, the service sector contributes more to the GDP than the other two sectors. In India... by 1990 the share of the service sector was 40.59 per cent, more than that of agriculture or industry, like what we find in developed nations.'
Despite the abolition of intermediaries, why was the goal of equity in land reforms not fully served in some areas?
Hint: Consider the practical challenges and resistance faced during the implementation of land reforms.
Answer
Loopholes in legislation allowed former zamindars to retain land or evict tenants, claiming self-cultivation. Additionally, the poorest agricultural laborers did not benefit from these reforms.
Explanation
The text states: 'In some areas the former zamindars continued to own large areas of land by making use of some loopholes in the legislation; there were cases where tenants were evicted and the landowners claimed to be self-cultivators... and even when the tillers got ownership of land, the poorest of the agricultural labourers (such as sharecroppers and landless labourers) did not benefit from land reforms.'
Which states were primarily the beneficiaries of the first phase of the Green Revolution (mid-1960s to mid-1970s)?
Hint: Recall the regions mentioned as early adopters of HYV technology due to their financial capacity.
Answer
The first phase of the Green Revolution primarily benefited more affluent states such as Punjab, Andhra Pradesh, and Tamil Nadu.
Explanation
The text mentions: 'As a result, in the first phase of the green revolution (approximately mid 1960s upto mid 1970s), the use of HYV seeds was restricted to the more affluent states such as Punjab, Andhra Pradesh and Tamil Nadu.'
What was a potential risk of the Green Revolution technology that the government successfully mitigated?
Hint: Think about the challenges faced by smaller farmers and the biological risks of new crop varieties.
Answer
The Green Revolution carried risks of increasing disparities between small and big farmers (due to input costs) and making HYV crops more prone to pest attacks. The government mitigated these through loans, subsidies, and research institutes.
Explanation
The text states: 'One such risk was the possibility that it would increase the disparities between small and big farmers—since only the big farmers could afford the required inputs... Moreover, the HYV crops were also more prone to attack by pests...' The government provided loans and subsidies to small farmers and established research institutes to mitigate these risks.
Some economists argue that agricultural subsidies should be continued because farming in India is a risky business. What is their proposed solution if subsidies largely benefit the fertiliser industry and big farmers?
Hint: Consider the argument for targeted support rather than blanket removal.
Answer
These economists argue that the correct policy is not to abolish subsidies but to implement measures that ensure the benefits are directed specifically to poor farmers.
Explanation
The text states: 'These experts argue that if subsidies are largely benefiting the fertiliser industry and big farmers, the correct policy is not to abolish subsidies but to take steps to ensure that only the poor farmers enjoy the benefits.'
The first category of industries under the Industrial Policy Resolution of 1956 comprised industries that would be exclusively owned by:
Hint: Recall the 'commanding heights' principle of the economy.
Answer
The first category of industries under IPR 1956 was exclusively reserved for government ownership.
Explanation
The text states: 'The first category comprised industries which would be exclusively owned by the government; the second category consisted of industries in which the private sector could supplement the efforts of the public sector, with the government taking the sole responsibility for starting new units; the third category consisted of the remaining industries which were to be in the private sector.'
How were small-scale industries protected from competition with big industrial firms?
Hint: Think about direct government interventions to support smaller businesses.
Answer
Small-scale industries were protected by reserving the production of certain products exclusively for them and by offering concessions like lower excise duty and bank loans at lower interest rates.
Explanation
The text states: 'For this purpose, the production of a number of products was reserved for the small-scale industry... They were also given concessions such as lower excise duty and bank loans at lower interest rates.'
If India implemented an 'import substitution' policy for vehicles, what would be the expected outcome?
Hint: Consider the literal meaning of 'substituting imports'.
Answer
Import substitution for vehicles would mean encouraging Indian industries to manufacture them domestically, reducing the need for foreign imports.
Explanation
The text explains: 'This policy aimed at replacing or substituting 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.'
What was a key assumption behind India's policy of protecting domestic industries from foreign competition?
Hint: Think about the vulnerability of nascent industries in a developing nation.
Answer
It was assumed that industries in developing countries were not initially in a position to compete with those from more developed economies and needed protection to grow and learn over time.
Explanation
The text states: 'The policy of protection was based on the notion that industries of developing countries were not in a position to compete against the goods produced by more developed economies. It was assumed that if the domestic industries were protected they would learn to compete in the course of time.'
What is a 'perspective plan' in the context of Indian planning?
Hint: Recall the distinction between the five-year plans and a longer-term vision.
Answer
A perspective plan is a long-term plan, typically twenty years, that provides the overarching framework and objectives for the shorter five-year plans.
Explanation
Box 2.2 states: 'Our plan documents upto the year 2017 not only specify the objectives to be attained in the five years of a plan but also what is to be achieved over a period of twenty years. This long-term plan is called ‘perspective plan’. The five year plans were supposed to provide the basis for the perspective plan.'
Some economists argue that the state should get out of areas which the private sector can manage well. What is their main reasoning?
Hint: Consider the optimal allocation of government resources and roles.
Answer
The argument is that government resources are limited, and the state should focus on providing important services that the private sector cannot, rather than duplicating efforts in areas private firms can manage.
Explanation
The text states: 'This has led some scholars to argue that the state should get out of areas which the private sector can manage and the government may concentrate its resources on important services which the private sector cannot provide.'
In a socialist society, who primarily decides what goods are to be produced?
Hint: Recall the central authority in a socialist system.
Answer
In a socialist society, the government decides what goods are to be produced based on the perceived needs of society, with individual consumer desires often given less importance.
Explanation
The text states: 'In a socialist society the government decides what goods are to be produced in accordance with the needs of society. It is assumed that the government knows what is good for the people of the country and so the desires of individual consumers are not given much importance.'
What was the term for intermediaries who merely collected rent from tillers without contributing to farm improvements at the time of India's independence?
Hint: Recall the traditional land tenure system in pre-independence India.
Answer
These intermediaries were variously called zamindars or jagirdars, who were abolished as part of land reforms.
Explanation
The text states: 'At the time of independence, the land tenure system was characterised 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 Green Revolution enabled the government to procure sufficient food grains for what purpose?
Hint: Think about the role of government in ensuring national food security.
Answer
The increased production from the Green Revolution allowed the government to procure enough food grains to build buffer stocks, which were crucial for managing food shortages.
Explanation
The text states: 'The green revolution enabled the government to procure sufficient amount of food grains to build a stock which could be used in times of food shortage.'
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