We are going to study India’s
economic policy in this chapter. That
includes a study of the mixed economy,
five year plans and their successes and
failures, nationalisation of banks, 20-point
programme, mill workers’ strike and
especially the New Economic Policy of
1991.
Mixed Economy : Brainstorming
about the kind of economy we would
adopt after independence started much
before India got independence. Our Prime
Minister Pandit Nehru adopted the middle
path rather than taking recourse to any
extremes. Some countries had adopted
capitalism, while some had adopted
socialism. Each type of economy had its
own advantages.
In a capitalist system, the means
of production are privately owned. In a
socialist economy, the means of production
are owned by the State in the name of
the society. A mixed economy works both
in the private and the public sector. In
order to achieve economic development of
modern India, we gave preference to a
model of ‘mixed economy’. We can see
three parts in this kind of economy :
(1) Public Sector : The industries in
this sector are completely under the
control and management of the
government. For example, production of
defence equipment.
(2) Private Sector : The industries in
this sector are owned by private
industrialists. Of course, the government
supervises and controls them too. For
example, consumer goods.
(3) Joint Sector : In this sector, some
industries are owned by private
industrialists, while some are run under
government management.
For mixed economy to run smoothly
there is a need for coordination between
the private sector and the public sector.
This system aims at maximisation of
production and popular participation on a
large scale. An effort has been made in
this system to bring together the good
aspects of both the capitalist and the
socialist systems. A mixed economy
cannot ignore the profit motive,
entrepreneurship, discipline, time bound
planning, etc.
A mixed economy also naturally
tends to give priority to national interest.
Long term development is stressed upon
with priority. The industries like defence,
scientific research, education, roads,
railways, waterways, sea port and airport
development require huge capital
investment but the returns in these areas
are delayed. Not many private industrialists
are keen to invest in these areas. In such
a situation, the government has to take
the initiative.
Thus, India adopted the mixed
economy model and five year plans and
started off on its path of development.
The industrial policy of 1973 increased
the speed of development. Priority was
given in this policy to control the influence
of heavy industries, industrial families
and foreign industries and remove the
imbalance in regional development. The
government focused on the development
of small scale industries and cottage
industries. Government also started paying
more attention to the cooperative sector.
Five Year Plans
The colonial power had exploited India
economically. The country faced severe
problems like poverty, unemployment,
population growth, low standards of living, low productivity of agriculture and industries
and backwardness in the fields of knowledge,
science and technology. Planning was
essential to solve these problems.
India established the Planning
Commission in 1950 with Prime Minister
Pandit Jawaharlal Nehru as its Chairman.
It formulated India’s five year plans
that included rural and agricultural
development, balanced industrialisation,
provision for a minimum standard of
living and economic development
consistent with democratic ideals. It
focused on people’s participation and
individual development in the formulation
and implementation of the five year plans.
Fundamental Principle of planning :
A general principle of planning is the
proportionate distribution of the resources
of a country and the appropriate use of
the human resources to fulfil the needs of
the people.
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
and wealth.
(6) Maintain stable prices of commodities.
(7) Bring the growth in population under
control by family planning.
(8) Improve the standards of living by
eradicating poverty.
(9) Develop social services.
(10) Make the economy self-sufficient.
First Five Year Plan (1951-1956):
The expenditure in this plan was primarily
on agriculture, social development,
irrigation and flood control, sources of
energy, rural and small industries, heavy
industries and minerals, transport and
communication, education and health.
This plan consisted of measures to lay
the foundations of planned economic
development.
Second Five Year Plan (1956-1961):
This plan had ambitious goals of
industrialisation. Iron and steel industries
at Durgapur, Bhilai and Rourkela;
Chemical fertilisers plant at Sindri; rail
engine factory at Chittaranjan; factory of
railway bogies at Perambur; Ship building
factory at Vishakhapattanam and other
heavy industries were set up in the Public
Sector. Huge dams like Bhakra- Nangal,
Damodar, etc. were built to make water
available for agriculture. It led to increase
in the national income.
Third Five Year Plan (1961-1966) :
This plan was aimed at bringing about a
balance in industries and agriculture. The
other goals of the plan included increase
in national income, heavy industries,
development in transport and mineral
industry, alleviation of poverty and to
expand the opportunities for employment.After the third five year plan, three
one year plans were implemented (1966
to 1969). This was a period of intense
famine. Due to the invasion by China and
war with Pakistan, the government had to
focus on defence rather than development
related tasks. Also the famine required
the government to undertake measures to
tackle the effects of famine. All these
issues stressed the Indian economy greatly.
Fourth Five Year Plan (1969-1974):
The intentions behind setting the goals of
this plan were that India should become
self-reliant, government should develop
the basic industries, increase the speed of
economic development and pay attention
to establishing a socialistic pattern of
society. 14 major banks in the country
were nationalised. This plan did not
succeed as expected. The economy had to
bear the burden of the Bangladesh War.
The expenditure over the refugees had to
be borne as well. The Indian economy
suffered due to the pay raise of government
and railway servants and rise in the prices
of petrol in the international markets.
Fifth Five Year Plan (1974-1979) :
This plan was designed with the goal of
making India economically self-sufficient
by alleviating poverty. The objectives of
the Fifth Plan were as follows : increase
the national income, make large scale
employment available, supply education,
nutritious food and drinking water, to
make facilities of medical treatment
available in rural areas, to supply
electricity and means of communication,
implement social welfare schemes on a
wide scale, bring about the development
of agriculture, increase the basic industries,
purchase food grains and other life
sustaining goods by monopoly purchase
and make them available to the poor at
reasonable prices through a public
distribution system.
During the fifth plan, it was not
possible to achieve the goals of removal
of poverty and increase in employment.
In the 1977 general elections, the
Congress Party was defeated. The Janata
Party came to power. The new government
ended the fifth plan towards the end of
March 1978 and started the Rolling Plan
from April 1978, but it failed. In 1980,
general elections were held for Lok
Sabha. The Congress party came to
power. The Congress government closed
the system of the Rolling Plan and again
started planning like before.
Sixth Five Year Plan (1980-1985) :
This plan also stressed upon alleviation
of poverty and employment generation.
This plan had the following objectives :
significantly increase the growth rate in
the economy, reduce the rate of poverty
and unemployment, shape and implement
a population policy so that people adopted
the small family norm voluntarily and
thus keep the population under control.
The following programmes were
implemented in the sixth five year plan:
* Integrated Rural Development
Programme (IRDP).
* Rural Landless Employment Guarantee
Programme (RLEGP).
* National Rural Employment
Programme (NREP).
* Salem Steel Plant.
Seventh Five Year Plan (1985-1990):
This plan laid stress on food, employment
and productivity. The objectives of the plan
included : Development, modernisation,
self-reliance, social justice, improving the
techniques of production, to achieve an
yearly increase in national income of 5%
and increase food grain production.
The following programmes were
started in this plan Eight Five Year Plan (1992-1997):
This plan gave a lot of scope to the
private sector.
The plan had the following features:
to maintain the rate of growth in national
income at 6.5%, to control the growth of
population, to encourage the programme
of family planning, to remove illiteracy
by expansion of primary education.
The following programmes were
started during this plan :
* Pradhanmantri Rozgar Yojana
* Mahila Samriddhi Yojana * Rashtriya
Samajik, Arthik Sahayya Yojana
* Midday Meal Scheme * Indira Mahila
Scheme * Ganga Kalyan Scheme
During the eighth plan, the importance
of the private sector grew. This plan is a
reflection of the liberalisation and free
market policy adopted in 1991.
Ninth Five Year Plan (1997-2002) :
This plan focused on agriculture and rural
development. The objectives of this plan
were : to increase the rate of growth of
the economy, create healthy competition
in the infrastructure sector, give a new
direction to industrial policy for ensuring
foreign investment.
The following schemes were started
during this plan : Swarna Jayanti Shahari
Rozgar Yojana, Bhagyashree Child
Welfare Policy, Rajrajeshwari Mahila
Kalyan Yojana, Swarnjayanti Gram
Swarozgar Yojana, Jawahar Gram
Samruddhi Yojana, Antyodaya Anna
Yojana, Pradhanmantri Gram Sadak
Yojana, etc.In this plan, the progress of
communication system and service sector
was achieved as per the expectations.
There was a growth in the fields of
construction and communication.
Nationalisation of Banks
During the tenure of Prime Ministers
Pandit Nehru and Lal Bahadur Shastri,
banking was a monopoly of the private
sector. These banks represented different
industrial groups. The Directors of these
banks were working towards developing
industrial sector and increasing its profits.
In order to stop this, the government
nationalised the ‘Imperial Bank’ in 1955
and it got converted into State Bank of
India. This Bank opened several branches
all over the country in a short while and
played a major role in development.
Background of Nationalisation :
India had adopted a mixed economy after
independence. Nationalisation of banks
was essential to cover the deficits if they
occurred while implementing different
schemes. Also the profits of these banks 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
the Communist Party supported this
demand.
20-Point Programme : Prime Minister
Indira Gandhi announced the 20-point
programme on 1st July 1975 and resolved
to make efforts towards rapidly becoming
a developed nation. The main provisions
of the 20 point programme are as follows:
(1) Land ceiling for cities and
agricultural land, equal division of wealth,
minimum wages for workers, increase in
water conservation schemes.
(2) Workers’ participation in industry,
national training scheme, freeing bonded
labour.
(3) Prevention of tax evasion,
economic crimes and smuggling.
(4) Regulation of prices of basic
necessities, improvements in the public
distribution system.
(5) Improvement in the textile industry
by developing handloom sector, waiving
loans for weaker sections, housing,
communication facilities, making
educational equipment available to
schools.
Issues of workers : The first textile
mill was started in Mumbai on 11th July
1851 by Kawasjee Dawar. Eventually,
mills started in Dadar, Paral, Bhaykhala,
Shivdi, Prabhadevi and Worli. This part
Do you know?
Mahatma Jotirao Phule’s associate
Narayan Meghaji Lokhande’s efforts
resulted in the weekly Sunday holiday
for mill workers from 1st January 1882.
Textile Mill
came to be known as Girangaon or ‘town
of mills’.
In the 1980s, the increasing unrest
among workers was due to the economic
conditions in other sectors. In some
industries the wages of the workers were
increasing. They were also getting more
amounts as bonus. They were getting more
facilities than the textile mill workers.
In the Diwali of 1981, the workers
expected to get a bonus of 20%. The
Rashtriya Mill Mazdoor Sangh, which was
negotiating with the employers, agreed
upon 8 to 17% bonus without taking the
workers into confidence. The cut in the
bonus proved to be the cause of unrest.
Some workers went to Dr Datta Samant.
They asked him to accept their leadership.
Workers of 65 mills came together and
Dr Datta Samant led the strike. On 18th
January 1982, two and a half lakh workers
went on a strike. Girangaon mills stopped
running making it seem like Mumbai’s
heart stopped throbbing0
Do you know?
13 textile mills. Appointment of arbitrators
did not help to resolve the issue.
New Economic Policy : The year
1991 is very important in the history of
modern India. After the 10th General
Elections, P. V.
Narasimha Rao
became the
Prime Minister
of India. With
Dr Manmohan
Singh as Finance
Minister, he
adopted the new
economic policy of linking India’s
economy with the global economy. For
this, fundamental changes were brought
about in the Indian economy. Indian
economy was brought in tune with the
global mainstream.
During this period, Indian economy
was in a crisis situation. Before the P. V.
Narasimha Rao government took charge,
Chandra Shekhar was the Prime Minister.
During his tenure the rate of inflation
was 17%.
Economic growth rate had gone down
by 1.1%. India had foreign exchange
reserves only enough to last for imports
for a week. It had become difficult to pay
back its loan and even give the interest
on it. In May 1991, the government had
tried to control the situation by selling
some of its gold reserves and by
mortgaging some. Before the Chandra
Shekhar government, the V. P. Singh
government had incurred a liability of
over 10 thousand crore rupees on the
economy by waiving off the loans of all
farmers. The Proportion of internal loans
of central and state governments together
to the gross Domestic Product was 55%.
In 1980-81 foreign loan was 2350 crore
dollars. It increased to 8380 crore dollars
in 1990-91. At this time, India had foreign
The Chief Minister of Maharashtra,
Barrister A. R. Antulay set up a committee
to solve this issue. Later Babasaheb
Bhosale became the Chief Minister of
Maharashtra State. He insisted that as per
law, he would talk only with the Rashtriya
Mill Mazdoor Sangha. Dr Datta Samant
demanded that the law be revoked.
In the beginning, the striking workers
received help from their native villages.
It was also not very difficult for them to
help each other. They set up departmental
committees and distributed food grains,
assistance in the form of funds, etc. The
left parties had supported the strike. As
the strike dragged on, efforts were made
to split the striking workers' ranks. Even
as the strike completed 6 months, the
central government completely ignored it.
The workers started a ‘Jail Bharo
Agitation’. In September 1982, one and a
half lakh workers took a march on the
Legislative Assembly of Maharashtra
State. It didn’t help at all. The strike
completed a year. This was the first strike
to have gone on for a year. In this period,
about one and a half lakh workers became
unemployed.
As polyester had come into greater
demand than cotton cloth, the sale of mill
cloth had already got affected. The mills
moved from Mumbai to Surat in Gujarat.
The Central government nationalised exchange reserves of only 100 crore
dollars. This also had the background of
the increased oil prices due to the invasion
of Kuwait by Iraq. It became difficult for
India to raise a loan. Even the nonresident Indians started withdrawing their
deposits in foreign currency from India.
Remedies :
P. V. Narasimha
Rao appointed
Dr Manmohan
Singh as Finance
Minister in order
to find a way out
of this situation.
Dr Singh undertook many corrective
measures. The situation began to change.
He removed the restrictions on foreign
investments. He restricted the licence
system to 18 industries. In view of the
increasing losses in the public sector
industries, he opened up the public sector
for investment by private industries. In
order to bring the share market under
control, he established the Securities and
Exchange Board of India (SEBI) in 1992.
National Stock Exchange was
computerised. He gave priority to remove
the spectre of recession.
Foreign Investment in India grew
during the first tenure of Dr Manmohan
Singh as Finance Minister. India could
recover the gold mortgaged with the Bank
of England. The government got the
support of the capitalist class as well as
the middle class. As the government
opened up the telecom sector, mobile
phone services started all over the country.
Dr Manmohan Singh signed the agreement
with the World Trade Organisation and
launched the policy of privatisation,
liberalisation and globalisation.
World Trade Organisation : In
1995, India became a member of the
World Trade Organisation (WTO). The
organisation had the following objectives:
to free trade between countries, to put to
an end all those discriminatory laws,
restrictions, rules and policies that are
hurdles in the way of international free
trade, and to regulate global trade with
the help of a formal multi party
mechanism.
General Agreement on Tariffs and
Trade (GATT) existed at the international
level before the World Trade Organisation
came into being. It regulated commerce. In
India there were opposed, extreme views
about the World Trade Organisation. Yet
India decided to take its membership. The
provisions of the World Trade Organisation
are regarding grants, import-export, foreign
investment, agriculture, technology and
services. The sectors of electricity, water
transportation, education and health rapidly
commercialised since India became a
member of the World Trade Organisation.
As per the various reports of the World
Trade Organisation, India has made a
considerable improvement in different areas
like reduction in the below poverty line
(BPL) population, decline in infant mortality,
availability of facilities regarding drinking
water and waste water management.
India signed the South Asian
Preferential Trade Arrangement (SAPTA)
along the lines of the World Trade
Organisation. India removed the import
restrictions on several commodities for
SAARC countries. India also gave
discounts on import duties. India opened
up the insurance sector to private and
foreign investment.
In this way, we have learnt about
the journey of India’s economy. We have
come a long way from mixed economy
to globalisation. In the next chapter, we
are going to study India’s progress in
other fields.
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