India’s Five-Year Plans: Economic Growth & Development
The first Five-Year Plan was launched on April 1, 1951, ending March 31, 1956.
Objectives of Five-Year Plans
a. Growth or Increase in GDP
Because of the backward economy during British rule, the government had to focus on economic growth as its primary objective when making plans.
Growth refers to an increase in the country’s capacity to produce the amount of goods and services within the country.
It refers to a steady increase in the GDP. It is necessary to produce more goods and services if the people of India are to enjoy a rich life.
Innovative technology also enhances productivity or output per unit of inputs.
b. Full Employment
It is a situation when everyone who is able to work at the existing wage rate is getting work.
It implies that there should be a higher rate of active participation of the working-age group in the economic activities of the country in the process of growth.
It is a common goal of the Five-Year Plans and is directly related to the economic growth of the country.
It amounts to achieving growth with social justice.
c. Equitable Distribution or Equity
Along with growth, it is important to ensure that economic development is shared by all citizens to promote social justice.
Benefits of growth should be provided to large sections of society so that the distribution of income becomes equitable.
Everyone should be able to meet his or her basic needs, such as food, education, health, etc. Inequality in the distribution of wealth should be reduced.
d. Modernization
During British rule, India was lacking in technical knowledge. They were not able to compete with British goods.
So, it was necessary to provide technical know-how and should be taken as a goal.
Adoption of technology is called modernization.
It refers to those institutional changes in economic activities which make an economy progressive and modern. For example, the Green Revolution.
Modernization does not refer only to the use of new technology but also to a change in social outlook, such as women’s empowerment.
e. Self-Reliance
It means dependence on domestically produced goods. This is another major objective which targets non-interference by foreign countries.
A nation can promote economic growth and modernization by using its own resources.
The first seven-year plans gave importance to self-reliance, which means avoiding the import of those goods which could be produced in India.
This policy was considered necessary in order to reduce our dependence on foreign countries, especially for food.
Agriculture
Agrarian Reforms in Indian Agriculture
I. Institutional or Land Reforms
i. Abolition of Intermediaries
During British rule, the Zamindari system was implemented, which was the reason for backwardness in agriculture.
After independence, steps were taken to abolish intermediaries and make the tillers of the soil the owners of the soil.
This has been done to stop the exploitation of cultivators by Zamindars.
ii. Regulation of Rent
Earlier, intermediaries used to collect as much rent as they wanted.
To put an end to this exploitation, the government has fixed the rent of cultivators.
It should not exceed one-third of the crop value.
iii. Consolidation of Holdings
The consolidation process was undertaken by the government to handle fragmented land.
It is a process where farmers were allotted land at one place as a replacement for their scattered land.
It saves the cost of farming.
iv. Ceiling on Land Holdings
It was another policy towards land reforms to promote equity in the agriculture sector.
This means fixing the maximum size of land which could be owned by an individual, and beyond that limit, the land would be taken over by the government.
And the government would allot this land to landless cultivators and small farmers.
v. Cooperative Farming
This means farming done by more than one farmer on the same land.
It will encourage small farmers to do farming and earn profits.
Together, they can buy inputs at a lower price and sell their produce at a higher rate.
II. General Reforms
i. Irrigation Facilities
In order to increase production, irrigation facilities have been provided to farmers to supply the required quantity of water.
At present, irrigational facilities cover 45% of the land under cultivation as compared to 15% in 1950.
Due to the construction of multipurpose projects and tubewells, larger areas have been covered.
ii. Provision of Credit
Cooperative credit societies and rural development banks have been established to meet the finance requirements of the farmers.
They provide funds at a lower rate of interest. Commercial banks also meet the credit needs of farmers.
NABARD was established to provide credit facilities to the farmers at the National level in 1982.
iii. Regulated Markets and Cooperative Marketing Scheme
There have been regular markets being established in all parts of the country.
This was done to protect farmers from exploitation by the middlemen.
Market committees were appointed by the government which govern these markets and help farmers to get a remunerative price for their produce.
Cooperative marketing societies have also been established which help farmers to value their produce and also provide storage houses to keep their produce safely.
iv. Price Support Policy
The government initiated a policy of minimum support price to encourage farmers to increase production.
In this policy, the government fixes a price higher than the market price, and if farmers are not able to sell their entire production at the increased price, then the government buys this surplus at the increased price.
The government keeps this surplus in its buffer stock and uses it during times of emergencies like floods, earthquakes, famines, etc.
The Green Revolution
The stagnation in Indian Agriculture was permanently broken by the Green Revolution. This refers to an increase in the production of food grains resulting from the use of High Yield Variety seeds, especially wheat and rice.
i. Use of HYV Seeds
High Yield Variety Seeds were adopted in India in 1966.
It led to an increase in the production of food grains, especially for wheat and rice. This strategy is known as the Green Revolution.
In 2015-2016, the National Seed Corporation distributed 304 lakh quintals of seeds among farmers in different parts of the country.
ii. Use of Chemical Fertilizers
The use of HYV seeds required the use of fertilizers which contributed to enhancing productivity.
In 2015-16, 267.5 lakh tonnes of chemical fertilizers were used.
iii. Use of Insecticides and Pesticides
In order to protect the crops from diseases and insects, steps were taken by using insecticides and pesticides.
An integrated pest management program was adopted for plant protection.
This program emphasized the growth of healthy crops.
iv. Scientific Farm Management Practices
Various programs were launched which promoted a scientific way of cultivation instead of conventional farming.
They emphasized the use of fertilizers, crop rotation processes, selection of seeds, and their quality.
v. Mechanized Means of Cultivation
Agriculture machines were introduced to cultivate the land.
Credit facilities at a lower rate of interest were provided, especially to small farmers, so that they can easily afford these machines.
Achievements of Agrarian Reforms (Green Revolution)
i. Spurt in Crop Productivity
The Green Revolution resulted in a multiple rise in food production. It helped in recovering the country from regular food shortages and ending the stagnation period in Indian agriculture.
ii. Decrease in the Price of Food Grains
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.
iii. Buffer Stock
The spread of Green Revolution technology enabled the government to procure a sufficient amount of food grains to build a buffer stock which could be used in times of food shortage.
iv. Commercialization of Agriculture
Agriculture became both subsistence farming and commercial farming. The Green Revolution resulted in a marketable surplus. This is a sign of growth and development.
Limitations of the Green Revolution
i. Limited Crops
The effect of the Green Revolution is confined to limited crops like wheat, rice, bajra, maize, etc. It has a limited effect on commercial crops like tea, rubber, jute, etc.
ii. Uneven Spread
In the first phase of the Green Revolution (approx. mid-1960s up to mid-1970s), the use of HYV seeds was restricted to states such as Punjab, Tamil Nadu, and Andhra Pradesh. Thus, there were regional inequalities.
iii. Limited Farming Population
The farming population consists of big and small farmers. Only big farmers can afford HYV seeds, as it requires various other inputs which are beyond the reach of small farmers.
iv. Economic Divide
The farmers who could benefit from HYV seeds required reliable irrigation facilities as well as the financial resources to purchase fertilizers and pesticides, which small farmers could not afford. This increased the inequality between small and big farmers.
Role of government in ensuring that the green revolution benefitted small farmers as well.
- The government provided loans at a low rate to small farmers.
- The government also provided subsidized fertilizers so that small farmers could also have access to the needed inputs.
Strategy of Industrial Growth
Role of Public Sector in Industrial Development
i. Lack of Capital
Indian industrialists did not have sufficient capital to undertake investment for the development of industries.
Because of a lack of capital investments by the private entrepreneurs, the government had to undertake capital investment through public sector undertakings.
ii. Low Inducement to Invest
The Indian market was not big enough to encourage industries to undertake major projects even if they had the capital to do so.
There was a low level of aggregate demand because of the limited size of the market.
There was no inducement to invest because of low profitability.
So, the public sector had initiated the process of industrialization.
iii. Growth with Social Justice
The objective of a socialistic pattern of society could be achieved only through the direct participation of the government in the process of industrialization.
Because it requires investment that generates employment rather than investment to maximize profits.
Industrial Policy Resolution (IPR) – 1956
i. Three-Fold Classification of Industries
The first category (A) comprises industries which could be owned by the government. This category included 17 industries like atomic energy, arms and ammunition, oil, railways, etc.
The second category (B) consisted of industries which could be established both by the private and public sectors. The public sector will take sole responsibility for starting new units. It included 12 industries such as fertilizers, machines, etc.
The third category (C) consists of the remaining industries which were to be established by the private sector.
ii. Industrial Licensing
Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses.
iii. Industrial Concessions
Though the government had major control over industries, private entrepreneurs were offered various industrial concessions.
In addition, industrial units were given concessions such as tax benefits, electricity at a lower rate, etc.
It was done to promote regional equality.
Development of Small-Scale Industries (SSI)
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.
A small-scale industry is defined with reference to the maximum investment allowed on the assets of a unit. In 1950, a small-scale industrial unit was one which invested a maximum of 5 lakhs, while at present, the maximum investment allowed is 1 crore.
Characteristics of SSIs
i. Labor Intensive
Small-scale industries are labor-intensive; therefore, they are employment-friendly.
They use more labor than large-scale industries, and they generate more employment.
These industries are good for our economy, which is ―capital deficient‖ and a ―labor surplus‖ economy.
ii. Equality-Oriented
Small-scale industries show locational flexibility as they can be established anywhere.
It contributes to balanced regional growth.
iii. Equity-Oriented
It requires small-scale investment.
It avoids the concentration of economic power.
India’s Foreign Trade
International trade means the export and import of goods and services across the country. Every country exports its surplus output and essential goods for another country in the form of imports.
Inward-Looking Trade Strategy
It refers to the policy of having reliance on import substitution and protection of domestic industries through import restrictions and import duties.
Import substitution implies the domestic production of the goods which the country has been importing.
This strategy was adopted to:
- Save foreign exchange
- Achieve self-reliance
In this policy, the government protected the domestic industries from foreign competition. Protection from imports are in two forms: Tariffs and Quotas.
- Tariffs are taxes on imported goods; these make imported goods more expensive and thus discourage imports.
- Quotas specify the quantity of goods which can be imported.
Tariffs and quotas protect domestic firms from foreign competition.
Positive Impact of Inward-Looking Trade Strategy
i. High Rate of Industrial Growth with Structural Transformation
The rise in the industry’s share of GDP is an important indicator of development.
The GDP share of the industrial sector increased from 12% in 1951 to 25% in 1991.
It is a sign of economic growth with structural transformation.
ii. Diversification of Industrial Growth
The industrial sector became well diversified by 1990 due to the public sector, as they were given high priority in the process of industrialization.
Because of the inward-looking trade strategy, industries were not confined to basic goods like jute, etc.; rather, a variety of goods were produced, such as engineering goods.
There is growth of sunrise industry. 1950-1990 was an era of electronic goods in the global market.
All this could be possible only because of policy protection.
iii. Opportunities for Investment
Promotion of small-scale industries gave opportunities to those people who did not have the capital to start large firms.
It also used the potential resources which remained idle.
It promoted growth with equity.
Features of Economic Policy
a. Heavy Reliance on the Public Sector
Prior to 1991, there was huge dependence on the public sector. Greater importance was given to the public sector than the private sector.
During 1956, there were 17 industries reserved for the public sector but only 12 for the private sector.
b. Regulated Development of the Private Sector
The state or government held complete control over the private sector through a system of licenses.
No new industry was allowed unless a license was obtained from the government.
Under the MRTP Act, 1969, several restrictions were imposed on the expansion of industries.
c. Protection to Small-Scale Industries
Large-scale industries were regularized through the MRTP Act, so it is necessary to protect small-scale industries.
Small-scale industries were given benefits such as a lower tax rate and a low-interest rate on bank loans.
Also, several boards were established to promote the products of small-scale industries in the global market.
d. Development of Heavy Industries
Heavy industries which are of special significance should be developed on a priority basis.
Industries which have special significance are those which serve as ―universal intermediaries‖, like electricity power generation and the engineering goods industry.
e. Thrust on Savings and Industries
Savings as well as investment are both considered important tools for economic growth.
Therefore, savings as well as investment should be promoted. Savings can be promoted by giving a high rate of interest.
Investments can be promoted by giving them subsidies.
Drawbacks of Industrial and Trade Policy
a. Inefficient Functioning of the Public Sector
Many public sector firms suffered 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.
b. Excessive Regulation of Industries
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 trying to obtain a license.
c. No Incentive for Producers
Due to restrictions on imports, 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 goods.
Achievement of Goals of Planning
a. Increase in National Income
At the time of independence, India was a stagnant economy. During British rule, the national income of India was at 0.5%.
During the period of planning, national income increased from 2.1% in 1956 to 5.9% in 1990.
Although this is less than what was estimated, it has broken the circle of economic stagnation.
b. Increase in Per Capita Income
It refers to the per capita availability of national income. Prior to independence, it was very minimum.
An increase in per capita income is a good indicator to assess economic growth. It increased from 1.8% in 1956 to nearly 3.6% in 1990.
This shows that domestic output has increased and hence raised the standard of living of people.
c. Rise in the Rate of Capital Formation
Capital formation is very essential to increase the level of investment and income in the country.
It depends upon the rate of savings. The country, in order to increase capital formation, should be able to channelize savings in the right directions.
These changes have not contributed much, but it has changed the working environment of farmers.
Technological change was also introduced by way of the Green Revolution. This increased agriculture productivity.
e. Growth and Diversification of Industry
During this period, the industrial base became strong, the industrial sector started growing, and became diversified.