Class XI
Economics
Indian Economic Development
Chapter – 2
Five Year Planning in India
Q1 : Define a plan.
Ans. A plan is a
proposed list of goals that an economy wants to achieve within a specific
period of time. It suggests the optimum ways to utilize the scarce available
resources to achieve the enlisted goals.
In
India, planning is done for a period of five years, which is called five year
plan.
Plans have both specific
and general goals. Some of the common goals are economic growth, employment
generation, modernization, self-reliance and equity.
Plans
lay down the basic framework over which the policies are designed. Often
various goals are conflicting to each other, for example, modernization reduces
labor employment. So there is a need to maintain a balance among different
goals.
Q2 : Why did India opt
for planning?
Ans. Soon after
independence, India faced an important choice to opt either for capitalism or
socialism. Finally, India, inspired by the extraordinary success of planning in
Soviet Union, opted for socialism. Although, Indian political and economic
conditions were not as favorable as it was for Soviet Unions to opt for
socialism, yet India adopted socialism but with a difference.
India
hinged upon the socialist idea with a strong emphasis on public sector and
active participation of the private sector in a democratic framework. The
Planning Commission (1950) was established with the motive that the government
would undertake comprehensive planning for the nation as a whole, where public
sector would lay down the basic economic framework and would encourage private
sector for their active contribution to the economic growth.
Q3 : Why should plans
have goals?
Ans. Every plan should have specified goals. Plan
without goal is like life without soul. While a plan specifies the means and
ways to allocate scarce resources to achieve proposed targets, goals are the
ultimate targets, the achievement of which ensures the success of plans. Thus,
plans must include the goals.
Q4. Explain features,
merits & demerits of Capitalism as an economic system.
Ans. Capitalism :-
It is an economic system
in which the major economic decisions i.e.
(1) what to produce
(1) what to produce
(2) how to produce and
(3) for whom to produce
are left to free play of
market forces i.e. market demand and supply.
There is private
ownership of means of production and the main objective is profit maximization.
Thus,
(1) those goods & services will be produced for which there is high demand, yielding high profits.
(1) those goods & services will be produced for which there is high demand, yielding high profits.
(2) cost minimizing
technology will be used.
(3) goods & services
will be distributed according to purchasing power of households.
Merit :-
This system provides
self-interest, respects consumer's sovereignty & fosters economic growth.
Demerit :-
This system ignores the
needs of poorer sections & thus, social welfare.
Q5. What is Socialism?
Explain its salient features.
Ans. Socialism :-
It is an economic system
in which the major economic decisions i.e.
(1) what to produce
(2) how to produce and
(3) for whom to produce
are taken by the
government..
Means of production are
owned by govt. and the main objective is social welfare maximization.
Merit :-
Socialism targets social
equality promoting collective interest. Thus growth with social justice can be
achieved.
Demerit :-
1) This system does not
respect consumer sovereignty as one has to consume what the govt. offers.
2) Since, private
ownership of property is not allowed, socialism devoids self-interest.
Q6. Which economic
system did India adopt after independence? Analyze it critically.
Ans. Keeping in view the
merits & demerits of Capitalism and Socialism, and also the economic
conditions of India, our planners and politicians opt for a Mixed Economic
System in which the major economic decisions i.e. what, how and for whom to
produce are taken by the govt. as well as the free play of market forces.
While the market forces
aim at maximizing the profits, govt. ensures maximum social welfare. Thus, it
is a mix of both capitalism and socialism.
Merit :-
1) It respects consumer
sovereignty by offering choice.
2) It provides
self-interest by allowing private ownership of means of production.
3) It fosters the
process of growth with equality & social justice by facilitating direct
participation of the state.
Demerits :-
1) Public sector
undertakings often cause inefficiency & indulge in corruption due to lack
of accountability. That is why, there is increasing privatization.
Q7. Explain 'growth with
equity' as a planning objective.
Ans. Both growth and
equity are the two important aspects of India's five year plans. While
growth refers to the increase in GDP over a long period of time equity refers
to an equitable distribution of GDP so that the benefits due to higher economic
growth are shared by all sections of population. Equity implies social justice.
Growth itself is desirable but growth in itself does not guarantee the welfare
of people. Growth is assessed by the market value of goods and services (GDP)
and it may be possible that the goods and services that are produced may not
benefit the majority of population.
In
other words, only a few with high level of living and money income may get the
share of GDP. Hence, growth with equity is a rational and desirable objective
of planning. This objective ensures that the benefits of high growth are shared
by all the people equally and, hence, this not only leads to reduction of
inequality of income, poverty promotion of egalitarian society but also enables
everyone to be self-reliant. Therefore, to conclude, it can be said that growth
with equity is the most important objective of an economic planning.
Q8. Explain Full
Employment goal of planning. Does full employment necessarily mean zero
unemployment in the economy? Give reasons to establish your point.
Ans. Full Employment
:-
Full
employment
is one of the long period objectives of planning. It is a situation when all
the people who are able to work and willing to work at going wage rate are
engaged in some gainful employment. This ensures high rate of participation by
the masses in the process of growth.
A
country with high rate of growth but huge unemployment is witnessing jobless
growth which is meaningless as bulk of population is discontent. This may lead
to emergence of many social evils like terrorism.
But
full employment does not mean zero unemployment. There always exist some
natural rate of unemployment which the minimum rate of unemployment caused by
structural changes in production system that take place with technological
changes. Thus, people tend to adapt themselves to these changes.
Q9. What do you
understand by modernization? Why should India target this for the development
of the country?
Ans. Modernization
basically mean updating our technical know how, and adoption of new innovating
techniques that lead to increase in output and thereby growth.
For
example, Green Revolution in Indian agriculture transformed India from net
importer of food grains to its net exporter through technological innovations.
Modernization
also refers to modernization of social outlook, i.e. leaving conventional
believes and adopting modern outlook. E.g. empowering women to increase their
participation in production process and thereby, in the process of growth &
social prosperity.
Q10. Does modernization
as a planning objective create contradiction in the light of employment
generation? Explain.
Ans. No, modernization
as a planning objective does not contradict employment generation. In fact both
modernization and employment generation are positively correlated. While
modernization refers to the use of new and modern technology in production
process that may make some people lose their jobs in the initial stages.
But
gradually, the use of modern technology and input will raise the productivity
and, consequently, the income of the people that will further raise the demand
for goods and services. In order to fulfill this increased demand, there will
be more job opportunities that will lead more people to be hired and, hence,
more employment opportunities will be generated. Hence, both modernization and
employment generation are not contradictory but are complementary to each
other.
Q11. Why was it
necessary for a developing country like India to follow self-reliance as a
planning objective?
Ans. Self-reliance
implies discouraging the imports of those goods that could be produced
domestically. Achieving self-reliance is of prime importance for a developing
country like, India as otherwise, it would increase the country's dependence on
foreign products. Dependence on foreign goods and services can promote economic
growth of India but this would not contribute to the development of domestic
productive resources.
Dependence
on foreign goods and services provides impetus to foreign country's industries
at the cost of domestic infant industries. Further, imports drain away the
scarce foreign reserves that are of prime importance to any developing and
underdeveloped economy. Therefore, achieving self-reliance is an important
objective for developing countries in order to avoid themselves from being
acquiescent to the developed nations.
Q12. What were the basic
features of planning in India till 1991?
Ans. The features of
planning in India till 1991 are as follows :-
1) Heavy Reliance on
Public Sector :-
In spite of adopting a
mixed economic framework, the policies pursued till 1991 gave greater
importance to public sector than private sector. In Industrial Policy 1956, as
many as 17 industries were reserved for public sector whereas just 12 for private
sector.
2) Regulated Development
of Private Sector :-
There were several
restrictions on private sector. Under Industrial Act 1948, new private
industries could be set up only after obtaining license and getting themselves
registered. MRTP Act, 1969 imposed several restrictions on expansion on private
industries to escape from concentration of economic power.
3) Protection of
Small-Scale Industry and Regulation of Large-Scale Industry :-
While large-scale
industry was regularized through such acts as MRTP, small-scale industry was
offered protection in various ways. Certain areas of production were
exclusively reserved for the SSI. They were given needed financial support. To
promote their products in global market, Handloom Board & Silk Board etc. were
established.
4) Protection from
Foreign Competition:
Domestic Industry was
protected from foreign competition. High import duties and quantitative
restrictions were levied on imports.
5) Focus on Import
Substitution:
International trade
carried a focus on import substitution. It implies that the goods to be
produced domestically which were being imported from abroad.
6) Restriction on FDI
& Promoting Loans from abroad:
Foreign Direct
Investment (FDI) was controlled and regulated through FERA (Foreign Exchange
Regulation Act). Loans from abroad were accorded higher priority.
(Note: Any other
relevant point can be mentioned.)
Q13. Describe in brief
the failures of planning in India.
Ans. The following
points highlight the failure of planning in India:
a) Abject Poverty: Still 22% of the
population of India lives below poverty line, i.e. they merely get enough food
and other basic necessities of life. A healthy person needs around 2,508
calories of food per day, but in India per capita food availability is only
2,400 calories. This is despite the fact that alleviation of poverty is the
basic aim of planning.
b) High Rate of
Inflation:
During the planning period, prices have increased constantly leading to high
rate of inflation due to which purchasing power of the people has tended to
decrease and resulted into widening gap between richer and poorer sections of
the economy. Presently, the prices are hiking at an average rate of around 6%
p.a.
c) Unemployment Crisis: Unemployment challenge
is still not subsided. Still a large proportion of population is unemployed and
even after long period of planning, we have failed to provide them a gainful
job. At the end of 1st FYP, 53 lakh people were unemployed and this
number rose to over 4 crore at the end of 11th plan. This is the
serious cause of social unrest.
d) Deficient
Infrastructure: Development of infrastructure like roads, power, dams, schools
and hospitals etc. continues to be inadequate despite 66 years of planning.
Specially, shortage of power has proved to be a serious challenge in the growth
process.
e) Unequal Distribution:
It was
during the planning period that social and economic inequalities in the economy
became worse despite the equality and social justice as major goals of planning.
This compelled the govt. to even offer reservations in jobs for the
economically and socially weaker sections of the society.
