XI_Economics_Development_Ch-2_Five Year Planning_Notes.

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

(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.

(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 1^st FYP, 53 lakh people were unemployed and this number rose to over 4 crore at the end of 11^th 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.