DEVELOPMENT
For comparing countries, their income is considered to be one of the most important attributes
Average income- the total income of the country divided by its total population.
The average income is also called per capita income
World Development Report-brought out by the World Bank,
Infant Mortality Rate (or IMR) - indicates the number of children that die before the age of one year as a proportion of 1000 live children born in that particular year.
Literacy Rate measures the proportion of literate population in the 7 and above age group.
Net Attendance Ratio is the total number of children of age group 6-10 attending school as a percentage of total number of children in the same age group.
Money may also not be able to protect you from infectious diseases, unless the whole of your community takes preventive steps.
Money cannot buy you a pollution-free environment or ensure that you get unadulterated medicines, unless you can afford to shift to a community that already has all these things.
Income by itself is not a completely adequate indicator of material goods and services that citizens are able to use.
Human Development Report published by UNDP compares countries based on the educational levels of the people, their health status and per capita income.
Life Expectancy at birth denotes, as the name suggests, average expected length of life of a person at the time of birth.
Gross Enrolment Ratio for three levels means enrolment ratio for primary school, secondary school and higher education beyond secondary school.
Per Capita Income is calculated in dollars for all countries so that it can be compared so that every dollar would buy the same amount of goods and services in any country.
Groundwater overuse is particularly found in the agriculturally prosperous regions of Punjab and Western U.P., hard rock plateau areas of central and south India, some coastal areas and the rapidly growing urban settlements.”
SECTORS OF INDIAN ECONOMY
Primary sector-
The cultivation of cotton
Takes place within a crop season, we depend mainly on natural factors like rainfall, sunshine and climate.
an activity like dairy, we are dependent on the biological process of the animals and availability of fodder. The product here, milk, also is a natural product. Similarly, minerals and ores are also natural products.
When we produce a good by exploiting natural resources, it is an activity of the primary sector, also called agriculture and related sector.
The secondary sector
Covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity. It is the next step after primary.
product is not produced by nature but has to be made and therefore some process of manufacturing is essential.
In a factory, a workshop or at home, also called as industrial sector
Tertiary sector-
activities that help in the development of the primary and secondary sectors.
These activities, by themselves, do not produce a good but they are an aid or a support for the production process.
For example, goods that are produced in the primary or secondary sector would need to be transported by trucks or trains and then sold in wholesale and retail shops also called the service sector.
The value of final goods and services produced in each sector during a particular year provides the total production of the sector for that year and the sum of production in the three sectors gives what is called the Gross Domestic Product (GDP) of a country.
GDP- the value of all final goods and services produced within a country during a particular year.
GDP shows how big the economy is.
Why is the tertiary sector becoming so important in India?
There could be several reasons.
First, in any country several services such as hospitals, educational institutions, post and telegraph services, police stations, courts, village administrative offices, municipal corporations, defence, transport, banks, insurance companies, etc. are required. These can be considered as basic services.
In a developing country the government has to take responsibility for the provision of these services.
Second, the development of agriculture and industry leads to the development of services such as transport, trade, storage and the like, as we have already seen.
Greater the development of the primary and secondary sectors, more would be the demand for such services.
Third, as income levels rise, certain sections of people start demanding many more services like eating out, tourism, shopping, private hospitals, private schools, professional training etc.
You can see this change quite sharply in cities, especially in big cities.
Fourth, over the past decade or so, certain new services such as those based on information and communication technology have become important and essential. The production of these services has been rising rapidly.
Workers in agricultural sector are underemployed.
You will see that everyone is working, none remains idle, but in actual fact their labour effort gets divided. Each one is doing some work but no one is fully employed. This is the situation of underemployment, where people are apparently working but all of them are made to work less than their potential.
This kind of underemployment is hidden in contrast to someone who does not have a job and is clearly visible as unemployed.
Hence, it is also called disguised unemployment.
India recently made a law implementing the Right to Work in 200 districts of India. It is called National Rural Employment Guarantee Act 2005 (NREGA 2005).
Under NREGA 2005, all those who are able to, and are in need of, work are guaranteed 100 days of employment in a year by the government.
If the government fails in its duty to provide employment, it will give unemployment allowances to the people.
The types of work that would in future help to increase the production from land will be given preference under the Act.
Organised sector
covers those enterprises or places of work where the terms of employment are regular and therefore, people have assured work.
They are registered by the government and have to follow its rules and regulations which are given in various laws such as the Factories Act, Minimum Wages Act, Payment of Gratuity Act, Shops and Establishments Act etc.
It is called organised because it has some formal processes and procedures. Some of these people may not be employed by anyone but may work on their own but they too have to register themselves with the government and follow the rules and regulations.
Workers in the organised sector enjoy security of employment. They are expected to work only a fixed number of hours. If they work more, they have to be paid overtime by the employer. They also get several other benefits from the employers
The unorganized sector
Is characterized by small and scattered units which are largely outside the control of the government.
There are rules and regulations but these are not followed.
Jobs here are low-paid and often not regular. There is no provision for overtime, paid leave, holidays, leave due to sickness etc. Employment is not secure. People can be asked to leave without any reason. When there is less work, such as during some seasons, some people may be asked to leave.
A lot also depends on the whims of the employer.
This sector includes a large number of people who are employed on their own doing small jobs such as selling on the street or doing repair work. Similarly, farmers work on their own and hire labourers as and when they require.
In the urban areas, unorganized sector comprises mainly of workers in small-scale industry, casual workers in construction, trade and transport etc., and those who work as street vendors, head load workers, garment makers, rag pickers etc.
Small-scale industry also needs government’s support for procuring raw material and marketing of output.
The casual workers in both rural and urban areas need to be protected.
In the public sector, the government owns most of the assets and provides all the services.
In the private sector, ownership of assets and delivery of services is in the hands of private individuals or companies.
Activities in the private sector are guided by the motive to earn profits. To get such services we have to pay money to these individuals and companies.
The purpose of the public sector is not just to earn profits. Governments raise money through taxes and other ways to meet expenses on the services rendered by it.
MONEY AND CREDIT
When both parties agree to sell and buy each other’s commodities. It is known as double coincidence of wants.
It is a matter where a person desires to sell is exactly what the other wishes to buy.
Barter system -where goods are directly exchanged without the use of money where double coincidence of wants is an essential feature.
Money acts as an intermediate in the exchange process, it is called a medium of exchange.
Deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.
Demand deposits offer another interesting facility.
It is this facility which lends it the essential characteristics of money (that of a medium of exchange). Banks charge a higher interest rate on loans than what they offer on deposits.
The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.
Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing. Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit.
The former are loans from banks and cooperatives.
The informal lenders include moneylenders, traders, employers, relatives and friends, etc.
The Reserve Bank of India supervises the functioning of formal sources of loans.
The banks maintain a minimum cash balance out of the deposits they receive.
The RBI monitors the banks in actually maintaining cash balance.
The RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.
Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
There is no organisation which supervises the credit activities of lenders in the informal sector.
Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
Cheap and affordable credit is crucial for the country’s development.
It is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces.
While formal sector loans need to expand, it is also necessary that everyone receives these loans.
Banks are willing to lend to the poor women when organised in SHGs, even though they have no collateral as such.
SHGs are the building blocks of organisation of the rural poor.
GLOBALISATION
A MNC is a company that owns or controls production in more than one nation.
MNC is not only selling its finished products globally, but more important, the goods and services are produced globally.
As a result, production is organized in increasingly complex ways. MNCs set up factories and offices for production.
The money that is spent to buy assets such as land, building, machines and other equipment is called investment.
Investment made by MNCs is called foreign investment.
Foreign trade thus results in connecting the markets or integration of markets in different countries.
The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.
Globalization is this process of rapid integration or interconnection between countries.
MNCs are playing a major role in the globalisation process. More and more goods and services, investments and technology are moving between countries.
Tax on imports is an example of trade barrier. It is called a barrier because some restriction has been set up.
Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goods and how much of each, should come into the country.
Removing barriers or restrictions set by the government is what is known as liberalisation.
With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export.
The government imposes much less restrictions than before and is therefore said to be more liberal.
World Trade Organisation (WTO) is one such organisation whose aim is to liberalize international trade.
Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed.
Steps to Attract Foreign Investment In recent years, the central and state governments in India are taking special steps to attract foreign companies to invest in India. Industrial zones, called Special Economic Zones (SEZs), are being set up.
SEZs are to have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.
Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
CONSUMER RIGHTS
In 1985 United Nations adopted the UN Guidelines for Consumer Protection.
This was a tool for nations to adopt measures to protect consumers and for consumer advocacy groups to press their governments to do so.
At the international level, this has become the foundation for consumer movement.
Today, Consumers International has become an umbrella body of 240 organisations from over 100 countries.
A major step taken in 1986 by the Indian government was the enactment of the Consumer Protection Act 1986, popularly known as COPRA.
Consumers have the right to be informed about the particulars of goods and services that they purchase.
Consumers can complain and ask for compensation or replacement if the product proves to be defective in any manner.
In recent times, the right to information has been expanded to cover various services provided by the Government.
In October 2005, the Government of India enacted a law, popularly known as RTI (Right to Information) Act, which ensures its citizens all the information about the functions of government departments.
Any consumer who receives a service in whatever capacity, regardless of age, gender and nature of service, has the right to choose whether to continue to receive the service.
Consumers have the right to seek redressal against unfair trade practices and exploitation.
If any damage is done to a consumer, she has the right to get compensation depending on the degree of damage.
There is a need to provide an easy and effective public system by which this can be done.
Under COPRA, three-tier quasi-judicial machinery at the district, state and national levels were set up for redressal of consumer disputes.
The district level court deals with the cases involving claims up to Rs 20 lakhs, the state level courts between Rs 20 lakhs and Rs 1 crore and the national level court deals with cases involving claims exceeding Rs 1 crore.
If a case is dismissed in district level court, the consumer can also appeal in state and then in National level courts.
Thus, the Act has enabled us as consumers to have the right to represent in the consumer courts.
India has been observing 24 December as the National Consumers’ Day.
It was on this day that the Indian Parliament enacted the Consumer Protection Act in 1986.
India is one of the countries that have exclusive courts for consumer redressal
INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
INTRODUCTION
The structure of India‘s present- day economy is not just of current making; it has its roots steeped in history, particularly in the period when India was under British rule which lasted for almost two centuries before India finally won its independence on 15 August 1947.
LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER THE COLONIAL RULE
Agriculture was the main source of livelihood for most people, yet, the country‘s economy was characterized by various kinds of manufacturing activities.
India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and precious stone works etc.
Muslin is a type of cotton textile which had its origin in Bengal, particularly, places in and around Dhaka (spelled during the pre-independence period as Dacca), now and the capital city of Bangladesh. ‗Daccai Muslin‘ had gained worldwide fame as an exquisite type of cotton textile.
The finest variety of muslin was called malmal.
foreign travelers also used to refer to it as malmal shahi or malmal khas implying that it was worn by, or fit for, the royalty.
Most important roles contributed to calculate national and per capita income were Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai — it was Rao, whose estimates during the colonial period was considered very significant.
Studies did find that the country‘s growth of aggregate real output during the first half of the twentieth century was less than two per cent coupled with a meager half per cent growth in per capita output per year.
AGRICULTURAL SECTOR
Under the British colonial rule remained fundamentally agrarian — about 85 per cent of the country‘s population lived mostly in villages and derived livelihood directly or indirectly from agriculture.
Despite being the occupation of such a large population, the agricultural sector continued to experience stagnation and, not infrequently, unusual deterioration.
Agricultural productivity became low though, in absolute terms, the sector experienced some growth due to the expansion of the aggregate area under cultivation.
This stagnation in the agricultural sector was caused mainly because of the various systems of land
settlement that were introduced by the colonial government. Particularly, under the zamindari system which was implemented in the then Bengal Presidency comprising parts of India‘s present-day eastern states, the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators.
There was, of course, some evidence of a relatively higher yield of cash crops in certain areas of the country due to commercialization of agriculture.
INDUSTRIAL SECTOR
India could not develop a sound industrial base under the colonial rule.
The primary motive of the colonial government behind this policy of systematically de- industrializing India was two-fold.
o The intention was, first, to reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain and,
o Second, to turn India into a sprawling market for the finished products of those industries so that their continued expansion could be ensured to the maximum advantage of their home country — Britain.
o During the second half of the nineteenth century, modern industry began to take root in India but its progress remained very slow.
Initially, this development was confined to the setting up of cotton and jute textile mills.
The cotton textile mills, mainly dominated by Indians, were located in the western parts of the country, namely, Maharashtra and Gujarat, while the jute mills dominated by the foreigners were mainly concentrated in Bengal.
The iron and steel industries began coming up in the beginning of the twentieth century. The Tata Iron and Steel Company (TISCO) was incorporated in 1907. A few other industries in the fields of sugar, cement, paper etc. came up after the Second World War.
DRAWBACKS OF INDUSTRIAL SECTOR
There was hardly any capital goods industry to help promote further industrialization in India. Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.
The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
Another drawback of the new industrial sector was the very limited area of operation of the public sector.
sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.
FOREIGN TRADE
India was exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and an importer of finished consumer goods like cotton, silk and woolen clothes and capital goods like light machinery produced in the factories of Britain.
Britain maintained a monopoly control over India‘s exports and imports. As a result, more than half of India‘s foreign trade was restricted to Britain while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia (Iran).
opening of the Suez Canal further intensified British control over India‘s foreign trade
most important characteristic of India‘s foreign trade throughout the colonial period was the generation of a large export surplus. But this surplus came at a huge cost to the country‘s economy.
This export surplus did not result in any flow of gold or silver into India. Rather, this was used to make payments for the expenses incurred by an office set up by the colonial government in Britain, expenses on war, again fought by the British government, and the import of invisible items, all of which led to the drain of Indian wealth.
DEMOGRAPHIC CONDITION
Various details about the population of British India were first collected through a census in 1881.
Before 1921, India was in the first stage of demographic transition.
The second stage of transition began after 1921.
However, neither the total population of India nor the rate of population growth at this stage was very high.
The overall literacy level was less than 16 per cent. Out of this, the female literacy level was at a negligible low of about seven per cent.
Public health facilities were either unavailable to large chunks of population or, when available, were highly inadequate. The overall mortality rate was very high.
Particularly, the infant mortality rate was quite alarming— about 218 per thousand in contrast to the present infant mortality rate of 63 per thousand.
OCCUPATIONAL STRUCTURE
The agricultural sector accounted for the largest share of workforce, which usually remained at a high of 70-75 per cent while the manufacturing and the services sectors accounted for only 10 and 15-20 per cent respectively.
Parts of the then Madras Presidency (comprising areas of the present-day states of Tamil Nadu, Andhra Pradesh, Kerala and Karnataka), Bombay and Bengal witnessed a decline in the dependence of the workforce on the agricultural sector with a commensurate increase in the manufacturing and the services sectors.
INFRASTRUCTURE
The real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests.
The British introduced the railways in India in 1850 and it is considered as one of their most important contributions.
The railways affected the structure of the Indian economy in two important ways. On the one hand it enabled people to undertake long distance travel and thereby break geographical and cultural barriers while, on the other hand, it fostered commercialization of Indian agriculture which adversely affected the self-sufficiency of the village economies in India.
Along with the development of roads and railways, the colonial dispensation also took measures for developing the inland trade and sea lanes.
The introduction of the expensive system of electric telegraph in India, similarly, served the purpose of maintaining law and order.
The postal services, on the other hand, despite serving a useful public purpose, remained all through inadequate.
INDIAN ECONOMY 1950-1990
INTRODUCTION
The leaders of independent India had to decide, among other things, the type of economic system most suitable for our nation, a system which would promote the welfare of all rather than a few.
There are different types of economic systems and among them, socialism appealed to Jawaharlal Nehru the most. However, he was not in favor of the kind of socialism established in the former Soviet Union where all the means of production, i.e. all the factories and farms in the country, were owned by the government.
There was no private property. It is not possible in a democracy like India for the government to change the ownership pattern of land and other properties of its citizens in the way that it was done in the former Soviet Union.
In this view, India would be a socialist society with a strong public sector but also with private property and democracy.
Every society has to answer three questions
1) What goods and services should be produced in the country?
2) How should the goods and services be produced? Should producers use more human labour or more capital (machines) for producing things?
3) How should the goods and services be distributed among people?
Answer to these questions:
From capitalist view:
Depend on the market forces of supply and demand. In a market economy, also called capitalism, only those consumer goods will be produced that are in demand, i.e., goods that can be sold profitably either in the domestic or in the foreign markets.
In a capitalist society the 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. That is, one has to have the money in the pocket to buy it.
Low cost housing for the poor is much needed but will not count as demand in the market sense because the poor do not have the purchasing power to back the demand. As a result this commodity will not be produced and supplied as per market forces. Such a society did not appeal to Jawaharlal Nehru, our first prime minister,
From Socialist View:
A socialist society answers the three questions in a totally different manner.
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. The government decides how goods are to be produced and how they should be distributed.
In principle, distribution under socialism is supposed to be based on what people need and not on what they can afford to purchase.
Strictly, a socialist society has no private property since everything is owned by the state. In Cuba and China, for example, most of the economic activities are governed by the socialistic principles.
Most economies are mixed economies, i.e. the government and the market together answer the three questions of what to produce, how to produce and how to distribute what is produced. In a mixed economy, the market will provide whatever goods and services it can produce well, and the government will provide essential goods and services which the market fails to do.
The ‗Industrial Policy Resolution‘ of 1948 and the Directive Principles of the Indian Constitution reflected this outlook.
In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson. The era of five year plans had begun.
What is a Plan?
A plan spells out how the resources of a nation should be put to use.
In India plans are of five years duration and are called five year plans (we borrowed this from the former Soviet Union, the pioneer in national planning).
Our plan documents 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 are supposed to provide the basis for the perspective plan.
THE GOALS OF FIVE YEAR PLANS
The goals of the five year plans are: growth, modernization, self-reliance and equity.
The planners have to ensure that, as far as possible, the policies of the plans do not contradict these four goals. Growth:
It refers to increase in the country‘s capacity to produce the output of goods and services within the country.
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.
Modernisation:
To increase the production of goods and services the producers have to adopt new technology. For example, a farmer can increase the output on the farm by using new seed varieties instead of using the old ones.
However, modernization 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.
Self-reliance:
A nation can promote economic growth and modernisation by using its own resources or by using resources imported from other nations.
Further, it was feared that dependence on imported food supplies, foreign technology and foreign capital may make India‘s sovereignty vulnerable to foreign interference in our policies.
Equity
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.
Every Indian should be able to meet his or her basic needs such as food, a decent house, education and health care and inequality in the distribution of wealth should be reduced.
AGRICULTURE
The policy makers of independent India had to address these issues which they did through land reforms and promoting the use of ‗High Yielding Variety‘ (HYV) seeds which ushered in a revolution in Indian agriculture.
Land Reforms: At the time of independence, the land tenure system was characterized by intermediaries who merely collected rent from the actual tillers of the soil without contributing towards improvements on the farm.
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.
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.
Land reforms were successful in Kerala and West Bengal because these states had governments committed to the policy of land to the tiller. Unfortunately other states did not have the same level of commitment and vast inequality in landholding continues to this day.
The Green Revolution:
The stagnation in agriculture during the colonial rule was permanently broken by the green revolution.
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.
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.
The farmers who could benefit from HYV seeds required reliable irrigation facilities as well as the financial resources to purchase fertiliser and pesticide. 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. Further, the use of HYV seeds primarily benefited the wheat- growing regions only.
In the second phase of the green revolution (mid-1970s to mid-1980s), the HYV technology spread to a larger number of states and benefited more variety of crops.
The spread of green revolution technology enabled India to achieve self-sufficiency in food grains; we no longer had to be at the mercy of America, or any other nation, for meeting our nation‘s food requirements.
The portion of agricultural produce which is sold in the market by the farmers is called marketed surplus
In India, between 1950 and 1990, the proportion of GDP contributed by agriculture declined significantly but not the population depending on it (67.5 per cent in 1950 to 64.9 per cent by 1990).
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.
INDUSTRY AND TRADE
Industry provides employment which is more stable than the employment in agriculture; it promotes modernization and overall prosperity. It is for this reason that the five year plans place a lot of emphasis on industrial development.
Public and Private Sectors in Indian Industrial Development:
State had to play an extensive role in promoting the industrial sector.
In addition, the decision to develop the Indian economy on socialist lines led to the policy of the state controlling the commanding heights of the economy, as the Second Five Year plan put it.
This meant that the state would have complete control of those industries that were vital for the economy.
Industrial Policy Resolution 1956 (IPR 1956):
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.
o The first category comprised industries which would be exclusively owned by the state;
o the second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units;
o the third category consisted of the remaining industries which were to be in the private sector.
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.
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.
In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality.
Small-Scale Industry: (‘labour intensive’)
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 invest- ment allowed on the assets of a unit. This limit has changed over a period of time. In 1950 a small-scale industrial unit was one which invested a maximum of rupees five lakh; at present the maximum investment allowed is rupees one crore.
TRADE POLICY: IMPORT SUBSTITUTION
The industrial policy that we adopted was closely related to the trade policy.
In the first seven plans, trade was characterized by what is commonly called an inward looking trade strategy. Technically, this strategy is called import substi- tution.
This policy aimed at replacing or substituting imports with domestic production.
In this policy the government protected the domestic industries from foreign competition.
Protection from imports took two forms: tariffs and quotas.
o Tariffs are a tax on imported goods; they make imported goods more expensive and discourage their use.
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
Social