Indian Economy For UPSC CSE Chapter-3

Contents of Chapter

The Background
Prime Moving Force: Agriculture vs. Industry
Planned and Mixed Economy
Emphasis on the Public Sector

Introduction

”After 1757, when the East India Company took over the governance of Bengal, the British relationship with India became exploitative, as exports to Britain and opium exports to China were financed out of the tax revenue from Bengal. There is not much evidence of significant transfer of European technology to Asia. To understand why, it is useful to scrutinise the experience of China and India, as they accounted for three-quarters of the Asian population and GDP in 1500 AD.*
*Angus Maddison, Growth and Interaction in the World Economy: The Roots of Modernity, The AEI Press, Washington DC, 2005, p. 60

Introduction

Indian was in complete distress by 1947.
India was a perfect example of Colonial Economy as it served only British developmental interest
Structural distortions were witnessed in Agricultural and Industries
Marginal role of state in addressing the concerns
Britain only focused upon Drain of Wealth
India’s commerce, trade and the thriving handloom industry was crippled.
British vision was to make India a supplier of its capital needs in Britain
Social Sector was completely neglected
Negative impact on overall development of nation
During British Era India had low social indicators
17% literacy rate
5 Life expectancy
Raw material were exploited
Major Industrial sector were established to supply cheap goods to britain
Real Growth was less than 2%
Per Capita Income was Rs 40 around 1900
famines and disease epidemics across the second half of the nineteenth century and the first half of the twentieth century further highlighted the apathy of the rule towards Indians

Post Independence

It was decided that State/governments should be given a direct responsibility for development.
Public sector to play vital role in economy.
Necessity for the development of heavy industries.
Not to encourage foreign investment.
Economic planning to be the foundation of the country

PRIME MOVING FORCE: AGRICULTURE VS. INDUSTRY

India Opted for Industrial Economy
India is still debating the step
China opted for Agricultural Economy

Role of National Planning Committee

It was the base of modern day Industrialization
USSR Influence
Visvesvarya “ Planned Economy in India”
Shifting labour from Agriculture to Industries

Backlogs of Industrialization

Any Industrial economy needs the following aspects

Presence of infrastructure sector, i.e., power, transportation and communication.
presence of the infrastructure industries, i.e., iron and steel, cement, coal, crude oil, oil refining and electricity.
Need of investible capital—either by the government or the private sector.
Requires technology
Need of skilled manpower.
Need of entrepreneurial skills
Market creation.

Why Agricultural Economy

Most of the population was engaged
Not much skills were required
Availability of Land
Agri economy would gave boosted growth from bottom up
Poverty would hav been eliminated

Why Agricultural Economy

PPP would have been increased
Ultimately a conducive market for the Industrial products
We can always look towards Mao-Deng approach

Gandhian Socialism

Development of villages
Changing institutions
Idea of trusteeship

Why Industrialization

We were having obsolete tools and mechanisms
Lack of mechanization means no commercial activities
International Institutions were in favour of Industrialization
Agriculture was considered as sign of backwardness
2^nd World war created a notion of Industrialization vs Growth

Idea of Modernization

A consensus on Modernization in pre-independence era pushed leaders to pursue the idea of industrialization
Post 2^nd world war many countries continued with agenda of industrialization to prove their economic might

1990’s

WB and IMF changed their stand and started giving weightage to Agriculture in calculating growth and development
China by 1975 proved how in phased manner prosperity can be achieved
By 2002 GoI decided to restart agricultural growth In the country and tagged it as prime mover of economy

Tenth Plan 2002-2007

Agricultural development must be viewed as a core element of the Plan
Majority of women workers are engaged in agriculture, investments in this sector hence gender equality

What was Missing in Agri

Corporatization
Commercialization
Land Reforms
Supply chain management
APMC reforms

What was Missing in Agri

Farm Mechanisation
Research and Development
Reskilling and Upskilling
Preparing it for competition in international markets

Planned and Mixed Economies

Regional disparities
Mass poverty
Resource mobilization
Centralized Structure

East Asian Miracle

The same happened with the East Asian Economies, which were able to sustain high growth rate till 3 decades
The same was planned in 1^st FYP (Harrod Domar Model)
We could not sustain it in upcoming plans and economy was under government till 1990s
Japan, South Korea, and Taiwan, grew very fast due to State Intervention (China Started growing from 1985, Singapore, Thailand , Malaysia from 1980’s)

Emphasis on the Public Sector

State Active and Dominant Role in Economy
Public Sector was highly glorified
Over investment in PSUs happened

Why Public Sector

Create Infrastructure: Railways, Power etc
Due to heavy investments private sector would not have justified the caused
Need for industrialization: Core Industries are building blocks
now 40.27% weightage of Core Industries in IIP sector

Why Public Sector

Employment Generation: Idea of trickle down effect
Temples of Modern India
Capital Asset Creation : Dividends and Profits
Theory of Public Goods and Social Goods
A Base for Private Sectors

Neo-Liberal Approach

As PSUs become White Elephants
Govt focused upon Strategic Disinvestment
2016 saw major move

Q1 . Which of the following were the possible reasons for the late agricultural reforms in India?

It was difficult to go for privatisation in agriculture as it was never open for private sector
Lack of awareness of the economic reforms among the farmers
The heavy dependency of population on agriculture for livelihood

Select the CORRECT statement(s) using the codes given below

1 Only
1 and 2
2 and 3
1, 2 and 3

Ans: c
Explanation:

Statement 2 and 3 are correct.
Statement 3: Agriculture being always open for the private sector, it was now difficult to go for further privatisation for encouraging investments.
The heavy dependency of population on agriculture for livelihood could not permit the government to go for the right kind of agricultural reforms at the right time.

Q2. Why the obvious choice for India was the agriculture sector over industrial sector as the prime moving force of the economy just after the independence?

Human capital did not require any kind of higher training for agriculture
Almost no presence of infrastructure sector, i.e., power, transportation and communication for growth of Industries
India had a good market for industrial goods

Select the CORRECT statements using the codes given below

1 and 2
2 and 3
1 and 3
1, 2 and 3

Ans: a
Explanation:

Statements 1 and 2 are correct.
Reasons for agricultural sector as a obvious choice:

The country was having the natural resource of fertile land which was fit for
cultivation
Human capital did not require any kind of higher training

Statement 3: There was a absence of a market for industrial goods.
However, India went for industry as its prime moving force in place of an obvious and logical choice of agriculture.

Q3. Just after the Independence, the governments at the Centre and states have been facing the biggest hurdles in:

Industrial Sector
Farm Sector
Service Sector
None of the above

Ans: b
Explanation:
The governments at the Centre and states have been facing the biggest
hurdles in the farm sector.
Reasons:

Lack of political will regarding national agri-market
the lack of an effective and transparent land acquisition law
a long tradition of complex kind of labour laws of the country
Farm mechanisation is hindered by the lack of investment in industries

Q4 With regard to the 1st Five Year Plan, consider the following statements

It was based on Nehru-Mahalanobis Strategy
According to this growth model, the rate of economic growth in an economy is dependent on the level of savings and capital output ratio
Its objective was the establishment of a self-reliant and self-generating economy

Select the INCORRECT statements using the codes given below

1 and 2
2 and 3
1 and 3
1, 2 and 3

Ans: c
Explanation:

The statements 1 and 3 are incorrect.
Statement 1: The 1st Five Year Plan was based on Harrod Domar Strategy
This strategy emphasised the role of capital accumulation’s dual character – increases the national income and increases the production capacity.
Statement 3: It was an objective of 3^rd

Q5 Which of the following means strategic disinvestment ?

Strategic disinvestment is the transfer of the ownership and control of a public sector entity to some other entity
strategic sale implies a kind of privatization
It is one of many disinvestments principle adopted by Indian Government
All are correct

Ans: D