Economics 3 Marks Question

The new agricultural strategy implied use of better and improved inputs of agriculture which required more capital. Green Revolution would have benefited only the rich farmers if the government had not played an important role in ensuring that the small farmer also gains from the new technology. The government provided loans at low rate of interest. The fertilisers and high yielding varieties of seeds were also subsidised for the small farmers.

The growth of industries during the period 1950-51 to 1990-91 showed impressive achievement.
The proportion of GDP contributed by the industrial sector increased from 11.8 percent in 1950-51 to 24.6 percent in 1990-91. The annual growth rate of the industrial sector during the same period was 6 percent. The Indian industry was no longer restricted to cotton textiles and jute but became well diversified by 1990.

The relevant objective is self-reliance. It means that a country should be capable of fulfilling all its needs by itself. It should not be dependent on other countries for its needs. The first seven Five Year Plans gave importance to self-reliance by avoiding imports.

Growth and Self-reliance: The goal of self-reliance is fulfilled by adopting the strategy of import substitution. Under this strategy whatever was imported earlier (during the British rule) would be produced within the country. If all the goods are produced in the country, in some goods comparative cost of production would be high. Therefore if the objective of self-reliance is pursued, the growth objective is sacrificed.
Growth and Employment: The conflict between growth and employment arises from choice of technology. Capital intensive technology promises more output but generates less employment. Labour intensive technology on the other hand generates more employment but produces less output.

The Licensing Policy before 1991 discouraged small entrepreneurs to set up new enterprises.
It also encouraged favouritism and corruption. It benefited only the big industrial houses.
The need to obtain a license to start an industry was misused by some industrial houses. The big industrial houses would get a license not for starting a firm but to prevent competitors from starting new firms. The excessive regulation of what came to be called permit license raj prevented certain firms from becoming more Efficient.

The import substituting industrialisation was the objective of second FYP (1956-61) till the Seventh FYP (till 1990). The Mahalanobis strategy of development was based on import substitution. The rationale of the import substitution strategy is based on infant industry argument. It helped to save foreign exchange by drastically reducing import of goods. The foreign exchange saved was to be used for the developmental imports such as capital goods, sophisticated technology, etc. It created a protected market and large demand for domestically produced goods.

The principal components of IPR 1956 were:

1. Three fold classification of industries:

1. Industries exclusively owned by the state.
2. Industries in which private sector could supplement the efforts of the state sector

1. Remaining industries were to be in the private sector: Industrial licensing: This policy was used to promote industry in backward regions, i.e., to promote regional equality. No new industry could operate without a license obtained from the government.
2. Private entrepreneurs were offered many incentive: Like tax relief, electricity at a lower tariff, etc., to establish their industry in the backward regions of the country.

The Green Revolution was based on the use of High Yielding Varieties (HYVs) of seeds, which required reliable irrigation and financial resources to buy better inputs. Because of this, the Green Revolution was restricted to the more affluent states of Punjab, Andhra Pradesh and Tamil Nadu. Further the use of HYV seeds primarily benefitted the rice and wheat growing regions.
Thus, the benefit of the Green Revolution was initially restricted to few states and the crops of wheat and rice only.

Small-scale industries have important place in the economic development of India:

1. These industries are labour-intensive which generate more employment.
2. They reduce the dependence of people on agriculture for living.
3. These industries require less capital which is deficient in India.

The new agricultural strategy implied use of better and improved inputs of agriculture, which required more capital. Green Revolution would have benefitted only the rich farmers, if the government had not played an important role in ensuring that the small farmers should also gain from the new technology.
The government provided loans at low rate of interest. The fertilisers and High Yielding Varieties (HYVs) of seeds were subsidised.
Also easy and cheap credit was made available to the farmers so that they can buy expensive farm equipment.

A subsidy is a benefit given by the government to the producers as an incentive to produce. To farmers a subsidy is given to lower the cost of inputs. It is given on electricity to the producers to lower cost of production and it is given to consumers especially those living below poverty line on necessities to make basic needs affordable for them.

Import substitution policy aimed at replacing or substituting imports with domestic production. For example, instead of importing vehicles from abroad, the industries were encouraged to produce them in India itself.
It was introduced in India because the government wanted to protect the domestic industries from foreign competition. It was assumed that if domestic industries are protected, they will learn to compete in the course of time.

The use of new technology increased agricultural productivity to enable the country to be self-sufficient in food grains. The surplus production was sold in the market by the farmers, thus, bringing down the prices of food grains. The increased availability enabled the government with sufficient amount of food grains and also build "buffer stocks" to be used at times of shortage.

The former Soviet Union had adopted socialist economy, in which common ownership is the distinct feature. The farmers in the former Soviet Union did not own any land; they neither enjoyed profits nor were required to bear losses accruing to land. In the absence of ownership and incentives, the farmers had a callous attitude towards work. This according to me, is the reason because of which they used to pack rotten fruits with fresh fruits.

Small-scale industries lack the marketing skills or the technical know how to compete against the large-scale industries which have a lower cost per unit of production. Thus, they require protection by the government.

Differences between private sector and public sector:

S. No.	Basis	Private sector	Public sector
1.	Concept	Private sector is that part of the economy in which private entrepreneurs operate.	Public sector is that part of the economy in which state acts as an entrepreneur.
2.	Example	Reliance Industries.	Mahanagar Telephone Nigam Limited (MTNL).

According to the Industrial Policy Resolution, 1956, industries were classified into three categories on the basis of ownership:

1. The first category consisted of industries which could be established and developed exclusively as public sector enterprises.
2. The second category consisted of industries which could be established both as public sector enterprises and private sector enterprises, with private sector being given a secondary role.
3. The third category consisted of all industries other than those specified in the above categories and was open for private sector.

Small scale industries are distinguished from the large scale industries on the basis of the maximum investment allowed on the fixed assets of a unit, the number of workers employed and the use of energy. This definition of a small scale industry changes from time to time. In 1950, a small scale industrial unit was one which invested a maximum of rupees five lakhs. At present, the maximum investment allowed is five crores.

Economies are classified into three main economic systems on the basis of the ownership or means of production:

1. Capitalism: Private ownership of land and resources.
2. Socialism: Public or state ownership of land and Resources.
3. Mixed economic system: Private and public ownership of land and resources co-exist.

Difference between Self reliance and Self Sufficiency can be summarised as below:

1. An economy must have enough resources or foreign exchange to purchase all inputs required for production, if they are not available within the country. If it has enough resources to buy these resources it is said to be self-reliant. On the contrary, when a country can produce everything within its domestic territory, it is said to be self-sufficient.
2. It is possible to be self-reliant but it is not possible for an economy to be self sufficient.
3. Self-sufficiency is also not desirable economically because it may be cheaper and better to buy certain inputs from other countries. For that a country needs foreign exchange. If a country has foreign exchange, it is self-reliant.

One such risk was the possibility that it would increase the disparities between small and big farmers because only the big farmers could afford the required inputs, thereby getting most of the benefits of the Green Revolution.

To begin with the need to procure a license to start an industry was misused by the big industrial houses. A big industrialist would get a license not for starting a new firm but for preventing competitors from starting new firms.

• The excessive regulation of 'permit license raj' permitted certain firms from becoming more efficient.
• More time was spent by the industrialists in obtaining a license or lobby with the others, rather than on improving their product.

Values hidden in the above paragraph are enumerated below:

1. Government's concern for upliftment of poor tenant farmers.
2. Hard work of tenants which contributed to the growth in agricultural output.

The Industrial Policy was used to promote regional equality by the government:

1. The industries in backward regions were given certain concessions such as tax benefits and electricity at lower tariff.
2. The industrial licensing policy was used to promote industries in backward regions. It was easier to obtain a license in an economically backward region.

India failed to develop a strong export sector until the mid 1980s because of its 'inward looking trade strategy i.e. focus on import substitution. Protection from foreign competition was the major reason why India failed to develop a strong export sector. This was for the sake of achieving self-reliance.

The new agricultural strategy implied use of high yielding varieties of seeds which required reliable irrigation and financial resources to buy better inputs. The strategy was thus restricted to the more affluent states of Punjab, Andhra Pradesh and Tamil Nadu. Further, the use of HYV seeds primarily benefited the wheat growing regions only Thus, the benefit of the Green Revolution was initially restricted to few states and the crops of wheat and rice only.

The Second five-year plan, a landmark contribution to development planning in general, laid down the basic ideas regarding goals of Indian planning. This plan was based on the ideas of P.C. Mahalanobis. He is, thus, regarded as the architect of Indian planning.

There are mainly two types of development strategies:

1. Balanced Growth Strategy means proper development of all sectors of the economy with almost same rate of growth. It requires that the different sectors like agriculture, industry, transport, communication, power etc. should grow together.
2. Unbalanced Growth Strategy implies the development of certain key sectors of the economy only. According to this strategy, all sectors of the economy cannot grow together because of scarcity of resources. When there is development of key sectors, other sectors automatically develop because of forward and backward linkages. For example, development of power sector will induce farmers to install tube wells and industrialists to set up factories.

There has not been a marked change in the occupational pattern during the initial stages of planning. Agriculture and allied activities continued to absorb about 66.8 percent of the working force.
The secondary sector accounted for 12.7 percent and tertiary sector accounted for about 20.5 percent of the working population.
This means that the secondary and service sectors had not grown rapidly enough to make an impact on the occupational structure.
The primary sector was also not able to create surpluses enough to create conditions for expansion elsewhere.

The Industrial Policy Resolution of 1956 classified industries into three categories:

1. First category comprised industries which would be exclusively owned by the state.
2. Second category consisted of industries in which private sector could supplement the efforts of the state sector, with the state taking the sole responsibility of starting new units.
3. Third category consisted of the remaining industries which were to be in the private sector. However, they were subject to many controls and the state had the right to enter into the production of these industries also.

'Modernisation' as aim of Five Year Plans refers to the adoption of new technology by the producers to increase the output of goods and services. This adoption of new technology by the farmers and producers of factory output is known as "modernisation".
It is used as a wider phenomenon because it does not refer only to use of new technology but also to the changes in social outlook such as recognition of the rights of women to be same as men. This is to enable the use of the talents of women in the modern society.

'Tarifls' are a tax levied on the imported good whereas Quotas' specify the quantity of goods which can be imported. Both are different forms of protection from the imports.

Handicraft is a traditional industry of India and skilled workers are easily available here. That's why India is a leading exporter of handicrafts.

The share of agricultural sector has fallen because of the reasons enumerated below:

1. During this period, there was substantial growth in Indian industrial sector. With growth in industrial sector, the domestic demand of agricultural products increased as they were being used as raw material in the factories.
2. During this period, there was a tremendous population grew, the domestic demand for agricultural products also grew.

Growth in agricultural output is important but not sufficient. If a large part of this increase is consumed by the farmers themselves, instead of being sold in the market, the higher output will not make a difference to the economy as a whole. It will not contribute to the normal process of economic growth.

Excessive regulation and control by the government during planning period was termed as License Raj or Permit License Raj. It was the time when there were too many rules and regulations for private sector and foreign sector to enter the market. It prevailed under Industrial Policy Resolution (IPR) 1956.

Import means buying goods and services from other countries. Two features of import are given below:

1. Import acts as a substitute for domestic goods and services.
2. Import increases competition in the domestic market, forcing them to produce quality goods.

The need to obtain a license to start an industry was misused by some industrial houses. The big industrial houses would get a license not for starting a firm but to prevent competitors from starting new firms. The excessive regulation of what came to be called 'Permit License Raj' prevented certain firms from becoming more efficient.

P.C. Mahalanobis established the Indian Statistical Institute (ISI) in Calcutta and started a journal, Sankhya, which still serves as a respected forum for statisticians to discuss their ideas. Both, the ISI and Sankhya, are highly regarded by statisticians and economists all over the world even today.

Tariffs are tax imposed on imported good. They make imported goods more expensive, thus, discouraging their use. Quotas specify the quantity of goods which can be imported, thus restricting the import of foreign goods.

Prices are signals of availability of goods. Rising prices reflect scarcity and lead to a judicious use of scarce resources and goods. Subsidies do not allow the prices to indicate the supply of a good. When goods are available at subsidised rates, it might result in overuse of resources without any concern for scarcity. Thus, subsidies are an incentive for wasteful use of resources.

An economy can progress only if they have a good industrial sector providing a sound capital base.
It also provides employment which is more stable than the employment in agriculture. It promotes modernisation and overall prosperity by increasing incomes of the people. Indian planning, thus, placed more emphasis on industrial development.

Major trading partners at the time of independence were United Kingdom, United State of America and Commonwealth countries.
Major trading partners at present are United Arab Emirates, China, Switzerland, Singapore, Australia, Iran, Hong Kong, Korea, Indonesia, United Kingdom, Japan and Belgium.

As a country develops, the share of agriculture in national income declines, and the share of the industry becomes dominant. The working force shifts from agricultural occupations to non-agricultural occupations namely, industrial and service occupations.

If an economy is growing but large sections of its people are living in mass poverty, we cannot call it growth. Equity is important because the benefit of growth must reach all sections of society. If it does happen so then it will be called growth but not development.
It will give birth to a dual economy in which extreme inequalities will exist.

The various causes of industrial sickness are enumerated below:

1. Mismanagement.
2. Fall in demand.
3. Labour unrest.
4. Shortage of working capital.
5. Increase in the cost of raw material.
6. Shortage of raw material.
7. Uneconomic size of industrial units.
8. Use of outdated machines and equipments.

The main benefits of international or foreign trade are:

1. International trade encourages specialisation on the basis of comparative advantage. This enables a country to obtain foreign goods at a cheaper rate in context of the domestic resources used.
2. An increase in export trade widens the country's total market. Production of more goods will further lower the cost of production, leading to lower cost per unit.
3. It widens the scope of industrialisation.
4. It encourages competition, leads to innovation and increases capital flows.
5. International trade acts as an 'engine of growth'. It transmits growth from one part of the world to another. So, the demand in Britain for raw material brought prosperity to Australia, Canada, New Zealand, etc.
6. It helps the country to earn valuable foreign exchange.

1. GNP does not give any idea of population, skill and resources of the country.
2. A high GNP may be because of concentration of some resources and other natural factors.
3. It does not indicate how GNP is distributed, whether it is distributed equally or unequally.
4. It does not show composition of income. A country might be producing cigarettes, alcohol or pedigree and may have masses living in poor conditions.
5. With increase in GNP, there may be ecological imbalance which will not add to welfare.

The three typical characteristics of SSIs are:

1. Labour intensive: SSIs are labour intensive in character, i.e. they require more units of labour and are best suited for solving the problem of unemployment.
2. Less capital intensive: SSIs are less capital intensive, i.e. they require relatively smaller amount of capital to produce a commodity. In a country like India where capital is scarce, SSI is best suited to bring about industrial development.
3. SSIs show locational flexibility: SSIs can be established in remote areas also, because their need for various resources is limited. Therefore, they contribute to growth across different regions of the country.

1. At the time of independence as the size of the market was small to lure industrialist to invest their capital (as they also lacked the initiative to invest). So the government / state had to play an extensive role in promoting the industrial sector.
2. Secondly to develop Indian economy on socialist lines led to the policy of the state controlling the commanding heights of the economy.
3. Private sector was to be complementary to the public sector, with the latter leading the way.

1. Policy of protection in industries facilitated the development of indigenous industries.
2. This policy protected the domestic industries from foreign competition. Protection from imports took two forms, that of tariffs and quotas.
3. It was based on the belief that industries of developing countries could not face the competition from goods produced by the industries of developed countries.

Immediately after the adaptation of new constitution on January 26, 1950, the Planning commission came in to existence. Planning Commission is a constitutional body. Prime Minister is ex-officio chairman of this commission. The broad functions of Planning Commission are:

1. Assessment of material, capital and human resources
2. Formulation of plan for their most effective and balanced utilization
3. Determination of priorities and allocation of resources etc.

There were many shortcomings of IPR 1956.

1. Many industries which could easily be handed over to private sector were kept under public sector control.
2. Too many industries were covered under license policy which created hurdle in industrial development.
3. Too many regulations led to low level of industrial development.