NCERT Solutions for Class 11 Economics Indian Economic Development Chapter 2: Indian Economy 1950–1990

Chapter at a glance

Exercise Questions

Answer

A plan spells out how the resources of a nation should be put to use. It sets out a general goal and specific objectives that are to be achieved within a specified period of time. In India plans were drawn up for five years (Five Year Plans), alongside a long-term perspective plan of about 20 years.

A plan is a scheme for using a nation’s resources to achieve stated goals and objectives within a fixed period of time.

Answer

1. At independence the economy was stagnant, poor and backward; the private sector alone lacked the capital and willingness to take up large investments.
2. Leaders like Nehru were impressed by the success of planning in the Soviet Union, and wanted the state to direct development.
3. Planning helps to use scarce resources in line with national priorities: growth, modernisation, self-reliance and equity.
4. It was needed to correct the regional and social inequalities left by colonial rule.
5. Large projects such as dams, power, heavy industry and infrastructure needed coordinated, long-term investment that only a planned approach could provide.

To develop a backward, stagnant economy quickly and fairly by using scarce resources according to national priorities under state direction.

Answer

• Goals give the plan a clear direction; without them resources would be spread aimlessly.
• They allow the government to set priorities among competing needs (agriculture, industry, social services).
• Goals act as yardsticks to measure performance and to correct course in the next plan.
• Clear goals help in coordinating the work of various ministries, states and sectors.

For India the goals were growth, modernisation, self-reliance and equity.

Goals give direction, fix priorities, and provide a standard to judge the success of a plan.

Answer

HYV seeds are improved seeds that give a much larger output per hectare than traditional seeds. They need a regular supply of water (assured irrigation), and the right amounts of fertilisers and pesticides. Their introduction in the mid-1960s, mainly for wheat and rice, started the Green Revolution in India.

Seeds that give a large proportion of output per hectare, provided they get adequate water, fertilisers and pesticides.

Answer

Marketable surplus is the part of agricultural produce that farmers sell in the market after keeping what they need for their own consumption (and for seed). The Green Revolution raised output so much that farmers had a sizeable marketable surplus, which also let the government procure grain for buffer stocks.

The portion of farm output sold in the market by farmers after meeting their own needs.

Answer

Need

1. Under colonial land systems the actual tillers had no ownership; zamindars took the produce and had no incentive to improve land.
2. Land ownership was highly unequal; this created both inequity and low productivity.
3. Ownership would give tillers the incentive to invest in land and raise output (equity plus growth).

Types

1. Abolition of intermediaries: zamindars and other intermediaries were removed so that cultivators became owners. About 200 lakh tenants came into direct contact with the government.
2. Land ceiling: fixing the maximum size of land an individual could own. Surplus land above the ceiling was to be given to the landless.
3. Tenancy reforms: regulating rent, giving security of tenure and the right to buy the land (most successful in Kerala and West Bengal).

Limitations: many big landlords escaped through loopholes, benami transfers and court cases, so the ceiling laws had limited success.

Land reforms aimed at equity and productivity through abolition of intermediaries, land ceilings and tenancy reforms.

Answer

Meaning. The Green Revolution is the large increase in production of food grains that resulted from the use of HYV seeds, especially for wheat and rice, along with fertilisers, pesticides and assured irrigation.

Why implemented

• Colonial agriculture was stagnant; food shortages forced India to import food grains (e.g. under the US PL-480 programme).
• Self-sufficiency in food was needed for food security and to save foreign exchange.

Benefits to farmers

1. Higher yields per hectare and therefore higher incomes.
2. A large marketable surplus to sell.
3. Government support through minimum support prices, subsidies and credit.
4. Small farmers also gained in time, because the government gave them loans at low interest and subsidised inputs.

It also benefited the economy: India became self-sufficient in food grains, prices fell, and the government built up buffer stocks.

A sharp rise in food-grain output from HYV technology, adopted to end food shortages; farmers gained higher yields, incomes and marketable surplus.

Answer

• Growth means an increase in the country’s capacity to produce goods and services, measured by a steady rise in GDP.
• Equity means that the benefits of growth must reach all sections of society, especially the poor; every Indian should be able to meet basic needs such as food, housing, education and health.

Growth alone may increase inequality, and equity alone without growth only redistributes poverty. Therefore Indian plans aimed at growth with equity: raising output while reducing inequality of income and wealth, for example through land reforms, help to small industry and anti-poverty programmes.

Growth with equity means raising national output while making sure its benefits are shared fairly among all people.

Answer

Yes, there can be a contradiction.

• Modernisation means adopting new technology and also changing social outlook (e.g. equal rights for women).
• New technology is often capital-intensive and labour-saving: machines replace workers, so in a labour-surplus country like India it may reduce employment in the short run.

However, the contradiction can be managed:

• Modernisation raises productivity and income, which creates demand and jobs in other sectors.
• New industries need skilled workers, maintenance and services.
• The government can choose technology suited to India’s factor endowment and support labour-intensive small industries side by side.

Yes, labour-saving technology can reduce jobs in a labour-surplus economy, but with suitable technology choice and wider growth the conflict can be reduced.

Answer

1. Long colonial rule had made India dependent on Britain; leaders feared that reliance on foreign countries would compromise political sovereignty.
2. India was importing food grains; self-reliance in food was vital for national security.
3. Developing domestic industries would save scarce foreign exchange and create jobs.
4. Foreign dependence makes a country vulnerable to the policies and pressures of other nations.

Hence the first seven plans stressed self-reliance: producing at home the goods that could be produced, especially food.

To protect sovereignty, end food imports, save foreign exchange and build domestic industry after colonial dependence.

Answer

Sectoral composition is the share of each sector (agriculture, industry and services) in the GDP of the economy.

It is not necessary for the service sector to contribute the most.

• Normally, as a country develops, the share of agriculture falls and that of industry and then services rises; in developed countries services dominate.
• In India the service sector’s share grew rapidly even though industry was not well developed. This growth was not backed by a matching shift of workers: a large population still depended on agriculture.
• A healthy economy needs balanced growth, in which agriculture and industry also provide jobs and goods. Growth led mainly by services may not create enough employment for a large, low-skilled labour force.

Sectoral composition is each sector’s share in GDP; services need not dominate. Balanced growth with employment matters more.

Answer

1. The private sector lacked capital and was unwilling to invest in large projects with long gestation periods and low returns.
2. The market was small, so private investors had little incentive to invest.
3. Heavy industries and infrastructure (power, steel, railways, irrigation) were basic to development and needed huge investment.
4. India had chosen a socialist pattern of society; the state was to control the commanding heights of the economy and prevent concentration of wealth.
5. The public sector could develop backward regions and create employment.

Because private capital was scarce and unwilling, heavy industry needed huge long-term investment, and the state aimed at a socialist pattern of development.

Answer

• The Green Revolution greatly raised output of wheat and rice, and farmers had a large marketable surplus.
• Large supplies allowed the government to purchase (procure) food grains from farmers at minimum support prices through the Food Corporation of India.
• These purchases were stored as buffer stocks.
• During droughts, floods or rising prices, the government released grain from these stocks through the public distribution system at low prices, so the poor were protected.

Before this, India had to import grain in emergencies; afterwards it could manage shortages from its own stock.

Higher output created a marketable surplus that the government procured and stored as buffer stock, which was released during shortages.

Answer

In favour of subsidies

1. They were essential to encourage farmers, especially small farmers, to adopt new HYV technology, which is costly and risky.
2. Most farmers are poor and cannot afford inputs at market prices; subsidies protect their income.
3. Removing them may increase inequality between rich and poor farmers.

Against subsidies

1. Once the technology is adopted, subsidies are no longer needed for promotion.
2. A large part benefits fertiliser industry and big farmers in prosperous regions.
3. They are a heavy burden on government finances, leaving less money for irrigation, research and rural infrastructure.
4. They cause overuse of inputs such as fertiliser and water, harming soil.

Conclusion. Subsidies are useful when they are well targeted at small and marginal farmers; general subsidies should be cut gradually and the savings used for public investment in agriculture.

Subsidies helped spread new technology and protect poor farmers, but they should be targeted to small farmers to limit the fiscal burden and wastage.

Answer

1. The industrial and service sectors did not grow fast enough to absorb the people leaving agriculture.
2. Industry was capital-intensive (public sector, heavy industry), so it created few jobs per unit of investment.
3. Population grew rapidly, so the absolute number of people in farming increased.
4. Most rural workers were unskilled and uneducated, and could not move to industrial jobs.
5. The Green Revolution itself made farming more profitable, so people stayed on the land; the extra people simply caused disguised unemployment.

Industry and services could not absorb surplus rural labour, population grew rapidly and workers lacked skills, so most people stayed in agriculture.

Answer

Usefulness of PSUs

1. Built the industrial base (steel, power, heavy machinery, oil) when the private sector could not.
2. Developed infrastructure and backward regions.
3. Generated employment and reduced concentration of economic power.
4. Provided essential goods and services at reasonable prices.

Problems

1. Many PSUs ran at a loss because of poor management, overstaffing, political interference and lack of accountability.
2. Being monopolies, they had little pressure to be efficient or innovate.
3. Losses had to be covered from the budget, draining scarce resources.
4. Some continued producing goods that the private sector could produce better (e.g. hotels, bread).

Conclusion. PSUs are still useful in strategic and essential areas, but they need professional management and competition; loss-making units in non-essential fields can be restructured or privatised.

PSUs built India’s industrial base and served social goals, but inefficiency made many loss-making; they should be reformed and limited to essential areas.

Answer

Import substitution means replacing imports by domestic production: for example, making vehicles in India instead of importing them. It protects domestic industry in two ways:

1. Tariffs: a tax on imported goods makes them costlier, so domestic goods become competitive in price.
2. Quotas: a limit on the quantity of goods that can be imported reduces foreign supply.

With imports restricted, domestic firms get an assured home market and time to grow (the “infant industry” argument) without facing competition from developed countries. It also saves foreign exchange.

By restricting imports through tariffs and quotas, import substitution gives domestic industry an assured market free from foreign competition.

Answer

Why regulated

• The state wanted to control the commanding heights of the economy and follow a socialist pattern.
• To ensure that private industry followed national priorities, did not concentrate wealth, and promoted regional balance.

How regulated

1. Classification of industries: the first category was reserved for the state; in the second the state would take the lead and the private sector supplement it; the third category was left to the private sector.
2. Industrial licensing: a licence from the government was needed to start a new industry, to expand output or to diversify products.
3. Licences were given more easily for setting up industries in economically backward areas, with tax benefits and cheap power.
4. Expansion was allowed only if the government was convinced the economy needed more of the goods.

To align private industry with national and socialist goals; it was done through the three-way classification of industries and industrial licensing.

Answer

1–C, 2–D, 3–B, 4–E, 5–A, 6–F

Topic checklist

• Mixed economy and the Planning Commission
• Four goals of planning
• Land reforms and the Green Revolution
• Subsidies debate
• Public sector, IPR 1956 and licensing
• Import substitution, tariffs and quotas

Total questions answered: 19 of 19