Economic Planning in India

Chapter: 2

Module – I: Indian Economic Development

TEXT BOOK QUESTIONS WITH ANSWERS

Intext Questions 2.1

1. Economic growth means:

(a) Increase in real national income.

(b) Removal of inequality.

(c) Increase in price level.

(d) None of the above.

Ans: (d) Increase in real national income.

2. National income can be increased by:

(a) Increase in population.

(b) Increase in the rate of investment.

(c) Increase in unemployment.

(d) Decrease in price level.

Ans: (b) Increase in the rate of investment.

3. Who are the owner of factors of production:

(a) Government.

(b) Rest of the world.

(c) Households.

(d) Firms and industries.

Ans: (c) Households.

4. Labour force comes from the population in the age group of

(a) 4 to 14

(b) 60 to 75

(c) 10 to 15

(d) 15 to 59

Ans: (d) 15 to 59.

Intext Questions 2.2

1. One of the reason of inequality in income is:

(a) Existence of private property.

(b) Lack of equal distribution of wealth.

(c) Both of the above.

(d) None of the above.

Ans: (a) Existence of private property.

2. Which of the following sector used to have larger share in India’s GDP at the time of its independence.

(a) Industry.

(b) Agriculture.

(c) Service.

(c) None of the above.

Ans: (b) Agriculture.

Intext Questions 2.3

1. Liberalization aims at retaining the licencing system. True or False

Ans: False.

2. Privatization policy will help in enhancing competition in the market. True or False

Ans: True.

3. Globalization aims at imposing tariff on imported goods. True or False

Ans: False.

Intext Questions 2.4

1. During which plan period, the active growth rate of national income was more than the targeted growth are:

(a) Second Plan.

(b) First Plan.

(c) Seventh Plan.

(d) Ninth Plan.

Ans: (b) First Plan.

2. The growth rate of per capita income was higher in the beginning of plan period as compared to the period in the beginning of 21st century. True or False

Ans: False.

Terminal Exercise

Short Answer Type Questions

1. Give the meaning of planning?

Ans: Planning is listing out problems making priority for solving them on short term and long term basis, estimating the resources needed, mobilising the resources to carry out the eisted tasks and exaction of the programme to achieve the targets. 

2. Write two objectives of planning in India.

Ans: 1. Economic growth: The objective of achieving economic growth implies that the real national income and per capita income must grow every year at a targeted rate. Real national income is the measure of national income at a given years price or at a constant price. Real per capita income is the average income of individual in the economy.

2. Increase in Employment: Employment refers to the engagement of the labour force in gainful economic activity such a production of goods and services. Income is generated through the production process where the production process involves employment of factors of production provided by tghe households.

3. Name two types of resources needed for planning with examples?

Ans: Two types of resources needed for planning are data and the find for implementing the programme. If the plan is to be reduce poverty first data on the people living under the poverty line has to be collected. After that for implementing the programme to reduces resources, the government has to mobilise resources.

4. Give one justification for adopting the strategy of Industrisation.

Ans: India’s population has been over depended on agriculture resulting in crowding of rural area, pressure on land, fragmentation of landholding, underemployment and unemployment with fixed amount of land available for cultivation, more population makes the amount of per capita availability of land very small or nil. This has resulted in inequality in distribution of land and ultimately affecting agricultural production badly. Industrialization is the only answer to shift the surplus labour engaged in agriculture to industries and release the pressure on land. 

Long Answer Type Questions

1. Explain the steps involved in the process of planning.

Ans: Process of planning takes place in three steps-formulating the plan, its implementation and the evaluation.

Plan Formulation: The process of plan formulation takes place in a series of steps. The first step in the process of formulating the plan is for the commission to prepare, on a rough basis, certain schemes and projects in consultation with the union ministries .and state governments in the background of the Perspective Plan; to determine some kind of priority; to take stock of the available resources; and to distribute these resources among the different agencies on an approximate basis. These estimates and projections are then placed before the National Development Council (NDC) and the schemes are modified in the light of discussions. These are then sent to the various union ministries and state governments in the form of preliminary instructions.

Plan Implementation: It should be noted here that the Commission is an advisory body and has no executive functions. It is only a national organ for plan formulation and a staff body to advise the cabinet. The task of implementation is left to the union ministries and state governments. It is in this field that efforts have been made to introduce the two concepts of democratic decentralisation and the popular participation, particularly after the introduction of the Panchayati Raj in the country.

Plan Evaluation: Evaluation is the last of the three stages in the process. One of the functions of the Commission is to appraise from time-to-time the progress achieved in the execution of each stage of the plan and make recommendations for necessary adjustment. 

2. Discuss the objectives of removal of inequality and poverty.

Ans: Most of the social evils are created due to inequality. The per people are not able to support the market due to lack of purchasing power where too much purchasing power with the rich has caused wast ful consumption. Thus, planners aimed to reduce inequality in income distribution through planning. Poverty is considered as a curse on human dignity and it has seriously tarnished the image of the country. Developed countries do not court India seriously because of its inability to remove poverty.

3. Which strategy did India adopt to achieve the plan target and why?

Ans: Since 1947, the Indian economy has been promised on the concept of planning. This has been carried through the Five-Year Plans, developed, executed, and monitored by the Planning Commission. The Eleventh Plan completed its term in March 2012 and the Twelfth Plan is currently underway. Prior to the Fourth Plan, the allocation of state resources was based on schematic patterns rather than a transparent and objective mechanism, which led to the adoption of the Gadgil formula in 1969. Revised versions of the formula have been used since then to determine the allocation of central assistance for state plans.

Five-Year Plans (FYPs) are centralized and integrated national economic programs. The First Five-Year Plan was one of the most important because it had a great role in the launching of Indian development after the Independence. Thus, it strongly supported agriculture production and it also launched the industrialization of the country (but less than the Second Plan, which focused on heavy industries). It built a particular system of mixed economy, with a great role for the public sector (with an emerging welfare state), as well as a growing private sector (represented by some personalities as those who published the Bombay Plan). After three-decades of planning and development, India adopted the policies of liberalisation and globalisation.

4. Explain the adjectives of economic growth and increase in employment under planning in India?

Ans: The major objectives of the Five Year Plans in India were as follows:

(i) Accelerating economic growth.

(ii) Reduction of economic inequalities.

(iii) Self-reliance.

(iv) Balanced regional development.

(v) Reduction of unemployment.

(vi) Modernisation.

The specific tasks undertaken by the Planning Commission of India are as follows:

(i) Assessing the quantity and quality of, resources of the country-physical, financial as well as human and, investigating the possibilities, of enhancing these resources if these are deficient in relation to the country’s requirements.

(ii) Preparing plans for the effective and balanced utilisation of the available. resources of the country.

(iii) Laying down priorities of each five year plan in the light of the overall long term objectives.

(iv) Allocating available resources in accordance with priorities for achieving the objectives of the plan.

(v) Indicating the factors which tend to retard economic development and determine the conditions which, in view of the current social and political situation, should be established for the successful execution of the plan.

(vi) Specifying guidelines for achieving plan objectives.

(vii) Co-ordin ating with state governments for plan execution.

(viii) Appraising the progress of the plans and recommending necessary adjustments.

5. Explain there achievements economic planning in India?

Ans: The three achievements of economic planning in India:

1. Economic Development: The country has recorded economic growth because of the planning. The long period of British rule and exploitation had made India one of the poorest nations in the world. The main task before the national government was to undertake some positive development measures to initiate a process of development, which can be done effectively only through the instrument of planning. The state planning mechanism has been proved to be much superior to private market operations in bringing about it a quick transition in the less-developed economics, The spectacular success of planning in some countries had inspired the national leaders to adopt the path of planning for an accelerated development of the shattered economy.

2. Quick Improvement in the Standard of Living: The planning has improved in the standard of living of the people in the less-developed countries. In an unplanned economy the country’s resources and materials cannot be employed for increasing the people’s welfare as the private capitalists in such an economy direct their activities in increasing their own profits. The path of planning has been chosen to promote a rapid rise in the standard of living of the people by efficient exploitation of resources, increasing production of most goods, and offering employment opportunities to the people.

3. Modernisation of Economy: Besides the modernisation of technology there has been considerable modernisation of the Indian Economy. These include development of public sector and economic reforms include liberalisation, privatisation, globalisation, medium industries, banking sector has spread to rural areas.

In short India has made economic progress during the period of planning. The country has succeeded in laying the foundation of growth in the field of industries, multipurpose power projects and agricultural production.

6. Evaluate the performance of planning in removing poverty and inequality?

Ans: In the half century since its independence, India has accomplished many notable social and economic achievements. Among these are the eradication of widespread famine, a reduction in population growth, some lowering of caste barriers to economic opportunity and the creation of a large pool of technical and scientific talent. While it has also managed to reduce poverty in that period, only since 1975 when growth accelerated, has the decline been fairly steady. The pace, moreover, remains both slow and uneven – faster in the southern states than the northern ones, and more likely to empower men than women. Government efforts to reduce poverty through direct anti-interventions have yielded mixed results. Many of those programmes, in fact, have missed their supposed target the poor and delivered their benefits to the economically more advantaged. As India moves ahead with the economic liberalization that has yielded a higher platform for growth and therefore the potential for a higher level of welfare, it has an opportunity to re-examine its approach to reduce poverty and inequality. The last five years have shown the rates of growth that India could achieve with market-oriented development policies and a better integration into the world economy. This is a promising development because the last few decades have shown the extent to which the poor stand to gain from an acceleration in growth. The latter widens opportunity, provides the resources needed to invest in human development, and creates the very foundation that will increase returns to human capital-and thus families’ willingness to send their children, including girls, to school, have fewer of them, or in multiple other ways, invest in their future.

7. White a short note on achievements of planning with respect to economic growth?

Ans: Achievements in Economic Growth: Achieving economic growth was a major objectives of planning. To achieve growth it is necessary to achieve increase in national income and per capita income as well as increase in production of agricultural and industry sectors. A review of different at plans shows that, the first five year plan was a success as it achieved growth rate of 3.6 per cent against a target of 2.1 percent growth rate in national income. Then except for 5th and 6th plans, during the other plan periods i.e. from second to eleven five year plan the targeted growth rate in national income could not be achieved.

Similarly, The per capita income has attained growth but the rate of growth has been very slow. For example: During the first 30 years of planning the per capita income grew at a very slow rate of 1.2 per cent per year. Recently this growth rate has increased to some extent. Coming to agriculture, the food grain production has gone up from 51 million tones at the beginning of the first plan to 257.4 million tones in 2011-12. Particularly the production of rice, wheat has been spectacular, but production of pulses and oil seeds etc., has been below target.

In terms of industrial development, a major achievement has been the diversification of Indian industries. There has been expansion of transport and communications, growth in generation and distribution of electricity and considerable progress in steel, aluminium, engineering goods, chemicals, fertilizers and petroleum products.

8. Comment on the development of infrastructure in India:

Ans: India still lacks in infrastructure – be it roads ports, railways, airports, power generation on distribution facilities, irrigation facilities, access to telecom infrastructure or even the very basic housing and sanitation infrastructure. The government has made efforts and implemented various infrastructure projects – roads, bridges, dams and power plants have been built. But what the country requires is sustainable infrastructure development. Infrastructure improvements have to be carried out in the following two ways:

First, improvements will have to be undertaken in existing infrastructure be it railway corridors, roads, electricity generation and distribution, ports, airports, dams, irrigation, sanitation, access to telecom and the like. Secondary, and also equally critically, there should be the creation of new infrastructure in places and areas where there is a infrastructure deficit. It is true for sectors like sanitation where India fares poorly even within the South Asian Region (SAR) according to a recent paper by World Bank.

If one compares India’s infrastructure development with stellar successes like China, we find that we have lagged. Consider the railroads’ development in China. China had close to 23,000 route km of railways in 1951 compared with the commensurate figure of 53,500 km for India. This was because India has inherited a colonial past where infrastructure development formed the basis of efficient administration for the British Raj. According to the latest statistics of World Bank, China has surpassed India and has close to 66,000 route km of railways compared to 64,000 for India in 2012. Also, China has approximately 10,000 km of high-speed railways – more than the entire HSR network of the European Union. India does not have a single route km of high-speed rails at present. The best way to look at this would be estimating the gross productivity losses India faces because of the slow railway system.

The golden quadrilateral was an endeavour that helped India bridge the rural-urban divide. However, till today, national and state highways constitute less than five per cent of the total roads in India. Apart from roads, telecom access was another area where we have made progress, but much needs to be done for greater digital inclusion of the masses. With respect to power generation and distribution, port and airport development as well as dams and irrigation systems, critical areas include innovative financing mechanisms as well as re- thinking the role that the private sector can play in enabling their development.

In the present scenario, states will have to be made partners in the infrastructure development process if initiatives like Make in India and Smart Cities are to become a success. Also, a large number of people migrating to cities in search of employment and a better life pose significant challenges to infrastructure development.

9. Give reasons for adopting a new economy policy?

Ans: 1. As a result of economic reforms, the growth rate of the economy has also gone up. Production of both agricultural and industrial sector has increased.

2. Indian economy is marked by a number of inefficiencies. The new economic policy will improve the efficiency. New economic policy will create pressures of competition which help in improving efficiency level.

3. As a result of new economic policy, export growth rate has increased, foreign direct investment has risen, and the ratio of external” debt to GDP has also fallen.

4. It is expected that fiscal deficit will come down and inflation rate will remain under control.

5. The new economic policy has helped to’ tide over the immediate balance of payment crisis.

10. Explain the LPG Model to of the government to promote economic growth?

Ans: Liberalization, Privatization and Globalization (LPG) approach has been followed by the Government of India since 1991.

Liberalisation is introducing liberal rules for setting up of industries and business. There will be no government control over industries including the PSUs. Liberalisation policy also abandoned the licensing system and allowed people to open their businesses.

Privatisation means allowing private sector to start operations in the areas earlier reserved only for public sector. The government also opted for disinvestment in some public sector companies by selling parts of their share.

Globalisation is allowing free flow of goods and services, labour technology and investment beyond the borders of the countries, fn 1991, the India government allowed foreign companies to operate in the country. Foreign companies were also allowed to invest in Indian companies.

The main aim of the approach is:

• To modernise the industrial sector through modern technology.

• Opening up of the Indian economy to counter the foreign debt burden which was a major threat for the country.

• Increasing the rate of employment and reduce poverty.

Of the economy and challenges of the moment. Some of these changes have been strikingly bold and original others more modest; but change there has been. Whatever be the criticism of Indian planning, it cannot be accused of being either static or unimaginative. By and large, the track record too has not been bad. We have managed to decisively reverse the trend of falling per capita incomes that had characterised the first 50 years of this century, and have steadily accelerated our growth rates from an average of 3.5% per year during the 30-year period from 1950 to 1980 to 5.5% during the 1980s to 6.5% during the 1990s and further to 7.6% in the 2000s. The incidence of poverty has also been brought down, although not as fast as we would have liked. Social indicators have shown significant improvement from the abysmally low levels that exist at the time of independence. 

Some Other Important Questions For Examinations

Very Short Answer Type Questions

1. What do you mean by the term economic growth?

Ans: Economic growth means rise in per capita real income.

2. What is per capita income?

Ans: Per capita income is the average income of the people of a country in a definite period. Per capita income is calculated dividing the national income by the population of country.

3. Define the term national income.

Ans: The sum total of wages, interest, rent and profit earned by the normal residents of a country during one year in an economy is called national income.

4. Why the land reform was introduced?

Ans: Land reforms was introduced to stop the exploitation of the actual tillers of the soil and pass on the ownership of land to them.

5. Mention the programmes which were included in HYVP.

Ans: The high-yielding varieties programme (HYVP) included regular and adequate irrigation, fertilisers, high yielding varieties of seeds, pesticides and insecticides.

6. What was the major objective of new industrial policy of 1991?

Ans: The major objective of new industrial policy of 1991 was to build on gains already made, correct the distortions or weaknesses that might have crept in, maintain a sustained growth in productivity, gainful employment and attain international competitiveness.

7. What measures have been taken by the Planning Commission for moderni- sation of technology?

Ans: The Planning Commission has taken measures to strengthen institutions/universi- ties and other training centres engaged in imparting training in advanced technologies in electronics, augment on the job training facilities of some of the production agencies to cater to the training of the larger electronics community.

8. Why, the overall performance of the Indian economy during the planning period looks rather dismal as per capita income rose at an extremely low rate of 2.12 per cent per annum?

Ans: This is probably because of slow growth in national income and rapid growth in population.

9. What do you mean by vicious circle of poverty?

Ans: Vicious circle of poverty means that poverty begets poverty. Vicious circle of poverty is such a circular activity whose beginning is poverty and whose end is also poverty.

10. What do you mean by inequality of income?

Ans: When there is difference between richer sections and poor sections incorne, it is called inequality of income. 

11. Why there is a need of planning?

Ans: To remove the problem of inequality of income and wealth there is a need of planning.

12. Mention the two phases of the post independence era.

Ans: (i) Phase-I-from 1950-1980 having 3.5 per cent rate of growth.

(ii) Phase-II-from 1980-2005 having 5.6 per cent rate of growth.

13. Compare the growth rate of India and China during 1990-2003.

Ans: India recorded a growth in GDP of 5.8% in 1990 – 2003, China recorded 9.1 during the same period.

14. Mention some of the employment generation programmes initiated by the Indian government.

Ans: The government has initiated various employment generation programmes such as the National Rural Employment Guarantee and Jawahar Rojgar Yojana.

15. The. extent of dependence has reduced from nearly 10% of public sector plan outlay (Sixth Plan) to only 1.7% in the recent years (Tenth Plan). Give reason.

Ans: This is because of the ongoing attempts, to step up exports and encourage production of items so far imported, within the country itself (import – substitution).