Define economic planning.

CHAPTER 2 - INDIAN Answer:

Economic planning is the process through which economic
ECONOMY 1950 – 1990 decisions are made by the government for economic growth
and development.

Question 1. Question 11.

List the different types of economic systems. Who is regarded as the architect of Indian Planning?
Answer: Answer:
The three main types of economic systems are: Prof. P.C. Mahalanobis is regarded as the architect of Indian
(i) Capitalist economy Planning.
(ii) Socialist economy
(iii) Mixed economy Question 12.
Who established the Indian Statistical Institute?
Question 2. Answer:
What is capitalism? Prof. P.C. Mahalanobis established the Indian Statistical
Answer: Institute.
Capitalism refers to the economic system in which resources
are owned privately and the main d objective behind Question 13.
economic activities is profit-making. What is the duration of Twelth Five Year Plan?
Answer:
Question 3. The duration of Twelth Five Year Plan is from I st April,
What is mixed economy? 2012 to 31 st March, 2017.
Answer:
Mixed economy is an economic system in which production, Question 14.
distribution and consumption decisions are left to the free What do you mean by agriculture?
play of the market forces. However, a large part of economic Answer:
activities are regulated by the government to maximise the Agriculture includes growing crops, fruits, vegetables,
social welfare along with individual welfare or self-interest. flowers and rearing of livestock.

Question 4. Question 15.

Define socialism. What is the contribution of agriculture sector to the
Answer: country’s GDP in the year 2016-17?
Socialism is that economic system in which resources are Answer:
owned by the government and the main objective behind Agriculture sector contributes 17.3 per cent to the GDP.
economic activities i. social welfare.
Question 16.
Question 5. What percentage of population was engaged in Agriculture
What type of economic system does India have? in 1990?
Answer: Answer:
India has mixed type of economic system. 48.9 percent of population was engaged in Agriculture in
1990.
Question 6.
Name the plan formulating organisation in India. Question 17.
Answer: Write any two features of agriculture.
Planning Commission is the India’s plan formulating Answer:
organisation. (i) Main source of employment
(ii) Supplier of raw materials to industrial sector
Question 7.
When was the Planning Commission constituted? Question 18.
Answer: Write two problems associated with agriculture.
Planning Commission was constituted in 1950. Answer:
(i) Problem of marketing
Question 8. (ii) Insufficient irrigation facilities
Who is the Chairman of Planning Commission?
Answer: Question 19.
The Prime Minister of India is the Chairman of Planning Define land reforms.
Commission. Answer:
Land reforms are the measures to bring about changes in the
Question 9. ownership of land holdings to encourage equity.
Which institution has replaced the Planning Commission?
Answer: Question 20.
NITI Aayog, established in 2015, has replaced the Planning What is meant by land ceiling?
Commission, Answer:
Land ceiling means fixing the maximum size of the land,
Question 10. which could be owned by an individual.

1
 Answer:
Question 21. Quotas specify the maximum quantity of goods, which can
Define green revolution. be imported.
Answer:
Green revolution refers to the large increase in production of Question 32.
foodgrains resulting from the use of HYV seeds, especially List any three major imports of India.
in wheat and rice. Answer:
Major imports of India include:
Question 22. (i) Petroleum
What is an industrial policy? (ii) Engineering goods
Answer: (iii) Chemical fertilisers
An industrial policy is related to the functions, principles
and laws, which determine the state of industrial Question 33.
development by controlling the industrial units. List any five major exports of India.
Answer:
Question 23. Major exports of India include:
What do you mean by Small Scale Industries? (i) Tea
Answer: (ii) Coffee
Small Scale Industry (SSI) is defined on the basis of (iii) Jute
maximum investment allowed on the assets of a unit. This (iv) Cotton yarn
investment limit changes over a period of time. (v) Readymade garments

Question 24. Question 34.

How many industries were reserved for public sector under What is the share of India in world exports?
Industrial Policy Resolution, 1956? Answer:
Answer: The share of India in world exports is 0.8 percent.
Under Industrial Policy Resolution, 1956, 17 industries were
reserved for public sector. Indian Economy 1950-1990 Important Extra Questions
Short Answer Type
Question 25. Question 1.
When was New Industrial Policy applied? Define capitalistic economy. Why was Pt. Jawaharlal Nehru
Answer: not in the favour of capitalism?
New Industrial Policy was applied in 1991. Answer:
In capitalistic economy, resources are owned privately and
Question 26. the main objective behind economic activities is profit-
What is industrial licensing? making. Problems of the economy are solved through free
Answer: price mechanism, independent of government intervention.
Industrial licensing is a written permission of the Under this type of economy, goods are produced and
government to a particular firm for the production of distributed among the people not on the basis of what they
particular product. need but on the basis of what the people can afford or are
willing to purchase.
Question 27.
When was licensing started in India? The poor people are usually ignored under such a system as
Answer: they do not have the purchasing power to back their
In India, licensing was started in 1952. demand. As a result, such goods are not produced.
According to Pt. Jawaharlal Nehru, a vast majority of people
Question 28. would not get the chance to improve their quality of life
What is foreign trade? under capitalism and hence, he was not in the favour of such
Answer: a system.
Foreign Trade involves inter-country flow of goods, services
and financial resources. Question 2.
Define socialism.Why did our leaders not follow the path of
Question 29. socialism at the time of independence?
What is import substitution? Answer:
Answer: Socialism is that economic system in which resources are
Import substitution is the policy which aims to replace or owned by the government and the main objective behind
substitute imported goods by domestically produced goods. economic activities is social welfare. In this economy, the
government decides what goods are to be produced in
Question 30. accordance with the needs of the country and distribution is
Define tariffs. based on what the people need. With the collapse of the
Answer: Soviet System in the last decade of the 20th century, our
Tariffs are a tax on imported goods, which discourage the leaders preferred not to follow*the clear path of socialism.
use of imported goods and make them more expensive.
Question 3.
Question 31. Explain the concept of mixed economy.
What are quotas? Answer:

2
Mixed economy is an economic system in which production, upon season. Indian farmers find work for only six months
distribution and consumption decisions are left to the free period in a year and for remaining six months, they remain
play of the market forces. However, a large part of economic unemployed.
activities are regulated by the government to maximise the
social welfare along with individual welfare or self-interest. Question 7.
It is a combination of capitalism and socialism. What were the objectives of land reforms in India?
Answer:
The government and the market together answer the three The following were the objectives of land reforms
basic questions of, what to produce, how to produce and for
whom to produce in the mixed economy. In this type of To achieve egalitarian social structure by restructuring
economy, private sector or market will provide those goods agrarian relations
and services, which it can produce well and the government To eliminate the exploitation in .land relations
sector will provide those goods and senices, which are To provide the ownership of land to the tiller
essential for the welfare of the society as a whole. To improve the socio-economic-conditions of the rural poor
by widening their land base
Question 4. To increase agricultural productivity and production
Discuss the outcomes of India’s Five Year Plans over the To facilitate land-based development of the rural poor
years. To promote the agriculture sector
Answer: Question 8.
The first seven Five-Year Plans, covering the period 1951 – Discuss the phases of‘Green Revolution’ in India.
1990, attempted to attain the four main goals, i.e. growth, Answer:
equity, modernisation and self-sufficiency. Of these four The phases of the ‘Green Revolution’ in India are discussed
main goals, these plans have succeeded mainly in achieving below:
self-sufficiency. However, healthy growth rates, (i) The First Phase: In the first phase of green revolution, i.e.
modernisation and equity have not been fully achieved. from mid I960’s to I970’s, the use of High Yielding Variety
(HYV) seeds was restricted to the more prosperous states
Growth rates are still not sufficient to meet the development like Punjab, Andhra Pradesh and Tamil Nadu. Thus, the use
criteria for the country. Modern facilities and technology are of HYV seeds primarily benefitted wheat-growing regions.
available only to a limited section of the society. Despite
various efforts, plans have failed to reduce the gap between (ii) The Second Phase: The period of the second phase of
the rich and the poor. The main reason for failure in green revolution was from mid I970’s to 1980’s. In this
achieving the planned targets is the rapidly increasing phase, the HYV technology spread to a larger number of
population and the existence of corruption in the whole states and also benefitted more variety of crops. The spread
system of the country. of green revolution enabled India to self-reliant in
foodgrains.
Question 5.
What is economic planning? Question 9.
Answer: Why are subsidies necessary?
Economic planning is the process through which economic Answer:
decisions are made by the government for economic growth Subsidies are necessary due to the following reasons:
and development. In India, the duration of plans is five (i) Adoption of the New HYV Technology: It is generally
years. This form of plans was adopted from the former agreed that subsidies were necessary to provide incentive for
Soviet Union. In economic planning, a central authority adoption of the new HYV technology by farmers, in general
defines a set of targets to be achieved related to growth and and small farmers, in particular.
development of the nation, keeping in view.
(ii) Coverage of Risk: Subsidies were necessary to cover the
I the resources available to the country, within a specified risk associated with weather conditions. Also, any new
period of time. According to Planning Commission, technology will be looked upon as a risky technology by
“Economic Planning means utilisation of country’s farmers. Therefore, subsidies are needed to encourage
resources I into different activities in accordance with farmers.
national priorities.”
Question 10.
Question 6. Give the division of the economy into public and private
Explain any two features of Indian agriculture. sector industries.
Answer: Answer:
Features of Indian agriculture are: On the eve of independence, the activities of the public
(i) Disguised Unemployment: Disguised unemployment is a sector were restricted to a limited field. After independence,
situation in which more than required workers are absorbed. however, the area of activities of the public sector expanded
For example, in two hectare of land 3 workers can cultivate at a very rapid speed. Two industrial resolutions were issued
efficiently but there are 6 workers engaged on that land. during 1948 and 1956 to assure private sector that its
These 3 extra workers are called disguisedly unemployed. If activities will not be unduly curbed.
these 3 workers are removed from the work, the production
will not be affected. Category I: Industries exclusively owned by the state
Category II: Industries jointly owned and controlled by
(ii) Seasonal Occupation: Indian agriculture is a seasonal private sector and the state
occupation. In other words, its productivity is dependent Category III: Industries in the private sector

3
Thus, the commanding heights of the economy were Import is that process in which a country purchases goods
controlled by the public sector and the policies of the private and services from the other country. For example, purchase
sector were to compliment the public sector policies. Private of goods by India from America will be called as an import
sector was kept under government control through the of India.
system of licenses.
On the other hand, export is that process in which a country
Question 11. sells goods and services to other countries. For example,
List the problems faced by small scale industries in India. India sells goods to America will be called as an export of
Answer: India.
The problems faced by small scale industries in India are:
(i) Lack of raw material and power Question 16.
(ii) Limited financial assistance Give a brief account of India’s direction of trade.
(iii) Old method of production and hence, low productivity Answer:
(iv) High production cost The direction of trade means the countries with which India
(v) Lack of organisational ability exchanges its goods and services. After independence,
(vi) Heavy taxation significant changes took place in the direction of India’s
(vii) Less educated entrepreneurs foreign trade. The share of British Empire (U.K. and her
colonies), which was as high as nearly half of our total
Question 12. foreign trade before Second World War, has declined
Give some suggestions to solve the problems of small scale significantly. Share of England alone was about one-third in
industries. our exports and imports but it is now much smaller. Since
Answer: 1950, America has almost maintained its share in our
The problems of small scale industries can be solved by exports.
adopting the following measures:
Even now America is the most important customer of Indian
Small scale industries should be shielded from the power of goods. Russia’s share increased extraordinarily in the
large firms. beginning. In 1950-51 this country had no trade relation
Criterion for the reservation of the products in these with India, but in 1990-91 its share in Indian exports
industries should be based on the ability of these units to increased to 16.1 percent. After the split of the Soviet Union
manufacture the goods. its share sharply came down. India has mainly trade
These industries should be given concession such as lower relations with European Union, North America, Australia,
excise duty, bank loans at lower interest rates, etc. New Zealand, Japan and OPEC countries like Saudi Arabia,
Raw material and power should be provided at concessional Iraq, Iran, etc.
rates to these industries.
SSIs should be encouraged to use new techniques to Question 17.
improve quality of the products and reduce cost of Differentiate between tariff and quota.
production. Answer:
Education and training should be provided to the Tariffs are the tax paid on imported items. They curb the use
entrepreneurs. of imported goods by making them too expensive. Quota, on
Question 13. the other hand, is the specific quantity of commodities that
Explain briefly the concept of industrial licensing. can be imported from other countries.
Answer:
As per the Industrial Act of 1951, the Government of India Question 18.
has adopted the licensing policy to control the industries. Discuss the need for import substitution.
Licensing is a written permission obtained by the enterprise Answer:
from the government to produce a particular product. Other India adopted ‘inward-looking trade strategy’ or Import
things- included in the licensing are: Substitution’ during the first seven Five Year Plan Period
(i) Name of the produced goods (1951 -90). The main objective of the policy was to restore
(ii) Limit of production positive balance of payments by replacing or substituting
(iii) Place of the establishment of industry imports with domestic production.
(iv) Expansion of enterprise
This also enabled the government to safeguard the interest
Question 14. of domestic industries from foreign competition and equip
What are the objectives of licensing? them well until they learn to compete with the global giants.
Answer: Moreover, government imposed tariffs and quotas in order
Main objectives of licensing in India have been: to control imports.
(i) Development and control of industrial investment and
production as per the planning objectives Indian Economy 1950-1990 Important Extra Questions
(ii) Centralisation of industry Long Answer Type
(iii) Expansion of Small Scale Industry Question 1.
(iv) Balanced regional development Define economic system. What are characteristics of
different types of economic systems?
Question 15. Answer:
What is the meaning of import and export? An economic system comprises of production, distribution
Answer: and consumption of goods and services.
Characteristics of a Capitalist Economy

4
(i) Profit is the main motive of carrying out various disguisedly unemployed people remains zero. Farmers
economic activities. cannot gain surplus from their fields due to disguised
(ii) Factors of production are privately owned. unemployment
(iii) Consumers are free to choose whatever they can afford.
(iv) Prices of goods and services are determined by market (vi) Lack of Irrigation Facilities: Of the total cultivated area
forces of demand and supply with minimum intervention by in the country, a little less than 40 per cent is irrigated even
the government. today. In the remaining areas, farming is largely dependent
on rainfall.
Characteristics of a Socialist Economy
(i) The government is the only owner of the resources and is Question 3.
solely engaged in the production and distribution of goods Suggest some measures to remove the problems of
and services. agriculture in India.
(ii) The prices of goods and services are determined by the Answer:
government. The following measures can be adopted to improve the state
(iii) Welfare of the society is the main objective of carrying of Indian agriculture and farm productivity:
out various economic activities. (i) New Techniques of Production: New agricultural
(iv) The government employs people and pays their salaries. technology with emphasis on High Yielding Varieties and
improved inputs must be adopted on a much wider scale.
Characteristics of a Mixed Economy
(i) A mixed economy is a combination of capitalism and However, we do not have to adopt capital intensive
socialism. techniques of the west, rather our own research institutions
(ii) The involvement of government in production and and experts should invent suitable techniques keeping in
distribution activities is aimed at the welfare of the public. view the differences in topography, climate, soil and other
(iii) The involvement of private firms in production and socio-economic conditions of different regions.
distribution activities is aimed profit maximisation.
(iv) The prices of goods and services produced by (ii) Land Reforms: Land reforms providing a land system
individuals are decided by the market forces while the prices conducive for agricultural development should not only be
of goods and services produced by the government are enacted but also be faithfully implemented. The official land
decided by the government. tenure system must aim at ‘land to the tiller’ as self-
cultivation can induce maximum improvement in farming.
Question 2.
Discuss the problems related to agriculture in India. (iii) Creation of Economic Holdings: Most states have
Answer: already passed acts relating to consolidation of holdings in
India is a developing country. Agriculture plays a vital role order to create economic holdings through removing the
in its development. Most of the population is engaged in problem caused by sub-division and fragmentation of
agriculture and allied activities. But the agricultural sector is holdings. However, the progress has not been satisfactory in
not fully developed. There are many problems which are many states.
responsible for the backwardness of Indian agriculture.
These problems are as follows: Even in states like Punjab, where the entire task of
consolidation was completed years ago, new sub-division
(i) Lack of Proper Marketing Channels: Marketing system of and fragmentation have taken place. Therefore, fresh
agricultural products is not good in India. As a result of it, measures like change in law of inheritance are required to
farmers could not get sound prices of their crops. Farmers overcome the difficulties caused by sub-division and
sell their products in villages at lower prices as a result of it fragmentation.
they remain poor. Markets are far from the villages and
transportation facilities are not up to the mark (iv) Crop Insurance: Crop insurance is needed to provide
protection against natural calamities like floods, drought,
(ii) Lack of Credit Facilities: Credit problem is one of the locusts, thunderstorms, etc. Some states are already taking
main problems of Indian farmers. They find it easy to steps in this direction. For example, Haryana Government is
borrow from local money lenders at exorbitant rate of thinking of setting up a fund for this purpose.
interest as taking loan from banks and co-operative societies
involve long and complicated procedures. This tendency of (v) Cooperative Farming and Other Agricultural
loan taking makes them fall in debt traps. Cooperatives: Small and marginal farmers can adopt
scientific large scale commercial farming only through
(iii) Rural Indebtedness: Indebtedness is also the main cooperative farming.
problem of Indian agriculture. Indian farmer always remains
in debt. They have to take loans for cultivation and even for This will also solve the problem of uneconomic size of
the sale of their products. In the words of M.L. Darling, farms and act as a very powerful measure to combat the
“Indian peasant born in debt, lives in debt and dies in debt.” problem of sub-division and fragmentation of holdings.
Cooperative societies can also enable the farmers to
(iv) Illiteracy: Large number of Indian farmers is illiterate. purchase modern inputs at cheap rate and store, process and
Hence, they are unable to use the mechanised system of market their produce advantageously.
agriculture. As a result, their productivity remains low.
(vi) Extension of Irrigation Facilities: Expansion of
(v) Disguised Unemployment: Disguised unemployment irrigation facilities can contribute significantly towards
exists on a large scale in agriculture. The productivity of improving the agriculture. Along with starting more major

5
and medium irrigation projects to explicit our vast irrigation (vi) Cooperating Farming: Cooperating farming has been
and hyde! power potential, minor irrigation facilities should advocated to solve the problems of subdivision of holdings.
also be expanded on a much larger scale. Under this system, farmers having very small holdings
joined their hand and pooled their lands for the purpose of
(vii) Agricultural Inputs: Provision of improved inputs like cultivation, in this way, they can reap profits of large scale
certified seeds, fertilisers and pesticides, etc. in adequate farming.
quantities and at fair prices is also essential for increasing
farm productivity. Question 5.
Discuss the impact of Green Revolution.
(viii) Improved Implements: Large scale mechanisation of Answer:
Indian agriculture is neither possible nor desirable under Following is the impact of Green Revolution.
existing conditions but use of improved implements and (i) Increase in Production: After introduction of Green
machines like improved ploughs, drills, chaff cutters, Revolution, the production of many crops has increased
threshers, small tractors and pumping sets can certainly many folds. Among foodgrains, crops of wheat and rice
increase the efficiency of agricultural operations. draw maximum benefit from Green Revolution.

Question 4. (ii) Control over Imports: After independence, India was

Explain the policies which were adopted to promote equity dependant on other countries for its food grains
in the agricultural sector, requirements. However, India has gained self-sufficiency
Answer: over the years, especially after the advent of Green
The following policies can be adopted to promote equity in Revolution.
agricultural sector:
(i) Abolition of Intermediaries: Intermediary tenures like (iii) Overflowing Buffer Stocks: The surplus production of
Zamindarsjagirdars, etc., which prevailed over 40 per cent foodgrains enabled government to buy and build buffer
of the country were abolished and the ownership of land was stock that could be used in times of shortage.
given to the i actual tillers or tenants. This ownership of land
gives incentives to invest in making improvements to the (iv) Increased Employment: Green Revolution created
tillers. diverse job opportunities as multiple cropping increased the
need for hired workers.
(ii) Tenancy Reforms: It envisages provision of security to
tillers or tenants and conferring ownership rights on them. (v) Link between Agriculture and Industry: The linkage
Under tenancy reforms, following three types of measures between agriculture and industry has strengthened with
were adopted: increased demand for inputs produced and supplied by
industries.
Regulation of Rent: Before independence, the rent charged
by zamindars from the tenants was exorbitant. Legislations Question 6.
were enacted after independence to regulate the limits of Why is it important to promote small scale industries?
rents and reduce the burden on tenants. Explain.
Answer:
Security of Tenure: Security of tenure to tenants had been It is important to promote small scale industries due to the
given in all states through tenancy reforms. For the security following reasons:
of tenure, legislations have been passed in most of the states. (i) Greater Employment Opportunities: Small scale
industries are more labour intensive. With less earmarked
Ownership Rights for Tenants: Ownership rights for tenants investment of capital, more persons can be employed in
have been conferred in areas of Andhra Pradesh, Bihar, these industries.
West Bengal, Punjab, Haryana and Tamil Nadu.
(ii) Equity in the Distribution of Income: Due to small scale
(iii) Land Ceiling: It was another policy to promote equity in of production, there remains equity in the distribution of
the agricultural sector. The purpose of land ceiling is to income. There is no concentration of capital in a few hands
reduce the concentration of land ownership in a few hands. but it is distributed among all the people engaged in
Land ceiling laws were first enacted in the 1950s and the production. The profit of these industries is shared by many
1960s. It was further revised in 1972. people.

(iv) Updating and Maintenance of Land Records: For the (iii) Decentralisation: Small scale industries are situated in
promotion of equity in the agricultural sector, a drive was villages and towns. They reduce the regional imbalances. As
taken up in 1985-86 for updating land records. Potto a result, benefits of these industries go to the masses.
passbooks with legal status are to be issued to land owners
and tenants. Thus, without updating and maintenance of land (iv) Less Pressure on Agriculture: Small scale industries
records, land reforms cannot be properly implemented. have great importance in India. Most of its population is
engaged in agricultural activities. Every year about 30 lakhs
(v) Consolidation of Holdings: This measure is designed to of people increase as dependents on agriculture in India.
solve the problem of fragmentation of holdings. The method Therefore, it is necessary to reduce the increasing pressure
adopted is to grant one consolidated holding to the farmer on agricultural land. It can be achieved only by establishing
equal to the total of the land in different scattered plots more small scale industries.
under his possession.

6
(v) Less Capital Requirements: Small scale industries need Every country is enabled to sell its products in those
less capital as compared to large scale industries. In country markets, where it gets best prices for them and to purchase
like India where capital is scarce, small scale industries can raw materials and other goods in the cheapest markets.
be established with less amount of capital. Thus, in the foreign trade process, a country enjoys full
freedom both as the seller of its exports and the purchaser of
(vi) Immediate Increase in Production: The gestation period its imports.
of small scale industry is short. As a result, production starts
immediately after the establishment of these industries, In (ii) Import of Required Goods: Foreign trade enables the
India, 40 per cent of the industrial production is produced in underdeveloped countries to import capital goods and
small scale industries. essential raw materials, which are required for their
economic development.
(vii) Production of Artistic Goods: More manual work is
done in these industries. As a result, production of artistic (iii) Earn Foreign Exchange: Foreign trade also enables the
goods is only possible in small scale industries. countries to procure foreign exchange.

(viii) Importance in Exports: Small scale industries have (iv) Control Prices: Import and export often reduce the
great importance in India’s exports. In 1990’s, the violent fluctuations of prices of those commodities, which
contribution of these industries in total exports was 35 per are scarce or available in surplus.
cent.
(v) Increase in Country’s Consumption Capacities: Foreign
(ix) Industrial Peace: Industrial peace is the feature of these trade enlarges a country’s consumption capacities, provides
industries because there is less possibilities of labour access to scarce resources and exposure to the worldwide
exploitation. market for products, which is needed for growth.

Question 7. (vi) An Engine of Economic Growth: Foreign trade is

Explain the features of industrial licensing policy. treated as engine of economic growth as it plays an
Answer: important role in the economic development of the country.
Following are the features of industrial licensing policy:
(i) Compulsory Licensing: Since 1951, obtaining license is Through foreign trade, a country not only earns foreign
compulsory for those industries which had fixed capital up exchange to purchase materials needed for development but
to ₹ 10 lakhs. But this fixed capital limit increased to ₹ I also leads to fuller utilisation of natural resources, increase
crore in 1970. This limit further increased to ₹ 3 crore in in employment opportunities, development of means of
1978, to ₹ 5 crore in 1983, ₹ 15 crore in 1985 and ? 25 transportation and communication; expansion of tertiary
crore in 1990. According to New Industrial Policy of 1991, services like banking, finance and insurance; and increase
licensing is compulsory only for those 14 industries whose government income in the form of various taxes. Thus,
production is related to defence, environment and dangerous foreign trade, is an engine of economic growth.
chemicals. Number of these 14 industries further decreased
to 2 in 2011— 12. Question 9.
Discuss the changes in India’s value and volume of trade
(ii) Expansion of Scale of Production: According to over the period.
Industrial Licensing Policy of 1970, licensing was Answer:
compulsory for the expansion of industries under MRTP Value of trade means the money value of the imported and
Act. Since 1991, licensing is not compulsory for the exported goods. On the other hand, the volume of trade
expansion of production capacity. means the physical quantity of the imports and exports. It is
not possible to arrive at any total of the goods and services
(iii) Industries for Public Sector: From 1956 to 1991, 17 because different goods have different units of
industries were reserved for the public sector. These 17 measurement.Thus, the total of goods and services is
industries could be established in public sector. For the expressed in money term. Value of foreign trade of India
establishment of these industries in private sector, one had to can be understood from the following table:
take license from the government. Now, this number has
been decreased to 2 since 2011 -12. Value of India’s Foreign Trade (₹ Crore)

After 1970, policy of licensing has been continuously Year Imports Exports Balance of Trade
simplified and liberalised. As a result entrepreneurs are 1950-51 581 606 + 25
permitted to expand or establish industries according to their 1960-61 1,121 642 -479
will and they have favourable effects on industrialisation. 1970-71 1,634 1,535 -99
1980-81 12,549 6,711 – 5,838
Question 8. 1990-91 20,083 32,553 – 7,516
Discuss the significance of foreign trade. Source: Economic Survey 2013-14
Answer:
The significance of foreign trade can be examined with the From 1950-51 to 1960-61 imports grew rapidly mainly due
help of following points: to heavy imports of machinery, raw material and other items
(i) Optimum Use ofWorld’s Scarce Resources: It is demanded by economic growth. Major changes in volume or
compatible with the application of the principle of maximum value of foreign trade are clear from the above table.
advantage for every country.

7
Both imports and exports have increased in volume Question 2.
tremendously after independence. Increase in exports has ‘Full employment does not mean a situation of zero
been smaller than the increase in imports, which led to a unemployment.’ Justify
persistent deficit in the balance of trade. Answer:
In every economy, unemployment always prevails in some
Imports increased due to increased needs, limited domestic form or the other due to the structural changes. One cannot
production, oil crisis, fast growing population, natural say that full employment is a situation of unemployment.
calamities and liberalisations, etc. Due to some structural changes like change in technology,
the employees who are unaware of the technology remain
Inspite of considerable increase in foreign trade in India, our unemployed while those who upgrade themselves and adapt
share in world trade has declined. In 1950-51, our share in to the new technology get employment.
total imports of the world was 18 percent and in world
export was 2 percent. Recently, India’s share in world Question 3.
imports has come down to 0.79 percent and that of exports Give the reason for poor performance of the agricultural
has come down to 1.7 percent, which shows that the growth sector in the Soviet Union.
of foreign trade in India is much slower than the growth in Answer:
the rest of the world. Farmers in the former Soviet Union did not own any land.
They neither enjoyed the profits nor suffered the losses.
Question 10. Since farmers lack ownership, there are no incentives for
What the main features of foreign trade in India? Explain them to be efficient. This is the reason for the poor
Answer: performance of the agricultural sector in the Soviet Union
The main features of foreign trade in India are as follows: despite the availability of vast areas of highly fertile land.
(i) Share in National Income: The share of foreign trade in
national income of India is increasing. This share was only
12 percent in 1950-51 which presently increased to about 17
percent in 1990-91.

(ii) Dependence on a Few Ports: India’s foreign trade is

dependent mainly upon Mumbai, and Chennai ports. As a
result, the pressure of trade has been increased on these
ports, Government of India is developing some other ports
for trade.

(iii) Changing Composition of Exports: After independence,

the composition of India’s exports; has been changed. In the
beginning of planning era, India was the main exporter of
agricultural products like, tea. cotton, jute, cashew, oil and
leather, etc. However, at present, India is exporting
manufactured goods like readymade garments, machinery,
tea, electrical goods, etc.

(iv) Changing Composition of Imports: After independence,

the composition of India’s imports has als6. been changed.
At the time of independence, India was the main importer of
cloth, medicines, vehicles, iron and steel, electrical goods,
etc. But now India is importing petroleum, machinery,
fertilisers, raw materials, steel, oil, etc.

(v) Balance of Trade: At the time of independence, India’s

trade was almost favourable. But after independence, India’s
foreign trade became unfavourable. Imports have been
increasing much faster than our exports.

Indian Economy 1950-1990 Important Extra Questions

HOTS
Question 1.
Mention two ways of increasing the flow of goods and
services.
Answer:
The two ways in which flow of goods and services can be
increased are:
(i) Increase the production capacity, which gives rise to the
stock of productivity of resources.
(ii) Adopt innovative technology, which enhances the
productivity of output per unit of input.