Economics · Ch 12 — Indian Economy 1950-1990
Introduction
Introduction
When India gained independence on 15 August 1947, its leaders faced a foundational choice: which kind of economic system would best serve a newly free nation. The overriding aim was a system that promoted the welfare of all citizens, not merely a privileged few.
There are different types of economic systems, and among them, socialism appealed to Jawaharlal Nehru the most (see Box 2.1).
Box 2.1: Types of Economic Systems
Every economy must answer three basic questions: what goods and services should be produced, how should they be produced -- using more human labour or more capital (machines) -- and how should the output be distributed among people.
- Capitalism (the market economy) leaves the answers to the market forces of supply and demand. Only goods that can be sold profitably, at home or abroad, get produced, and the choice between labour and machines depends on which is cheaper. Goods are distributed on the basis of purchasing power -- the ability to pay -- rather than on the basis of need, so something badly needed, like low-cost housing for the poor, may never be produced because the poor cannot back their need with money.
- Socialism answers all three questions the opposite way: the government decides what to produce, in line with the needs of society, and also decides how goods are produced and distributed. In principle, distribution is based on need rather than the ability to pay -- a socialist state, for instance, provides free health care to all. Strictly, there is no private property, since everything is owned by the state. Cuba and China are examples largely governed by socialist principles.
- Most economies in practice are mixed economies, in which the government and the market together answer the three questions -- the market supplies whatever it can produce well, while the government provides the essential goods and services the market fails to deliver.
The choice India made
Socialism appealed most to Nehru, but not the extreme Soviet version, in which the state owned every factory and farm and private property did not exist. In a democracy like India, the government simply could not seize and reassign citizens' land and property the way the Soviet Union had. Nehru and other thinkers of the new nation therefore looked for an alternative to the extreme forms of both capitalism and socialism. Broadly sympathetic to the socialist outlook, they settled on a system meant to combine the best features of socialism without its drawbacks: India would be a socialist-leaning society with a strong public sector, yet one that also retained private property and democracy. The government would plan the economy while encouraging the private sector to take part in that effort.
This vision was reflected in the Industrial Policy Resolution of 1948 and in the Directive Principles of the Indian Constitution. In 1950 the Planning Commission was established, with the Prime Minister as its Chairperson, and the era of five year plans had begun -- its central aim being, in the words of the First Five Year Plan, to start a process of development that would raise living standards and open new opportunities for a richer and more varied life.
In working through this chapter, you should come away knowing the actual goals India's five year plans set for themselves, how development policy played out sector by sector -- chiefly in agriculture and industry -- between 1950 and 1990, and equipped to weigh, for yourself, the merits and the limitations of running an economy this tightly regulated.
Work These Out
- Prepare a chart on the different types of economic systems prevalent in the world. List out the countries as capitalist, socialist or mixed economy.
- Plan a class trip to an agriculture farm. Divide the class into seven groups, with each group planning a specific goal -- for example, the purpose of the visit, money, expenditure involved, time taken, resources, people accompanying the group and who need to be contacted, possible places of visit, possible questions to be asked, etc. Now, with the help of your teacher, compile these specific goals and compare them with the long-term goals of a successful visit to an agricultural farm.