Revision: Indian Economic Development >> Development Experience (1947-90) and Economic Reforms since 1991 Economics Commerce (English Medium) Class 12 CBSE

According to Wasserman and Hultman, “International Trade consists of transaction between residents of different countries.”

Viticulture is grape cultivation which is speciality of the Mediterranean region.

It is the type of farming where farmers specialize in and grow vegetables only. The distance of truck farms from the market is governed by the distance a truck can cover overnight.

Factory farming is a modern development in the industrial regions of West Europe where livestock especially poultry and cattle rearing is done installs and pens and fed on manufactured feedstuff and carefully supervised against diseases.

Liberalisation means removing unnecessary government restrictions and controls on business activities so that trade and industries can grow freely and compete globally.

Integration of national economies and societies through cross-country flows of information, ideas, technologies, goods, services, capital, finance, and people.

India before British rule had a diversified economy with prosperous handicraft industries (cotton and silk textiles, metal and precious stone work) that enjoyed a worldwide market.​

• Colonial economic policies mainly served Britain, turning India into a supplier of raw materials and a buyer of British finished goods, which damaged indigenous industries.​
• Under colonial rule, real output grew by less than 2% per year and per capita income by only about 0.5% annually in the first half of the 20th century, showing very low economic development.

Under British rule, India remained a predominantly agrarian economy, but agriculture was stagnant and peasants were highly exploited.​

• Around 85% of the population lived in villages and depended on agriculture, yet productivity stayed low; output rose mainly by expanding cultivated area, not by better yields.​
• Land revenue systems, especially zamindari in Bengal Presidency, diverted surplus to zamindars who only collected rent and rarely invested in land or farmers, causing misery and social tension.​
• Low technology, poor irrigation, negligible fertiliser use, and lack of investment in terracing, flood control and drainage further depressed productivity.​
• Commercialisation led some farmers to shift from food crops to cash crops for British industries, but most small tenants and sharecroppers lacked resources or incentives, so their economic condition did not improve.​

• British policies deliberately deindustrialised India, destroying handicraft industries and making India mainly export raw materials and import cheap British manufactures.​
• Modern industry (cotton and jute mills, later iron and steel like TISCO, and a few sugar, cement, paper units) grew slowly, without a strong capital goods base, and the public sector was limited to railways, power, ports and communications.​

• Literacy was below 16%, with female literacy only about 7%.​
• Health facilities were scarce; infant mortality was about 218 per 1,000 births and life expectancy only around 32 years, with widespread poverty worsening these outcomes.

• Around 70–75% of workers were in agriculture, only about 10% in manufacturing and 15–20% in services, showing very little diversification.​
• Some regions (Madras Presidency, Bombay, Bengal) saw a gradual shift from agriculture to industry and services, while others (Orissa, Rajasthan, Punjab) saw rising dependence on agriculture, increasing regional imbalance.​

• Railways, ports, some roads, waterways, posts and telegraphs were built largely to move troops and export raw materials, while many rural areas still lacked all‑weather roads.​
• Railways expanded exports and commercialised agriculture, but most economic gains went to Britain; by independence, infrastructure needed major upgradation and re‑orientation toward public welfare.​

1. Independence and Economic Planning:

• On 15 August 1947, India became independent after ~200 years of British rule.
• Leaders had to decide which economic system would ensure growth with social justice.
• Jawaharlal Nehru preferred a system that combined socialism and democracy.

2. Nehru’s Vision:

• Rejected both extreme capitalism (which benefits few) and extreme socialism (like in the Soviet Union with no private property).
• Favoured a mixed economy — combining public and private sectors with government planning.
• Reflected in the Industrial Policy Resolution of 1948 and Directive Principles of the Constitution.

3. Planning Commission:

• Established in 1950 with the Prime Minister as Chairperson.
• Began the era of Five Year Plans, where India’s resources were systematically planned for national development.

• India’s Five-Year Plans aimed to balance growth, modernisation, self-reliance, and equity.
• Not every plan met its targets, but overall, they improved the economy, society, and infrastructure.
• The approach ended in 2017, now replaced by medium- and long-term visions under NITI Aayog.

• ​Govt aimed at growth with equity via land reforms + Green Revolution.
• Land reforms: removed zamindars, gave land to tillers; land ceiling planned but weakly implemented, real success mainly in Kerala, West Bengal.
• Green Revolution: HYV seeds + fertilisers + irrigation → big rise in wheat/rice, richer states first, later spread → self-sufficiency in food grains and more marketed surplus.
• Subsidies (water, power, fertilisers): helped small farmers use new tech but caused waste, environmental damage, and burden on govt, so there is debate on reforming them.
• 1950–1990 problem: agri share in GDP fell, but most people still in agriculture because industry and services did not absorb extra workers → seen as policy failure.

• India needed industrialisation after independence for stable jobs and modernisation.
• Government led industry because private sector was weak and policy was socialist.
• IPR 1956: key industries with government; others with private but under control.
• Licensing to start/expand industries and promote backward regions.
• Small-scale industries: labour-intensive, help rural jobs; given protection and concessions.

• India followed import substitution: produce in India instead of importing, using tariffs and quotas to protect domestic industry.
• Logic: infant industries in a poor country need protection and foreign exchange must be saved.
• Results: industry’s GDP share rose, structure diversified, public and small-scale sectors expanded.
• Problems: loss-making public enterprises, heavy license–permit raj, and overprotection led to low quality, high prices, weak exports.
• Outcome: need for change led to 1991 economic reforms (LPG).

• Since independence, India followed a mixed economy model, trying to combine the benefits of capitalism and socialism.
• Critics say this led to too many controls and regulations, which hampered growth.
• Supporters say India achieved higher savings, a diversified industrial base, and rising agricultural output with food security.
• In 1991, India faced a serious economic crisis:
  External debt repayment problem.
  Foreign exchange reserves fell to less than two weeks of imports.
  Prices of essential goods were rising.
• This crisis forced the government to adopt a new set of policies in 1991, changing the direction of development strategy (towards economic reforms).

• 1980s: Govt spent much more than it earned, borrowed heavily, PSUs gave low returns, taxes and exports were insufficient.
• Imports rose, exports lagged, foreign exchange reserves fell to less than 2 weeks of imports, and India could not repay external debt or interest.
• India took about $7 billion loan from World Bank and IMF, who asked for opening up the economy and reducing controls.
• India accepted and launched New Economic Policy 1991 with Liberalisation, Privatisation, Globalisation (LPG), including:
  Stabilisation (short term): fix balance of payments, control inflation.
  Structural reforms (long term): increase efficiency and international competitiveness.

• Liberalisation helps markets run freely with less government control.
• Boosts investment, competition, and technology use.
• Protects investor interests and makes trade easier.
• Liberalisation (from 1991) reduced government controls and licensing and opened more sectors to private competition.
• Industrial licensing removed for most industries; only a few areas reserved for public sector and small‑scale reservations reduced.
• Financial sector: private and foreign banks allowed; FIIs (foreign investors) permitted in markets; RBI became more of a facilitator.
• Tax reforms: income and corporate tax rates cut, procedures simplified; GST introduced to create one national market and reduce evasion.
• Foreign exchange: rupee devalued in 1991; exchange rate mostly determined by market demand and supply.
• Trade & investment: import licensing and quantitative restrictions removed, tariffs reduced, export duties scrapped to make Indian industry more competitive globally.

• Privatisation refers to the transfer of a business from government to private ownership.
• It brings efficiency, accountability, better service, and profit focus.
• Indian examples include Air India, Maruti Suzuki, and Hindustan Zinc.
• Methods include disinvestment, outright sale, and private management contracts.
• Privatisation = government reduces or gives up ownership/management of public sector enterprises.
• Disinvestment = sale of government shares in PSUs to improve discipline, modernisation and efficiency using private capital and management.
• Aims: attract FDI and make PSUs more efficient by giving autonomy.
• Efficient PSUs get Maharatna / Navratna / Miniratna status for greater autonomy and global expansion.

• Globalisation means integrating a country’s economy with the world economy and treating the world as one single market.
• It involves free flow of goods, services, capital, technology, information, and people across national borders.
• Globalisation goes beyond trade and includes worldwide coordination in production, marketing, finance, and human resources.
• It increases economic integration and interdependence among countries.
• A global company views the entire world as one market and does not differentiate between domestic and foreign markets.
• Globalisation promotes free-market competition and benefits businesses and consumers, but also increases dependence among nations.
• Outsourcing is a result of globalisation, where foreign companies hire Indian firms for services like IT and BPO due to low cost and skilled labour.

• WTO (1995) replaced GATT (1948) to create a rule‑based global trading system and reduce arbitrary trade barriers.
• Aims: expand trade in goods and services, ensure efficient resource use, and protect the environment.
• Promotes removal of tariffs and non‑tariff barriers and more market access for member countries.
• India has reduced tariffs and removed quantitative restrictions as per its commitments and argues for developing countries’ interests.
• Criticism: benefits mainly developed nations, and developing countries feel pressured to open markets while rich countries retain protections, especially in agriculture.

• The 1991 reforms opened India’s economy through liberalization, privatization, and globalization. GDP growth accelerated, mainly driven by the service sector, while agriculture and industry lagged.
• FDI and foreign exchange reserves rose sharply, and India became a key exporter of IT and pharmaceuticals. Yet, growth created few jobs, and benefits were uneven. Public investment in agriculture and social sectors declined, and inequality widened.
• Overall, reforms made India more competitive but also less inclusive, highlighting the need for balanced, job-oriented growth.