Useful for STD-12 CBSE(ECONOMICS) STUDENTS and Other Economics Students

1. INDIAN ECONOMY 1950-1990
&
LIBERALISATION,PRIVATISATION
AND GLOBALISATION(LPG POLICY)
‘DEMONETISATION’ AND ‘GST’
BY ASIT KUMAR PATTANAIK
LECTURER IN ECONOMICS

2. Five Years Pans in India: Goals and
Achievements:
Long Period Goals
Short Period Goals
Features of Economic Policy pursued under
Planning till 1991
Success (Achievement) of Planning
Failure of Planning

3. Long Period Goals
GDP growth
Full employment
Equitable distribution equity
Modernisation.
Self-sufficiency
Short Period Goals

4. GOALS OF THE FIVE YEAR
PLANS:
The goals of the five-year plans are: growth, modernisation,
self-reliance and equity.
Growth:
. It refers to increase in the country’s capacity to produce
the output of goods and services within the country.
. The GDP is the market value of all the goods and services
produced in the country during a year.
. The GDP of a country is derived from the different
sectors of the economy, namely the agricultural sector, the
industrial sector and the service sector.The contribution made

5. by each of these sectors makes up the structural composition
of the economy.
Modernisation:
. To increase the production of goods and services the
producers have to adopt new technology.
. Modernisation does not refer only to the use of new
technology but also to changes in social outlook such as the
recognition that women should have the same rights as men.

6. Self-reliance:
. A nation can promote economic growth and
modernisation by using its own resources or by using
resources imported from other nations.
. The first seven five-year plans gave importance to self-
reliance which means avoiding imports of those goods which
could be produced in India itself.

7. Equity:
. It is important to ensure that the benefits of economic
prosperity reach the poor sections as well instead of being
enjoyed only by the rich.
. Every Indian should be able to meet his or her basic needs
such as food, a decent house, education and health care and
inequality in the distribution of wealth should be reduced.

8. First Pan(1951-56). Higher agricultural production
Second Plan(1956-61): increase in industrial production
Third Plan(1961-66): Need for self-sufficiency in food grain
production.
Fourth Plan(1969-74): Price stability and fuller utilisation
of manpower
Fifth & Sixth Plans(1975-80 and 1980-85): Alleviation of
poverty.
Seventh Plan(1985-90): Need for greater employment
opportunities
Eighth Plan(1992-97): Full employment and universalisation of education
Ninth Plan(1997-2002): Growth, price stability and environmental sustainability.

9. Tenth Plan(2002-07): Need for better quality of life.
Eleventh Pan(2007-12): Poverty reduction, job
creation and protection of environment.
Twelfth Plan(2012-17): Need for sustainable as well
as inclusive growth.
Features of Economic Policy pursued under
Planning till 1 991:
→ Heavy reliance on public sector for GDP growth.
→Regulated development of private sector to avoid
concentration of economic power.

10. →Protection of small-scale industry and regulation of
large-scale industry with a view to maximizing the
opportunities of employment.
→Development of heavy industry of strategic
significance.
→Focus on saving and investment so that the growth
process becomes self-reliant.
→Protection from foreign competition so that the
domestic industry does not lose the domestic market.
→Focus on import substitution so that the demand

11. for foreign exchange is minimized.
→Restriction on foreign capital so that the external
debts are minimized.
→Centralized planning with a view to monitoring the
process of growth and development.
Success (Achievement) of Planning - Principal
Observations:
→Increase in national income.
→Increase in per capita income.

12. →Rise in savings and investment.
→Institutional and technical change in agriculture.
→Growth and diversification of industry.
→Expansion of economic and social infrastructure.
→Wider opportunities of employment.
→Expansion of International trade.
Failures of Planning-Principal Observations:
→Abject poverty continued to characterize the Indian
economy.
→High rate of inflation leading to fall in real income of the
people.

13. →Unemployment crises continued to exist even
opportunities of employment tended to rise.
→Explosive rise in population has been the principal
cause.
→Inadequate economic and social infrastructure.
→Skewed distribution of income and wealth, leading
to a huge divide between rich and the poor.
Agriculture(1947-1990):
Importance of Agriculture in the Indian Economy-
Principal Observations:

14. →Substantial contribution to GDP.
→Agriculture as the principal source of the supply of
wage goods.
→Agriculture as the principal sector of employment.
→Agriculture as the principal source of the supply of
raw material.
→Agriculture as the principal source of demand for
the industrial goods.
→Substantial contribution to international trade.

15. →Significant contribution to domestic trade.
→Support to the transport industry by offering goods
of bulk transport.
→Agriculture as a significant source of wealth of the
nation.
Features of Indian Agriculture:
→Low productivity (output per hectare of land).
→Disguised unemployment: more persons are
employed than what is optimally required.
→Dependence on rainfall, owing to the deficiency of permanent
means of irrigation.

16. →Subsistence farming: production for self-
consumption by the marginal farmers.
→Deficient use of modern inputs, owing to poverty of
the small holders.
→Small holdings, so that the use of mechanized
equipment becomes economically un-viable.
→Landlord-tenant conflict, as tenants (in most cases)
are not the owners of the soil.
→Backward technology, as bulk of the holdings are
small.

17. Agrarian Reforms:
(A)Technical Reforms:
(i) Use of HYV seeds,
(ii) Use of chemical fertilizers,
(iii) Use of insecticides and pesticides for crop
protection,
(iv) Scientific farm management practices,
(v) Mechanised means of cultivation.

18. (B) Land Reforms (also called institutional reforms):
It refers to change in the ownership of landholdings.
(i) Abolition of intermediaries,
(ij) Regulation of rent
(iii) Consolidation of holdings- Convert small
piece of lands into a compact piece of land,so that,
mechanisation of agriculture can be adopted.
(iv) Ceiling on land holdings-It refers to fixing
the specified limit of land,which could be owned by

19. an individual.
(v) Cooperative farming- It means group of farmers
contribute their adjacent piece of lands and convert
these lands into a compact piece of land,contribute
money and physical power for production.Then
distribution of production according to the
contribution of lands and money among the farmers.

20. General Reforms:
(i) Expansion of irrigation facilities
(ii) Provision of credit,
(iii) Regulated markets and cooperative marketing
societies,
(iv) Price support policy.
NEW AGRICULTURAL
STRATEGY/TECHNICAL
REFORMS(GREEN REVOLUTION):

21. Green Revolution refers to large increase in production of
food-grains due to use of High Yielding Variety(HYV) seeds.
The new agricultural strategy was adopted in India during the
third plan i.e 1966(India adopted HYV programme for the first
time).
EFFECTS/ACHIEVEMENTS OF GREEN REVOLUTION:
. Commercialisation of agriculture
. Marketable surplus( refers to that part of agricultural
produce which is sold in the market by the farmers after
fulfilling their own consumption needs)
. Increase in production and productivity.
. Increase in employment

22. . Increase in income
. Self-sufficiency
. Industrial development as a result of green revolution
. Buffer-stock of food-grains
. Benefit to low-income groups.
SHORTCOMINGS /RISK INVOLVED UNDER GREEN
REVOLUTION:
. Increase in income inequalities.

23. . Risk of pest attack
. Limited crops
. Regional imbalance
. Threatening to sustainable development
. Air and water pollution
. Decline of water table
. Declining of fertility power of land
. High cost of production

24. . Unfavourable for small farmers.
DEBATE OVER SUBSIDIES TO AGRICULTURE:
Agricultural subsidy means farmers get inputs at prices
lower than the market prices.
ECONOMISTS IN FAVOUR OF SUBSIDIES:
. The govt should continue with agricultural subsidies as
farming in India continues to be a risky business.
. Majority of the farmers are very poor and they will not be

25. able to afford the required inputs without the subsidies.
. Eliminating subsidies will increase the income inequality
between rich and poor farmers and will violate the ultimate
goal of equity.
ECONOMISTS AGAINST THE SUBSIDIES:
.Subsidies were granted by the govt. to provide an incentive
for adoption of the new HYV technology.So, after the wide
acceptance of technology,subsidies should be phased out

26. as their purpose has been served.
. Subsidies do not benefit the poor and small farmers as
benefits of substantial amount of subsidy go to fertilizer
industry and prosperous farmers.
Importance of Industry in the context of Economic Growth:
→ Industry is an epicentre of economic growth.
→An emerging source of employment.
→Source of mechanised means of farming.
→Industry imparts dynamism to growth process.

27. →Industrial growth leads to growth of civilisation.
→Industrial growth leads to infrastructural growth.
Importance of Public Sector in the context of Industrial
Development:
→ Lack of capital in the private sector: this leads to an
obvious reliance on the public sector.
→Low inducement to invest in the private sector owing to
deficiency of demand: yet another factor pointing to the
importance of public sector.
→Growth with social justice: only public sector (not the
private sector) ensures growth with social justice.

28. # First Industrial policy-1948.
Industrial Policy Resolution-1956-Principal Elements:
Three-fold classification of industries:
(i) SCHEDULE A:exclusively public sector enterprises.17 industries were
included,like arms and ammunitions,atomic energy,heavy and core
industries,aircraft,oil,railways,shippings etc.
(ii) SCHEDULE B:industries which could be developed both as public and
private sector enterprises.It includes aluminium,other mining
industries,machine tools,fertilizers etc.
(iii) SCHEDULE C:all private sector enterprises other than category (i) and (ii)
Industrial licensing with a view to regulating industrial establishments in the private
sector.
Industrial concessions with a view to promoting industrial establishments in the
backward regions.

29. INDUSTRIAL LICENSING:
An industrial license is a written permission from the govt.to
an industrial unit to manufacture goods.
The Industries Development and Regulation
Act,1951,empowered govt. to issue licenses for
. Setting up new industries
. Expansion of existing ones
. Diversification of products.

30. SSI (Small-Scale Industry):
In 1955,The Village and Small-scale Industries
committee(Karve committee) recognised that the SSI’s to
promote Rural development.A ‘Small-Scale Industry’ is
defined with reference to the maximum investment allowed
on the assets of a unit. This limit has changed from Rs 5 lakh
in 1950 to present limit of Rs 5 crore.

31. Significance of SSI (Small-Scale Industry):
. SSI is labour-intensive and therefore employment friendly.
. These industries make use of local resources thus better
and fuller utilisation takes place.
. These industries are helpful in reducing regional
imbalances in industrialisation.
. These industries also supplement the income of those
people who do not get sufficient income from agriculture

32. and allied activities.
India's Foreign Trade after Independence-Principal
Observations:
→India's exports and imports have tended to rise, but percentage share
in international trade has tended to shrink.
→Decline in percentage share of agricultural exports, and the rise in
percentage share of manufactured good.
→Direction of trade has become diversified: UAE and China emerging as
our important trading partners.
→Shift in trade strategy from ‘inward looking' (based on import
substitution) to ‘outward looking’ (based on export promotion).

33. Inward Looking Trade Strategy [Strategy of Import
Substitution]:
Import Substitution refers to a policy of replacement or
substitution of imports by Domestic production.Inward
looking trade strategy is known as ‘Import Substitution’.
IMPORT SUBSTITUTION PROTECT DOMESTIC INDUSTRY:
. TARIFF: Heavy duty was imposed on imported goods in
order to make them more expensive and to discourage their

34. use.
QUOTAS: It refers to fixing the maximum limit on the imports
of a commodity from Abroad.
The tariff on imported goods and fixation of quotas helped
in restricting the level of imports.As a result, the domestic
firms could expand without fear of competition from the
foreign market.

35. REASONS FOR IMPORT SUBSTITUTION:
. Self-reliance
. Protection of domestic industries from foreign competition.
. Check the decline of foreign exchange reserves due to
imports
. Increasing the GDP of the country through Import
Substitution policy.
. Diversification of domestic goods in Indian markets.

36. Need for NEP [Factors prompting (necessitating) NEP]:
The New Economic Policy(NEP) was announced in july 24
1991.
→ High fiscal deficit.
→BoP crises.
→Fall in foreign exchange reserves.
→Inflationary spiral (rise in prices).
→Poor performance of PSUs (public sector undertakings)
→High burden of debts
→Inefficient management of the Indian economy
# Due to crisis of 1991,Indian govt approached the Internat-
ional Bank for Reconstruction and Development(IBRD),

37. Popularly known as World Bank and the IMF and received $7
Billion as loan.
Elements of NEP:
→ Liberalisation: It refers to the freedom of the economy
from the direct controls imposed by the govt.
→ Privatisation: It means transfer of ownership,manageme-
nt and control of Public Sector Enterprises(PSEs) to the
entrepreneurs in the private sector.

38. → Globalisation: It means integrating the national economy
with the world economy through removal of barriers on
international trade and capital movements.
REFORMS DUE TO LIBERALISATION:
Financial Sector Reforms: Financial sector includes financial
institutions, such as commercial banks, investment banks,
stock exchange operations and foreign exchange market.

39. . The financial sector in India is regulated by the Reserve Bank of India
(RBI).
. One of the major aims of financial sector reforms is to reduce the role
of RBI from regulator to facilitator of financial sector. This means that
the financial sector may be allowed to take decisions on many matters
without consulting the RBI.
. Foreign Institutional Investors (FII), such as merchant bankers, mutual
funds and pension funds, are now allowed to invest in Indian financial
markets.

40. . The reform policies led to the establishment of private
sector banks,Indian as well as foreign.
. Banks were given freedom to set up new branches after
fulfilment of certain conditions without the approval of the
RBI.
Tax Reforms:
. Tax reforms are concerned with the reforms in the government’s taxation and public
expenditure policies, which are collectively known as its fiscal policy.

41. →There are two types of taxes: direct and indirect.
→ Direct taxes consist of taxes on incomes of individuals(Income tax),
as well as, profits of business enterprises(Corp[oration tax). Since 1991,
there has been a continuous reduction in the taxes on individual
incomes and Corporation tax, as it was felt that high rates of income tax
were an important reason for tax evasion.
→ Considerable reform have been made in indirect taxes(GST ) to
simplify and introduce a unified indirect tax system in India.
→ Many tax procedures have been simplified for payment of tax to the

42. govt.
Industrial sector reforms:
. Abolition of industrial licensing for all the projects except
liquor,defence equipments,industrial explosives etc.
. Reduction in the role of the public sector in the future
industrial development of the country.The number of
industries reserved for the public sector reduced from 17 to 3
industries (i) Defence equipments (ii) Atomic energy

43. and (iii) Railway transport.
. Many goods produced by Small Scale Industries have now
been de-reserved.
. Freedom to import capital goods and technology in order to
develop strong infrastructural base of the country.
TRADE AND INVESTMENT POLICY REFORMS:
. Removal of quantitative restrictions on imports and
exports.

44. . Removal of licensing procedures for imports.
. Reduction of tariff rates.
. Abolition of import licensing was an important reforms.
. Export duties were removed to increase the competitivene-
ss of Indian goods in global markets.
FOREIGN EXCHANGE REFORMS:
. Devaluation of rupee.It refers to reduction in the value of
domestic currency in relation to foreign currency by the govt.

45. This encourages exports and discourage imports.It led to
increase in the inflow of foreign exchange.
. Market determination of foreign exchange rates.
PRIVATISATION:
It implies shedding of the ownership or management of a
government owned enterprise. Government companies are
converted into private companies in two ways.

46. I. By withdrawal of the government from ownership and
management of public sector companies.
II. By outright sale of public sector companies.
. Privatisation of the public sector enterprises by selling off
part of the equity of PSEs to the public is known as
Disinvestment.
MEASURES HAVE BEEN TAKEN TO GIVE MORE PRIORITY TO
PRIVATE SECTOR IN THE DEVELOPMENTAL PROCESS:
. Reduction in number of reserved public sector units.
. Disinvestment in PSUs by selling the shares of PSUs into
private hands.
. Increase in the share of private sector in total investment.

47. . Licensing policy which was a disincentive for the private
sector to start new units or expand existing units,was
abolished for all industries except liquor and other intoxicant
products.
. Tax reforms,free flow of capital and technology from foreign
countries also made production process profitable for the
private sector thus ensuring greater participation.

48. ‘NAVARATNA POLICY’ OF THE GOVT. HELPS IN IMPROVING
THE PERFORMANCE OF PUBLIC SECTOR
UNDERTAKINGS(PSUs):
. These PSUs were given greater managerial and operational
autonomy in taking various decisions to run the company
efficiently and to increase their profits.
. The granting of navaratna status resulted in better
performance of these companies.

49. . Govt. decided to retain the navaratnas in the public sector
and enable them to expand themselves in the global markets
and raise resources by themselves from financial markets.
LIST OF ‘NAVARATNA’ COMPANIES:
. Bharat Electronics Ltd.
. Hindustan Aeronautics Ltd(HAL)
. Hindustan Petroleum Corporation Ltd.(HPCL)
. National Aluminium Company Ltd.(NALCO)

50. . National Mineral Development Corporation Ltd.(NMDC)
. Oil India Ltd(OIL)
As of 2020, there are 10 Maharatnas and 14 Navaratna
companies in India.
MAHARATNA COMPANIES:
. Bharat Heavy Electricals Limited(BHEL)
. Bharat Petroleum Corporation Limited(BPCL)
. Coal India Ltd(CIL)
. Gas Authority of India Ltd(GAIL)
. Hindustan Petroleum Corporation Ltd(HPCL)
. Indian Oil Corporation Ltd(IOCL)
. Oil and Natural Gas Corporation Ltd(ONGC)

51. . Power Grid Corporation Of India Ltd(PGCI)
. Steel Authority Of India Ltd(SAIL)
ARGUMENTS IN FAVOUR OF PRIVATISATION:
. Competitive atmosphere generated in the economy.
. There is no delayed of investment.
. Producing quality goods
. Selling goods in the market at reasonable price.
. Adopting latest technology.

52. . Providing employment opportunities.
ARGUMENTS AGAINST PRIVATISATION:
. Main objective of the private sector is profit and secondary
objective is welfare.
. Private sector adopting capital intensive technology and
due to this more employment opportunities is not generated
in the economy.
. Private sector charging high price in comparision to the
public sector.
. Private sector hesitate to invest funds in risky activities.
. Concentration of economic power in few hands.It means
money is concentrated in the hand of few investors.

53. GLOBALISATION:
FEATURES:
. Due to introduction of globalisation,Foreign investors can
now directly invest in India.To promote this,a Foreign
Investment Promotion Board(FIPB) has been set up.
. New technology and management expertise is also brought
along with Foreign Direct Investment.
. There is unrestricted flow of goods and services between
India and Rest Of the World.
. There is no restrictions on movement of people between
India and ROW.

54. OBJECTIVES OF GLOBALISATION:
. Reduction of trade barriers for free flow of goods and
services across the World.
. To enlarge production and trade of services.
. Ensure optimum utilisation of World resources.
. To provide greater market access.
. Smoothly technological transfers across the World.
. Use the brain of intellectuals of Foreign countries.

55. OUTSOURCING:
It refers to contracting out some of its activities to a third
party which were earlier performed by the organisation.
SOME OF THE SERVICES OUTSOURCED TO INDIA:
. Accounting
. Banking services
. Music Recording
. Film editing
. Cover page of the Magazene
. Clinical advice.
. Book transcription

56. INDIA IS THE BEST OUTSOURCING DESTINATION IN THE
WORLD:
. Majority indians are technically expert one.
. Majority indians properly communicate in english language.
. Indian workers render the service at less salary.
. Least cost is there to complete the service in India.
. Indian companies deliver the service in time.
# Outsouricing is intensified in recent time because due to
the growth of the Information Technology(IT).
WORLD TRADE ORGANISATION(WTO):
# Prior to WTO, General Agreements on Tariffs and Trade
(GATT) was established as Global Trade Organisation,in 1948

57. with 23 countries.GATT was set up to administer all
multilateral trade agreements by providing equal
opportunities to all countries in international market.
In October 1,1995 WTO was founded as the successor
organisation to the GATT.
Member countries-164
Headquarter-Geneva,swizerland
OBJECTIVES OF WTO:
. Reduction of trade barriers to liberalise World trade.
. To enlarge production and trade of services
. To ensure optimum utilisation of World resources
. To protect the environment

58. . To provide greater market access to all member countries
. To establish a rule based trade regime,in which nations can
not place arbitrary restrictions on trade.
ARGUMENTS IN FAVOUR OF GLOBALISATION:
. Creating more employment opportunities.
. Competitiveness generated in the economy.
. Varieties of goods available for the consumers at cheaper
price.
. Convert Indian economy from agricultural dominated
economy to Industrialised economy.
. Technological advancement prevailed in India.
. Increasing GDP of the country.

59. . Development of education and health in the country due to
collaboration with foreign universities and with global
hospitals.
ARGUMENTS AGAINST GLOBALISATION:
. There is wide gap between rich and poor people.
. Multiple employment opportunities available for skilled
workers but at the same time,less job opportunities available
for semi-skilled and unskilled people.
. Small Scale Industries facing losses because they could not
compete with foreign companies.
. Foreign goods play the dominant role in Indian market.
. Poverty in the country increases because those people

60. attached with the ancestral occupation,loose jobs due to
machine made goods available in the economy.
. Appointed workers on contract basis due to Flexibility in
labour laws.
. Govt bring policies to attract foreign investors but domestic
industries could not get proper incentives from the govt.
MERITS OF ‘LPG’ POLICIES(NEP/Economic Reforms):

61. i. Vibrant economy,
ii. Stimulant to industrial production,
iii. A check on fiscal deficit
iv. A check on inflation,
v. Spread of consumer's sovereignty,
vi. A substantial increase in foreign exchange reserves,
vii. Flow of private foreign investment,
viii. Recognition of India as an emerging economic power
ix. A shift from monopoly market to competitive market
DEMERITS OF ‘LPG’ POLICY(NEP /Economic Reforms)

62. i. Neglect of agriculture,
ii. Urban concentration of growth process.
iii. Economic colonialism.
iv. Spread of consumerism
v. Lopsided growth process
vi. Cultural erosion.
vii. Wide spread unemployment.
viii.Unbalance growth.

63. DEMONETISATION:
It means when a currency note of a particular denominati-
On ceases to be a legal tender.
On 8th november,2016,The Indian govt decided to
demonetise the Rs 500 and Rs 1000 notes.
REASONS FOR DEMONETISATION:
. To unearth black money.
. To eradicate counterfeit(fake) currency

64. . To control tax evasion- Many people in the country do not
want to deposit black money in the banks to evade the
tax.So,govt. brought this policy to check the evasion of tax.
. To discourage cash system in the economy.It means
emphasized online transaction.
. To combat inflation.
BENEFITS OF DEMONETISATION:
. Reduction in black money/Unaccountable money.

65. . Stop the terrorism funding in the economy.
. Reduction in illegal activities.
. Reduction in counterfiet/fake currency
. Cashless economy.
. Increase in tax revenue of the govt.
ADVERSE EFFECTS OF DEMONETISATION:
. Inconveniece to public: People are running to the bank to
exchange old notes by new one.Restrictions made by the govt

66. to withdrawl money from the ATMs and also from the
banks.Those people having no account in the bank,they faced
many problems.
. Adverse effect on Economic activities- Small producers
could not pay wages or salary to the daily wage
workers.Producers could not get appropriate amount of
money for investment.
. Difficulty in online transactions-Many people having no

67. idea in regarding to the online transactions and also people
facing difficulty in internet facility.
. Corruption and Fraud: There have been many instances of
fraudulent practices where banking and post office personnel
were illegally exchanging the old currency to exchange black
money for a commission amount.
. Huge to daily wage earners.
. Costly for the govt.

68. GOODS and SERVICES TAX(GST):
It is a single comprehensive indirect tax on supply of goods
and services right from manufacturer or service provider to
the consumer.
COMPARISION OF ‘GST’ WITH OLD TAX SYSTEM:
. Has simplified the multiplicity of taxes on goods and
services.
. The laws,procedures and rates of taxes across the country

69. are also now standardised.
. It has also facilitated the freedom of movement of goods
and services.
. It has created a common market in the country.
. pay GST to the govt through online is compulsory one and
payment procedure is simplified one.
# Two categories of GST are Central GST(CGST) and State
GST(SGST).