The Economy from 1950 to 1990
NCERT Class 11 • Indian Economic Development • Chapter "Indian Economy 1950-1990"
The Economy from 1950 to 1990
Between 1950 and 1990 India followed a strategy of planned industrialisation under state direction. Heavy industry was reserved for the public sector, private industry needed permission for almost every decision, and imports were restricted so that domestic industry could grow behind that protection.
Industrial Policy and Licensing
- The industrial policy reserved key sectors for the public sector and left others to private enterprise under regulation.
- Every private firm needed a licence to start production, to expand capacity, to change its product or to change its location.
- This system was popularly called the licence and permit system.
- The stated aim was to prevent concentration of economic power and to direct investment to backward regions.
- In practice it slowed decisions, discouraged efficiency and encouraged rent seeking behaviour.
- Small scale industry was protected by reserving a list of products exclusively for it.
- Large houses came under a separate law meant to check monopoly and concentration of economic power.
- Foreign investment was tightly restricted and technology had to be largely developed or imported under conditions.
Trade Policy and Its Effects
- Import substitution meant producing at home what was earlier imported, so that foreign exchange could be saved.
- It was implemented through high tariffs and strict quotas on imports.
- Protection allowed a wide industrial base to develop, including capital goods and chemicals.
- Because competition was absent, quality often stayed low and costs stayed high.
- Public enterprises in some areas made losses yet continued, since employment and strategic reasons outweighed profit.
- Agriculture saw land reform and the Green Revolution, which ended dependence on food imports.
- Savings and investment rates rose steadily and a strong scientific and technical base was created.
- Growth in this period was modest, and the economy relied heavily on the monsoon and on external assistance.
| Policy | Instrument | Effect |
|---|---|---|
| Industrial licensing | Permission for every decision | Slow expansion, rent seeking |
| Import substitution | Tariffs and quotas | Wide base but low competitiveness |
| Public sector priority | Reserved industries | Infrastructure built, some losses |
| Small scale reservation | Product reservation list | Employment created, scale limited |
Import substitution — a policy of replacing imported goods with goods produced at home, protected by tariffs and quotas.
Exam me kaise aata hai
- Producing at home what was earlier imported is — import substitution
- The permission needed to start or expand a firm was called a — licence
- Quantitative limits on imports are called — quotas
- Which sector had key industries reserved for it — the public sector
UPSC/State PSC ke liye
- Protection can help an infant industry learn, but protection without a time limit removes the pressure to become competitive at all.
- Licensing was meant to direct investment, yet it ended up rewarding those best at obtaining permissions rather than those best at producing.
Yahan confuse hote hain
✗ Import substitution means banning all imports | It means replacing imports gradually with domestic production | ✓
✗ Licensing applied only to large firms | It applied to private industry broadly, including expansion decisions | ✓
✗ The public sector made only losses | Several enterprises built vital infrastructure and capability | ✓
Ek nazar me
- Key industries were reserved for the public sector.
- Private firms needed licences for almost every decision.
- Import substitution used tariffs and quotas to protect industry.
- A wide base was built but competitiveness and growth stayed weak.