Q.1. Define economic system. What are characteristics of different types of economic systems?
Ans. An economic system comprises of production, distribution and consumption of goods and services.
Characteristics of a Capitalist Economy
(i) Profit is the main motive of carrying out various economic activities.
(ii) Factors of production are privately owned.
(iii) Consumers are free to choose whatever they can afford.
(iv) Prices of goods and services are determined by market forces of demand and supply with minimum intervention by the government.
Characteristics of a Socialist Economy
(i) The government is the only owner of the resources and is solely engaged in the production and distribution of goods and services.
(ii) The prices of goods and services are determined by the government.
(iii) Welfare of the society is the main objective of carrying out various economic activities.
(iv) The government employs people and pays their salaries.
Characteristics of a Mixed Economy
(i) A mixed economy is a combination of capitalism and socialism.
(ii) The involvement of government in production and distribution activities is aimed at the welfare of the public.
(iii) The involvement of private firms in production and distribution activities is aimed profit maximisation.
(iv) The prices of goods and services produced by individuals are decided by the market forces while the prices of goods and services produced by the government are decided by the government.
Q.2. Explain the common goals of Five Year Plans in India.
Ans. The long-term goals are known as common goals of Five Year Plans. The long-term goals of the five year plans are explained below:
(i) Economic Growth: Economic growth refers to the increase in the country’s capacity to produce the output of goods and services in the country. Indian planners aimed at raising economic growth as it was felt that it would lead to all round prosperity. It is very much correlated with investment-income ratio. A good indicator of economic growth is steady increase in the Gross Domestic Product (GDP). The GDP of a country is derived from the different sectors such as primary, secondary and tertiary sectors of the economy. The contribution of these sectors in GDP differs in different countries of the world. In India, service or tertiary sector contributes more to the GDP. Now, the concept of economic growth has been changed to sustainable development.
(ii) Modernisation: Modernisation refers to adoption of new technology and a change in social outlook. Indian planners have always recognised the role of science and technology in the country’s development. Application of science and sophisticated technology in production raises the output level and over time accelerates the pace of economic growth. In this modernisation process, farmers are increasing their output on the farm by using new seeds varieties, fertilisers, pesticides, instead of using the old ones. Industrialists are also increasing their output by using new types of machines. There is a change in the social outlook. Modern society is encouraging the talent and appreciating the contribution of women in every field of work.
(iii) Self-reliance: A nother common goal of Five Year Plan is self-reliance. This goal implies reduction in the dependence on foreign aid. It means that we should spend on imports as much as we can earn from exports. Self-reliance can be achieved through export promotion and import substitution. Self-reliance does not mean the exclusion of commercial foreign capital. The aim has been to promote self-reliance especially in food and defence so that independence in policy may be maintained.
(iv) Equity: Equity means every Indian should be able to meet his or her basic needs and inequality in the distribution of wealth should be reduced. In other words, social and economic justice is among the common goals of the plans. Equity includes preservation of a democratic political frame work; pursuit of economic, social and regional equality; checking concentration of economic power; and special care to backward and disadvantaged sections of population.
(v) Removal of Unemployment and Poverty: Removal of unemployment and poverty is also a common goal of Five Year Plans. Employment generation with increasing productivity and elimination of poverty by providing basic needs such as food, a decent house, education and health care are other important goals of the economic planning in India.
Q.3. Discuss the failures of Five Year Plans.
Ans. The main purpose of our plans was to remove poverty; to set up a socialistic pattern of society; to reduce excessive dependence on agriculture through industrialisation; to remove unemployment; etc. The important question which arises is whether the Indian plans have been able to fulfill these objectives or not? If we cast a glance on the progress of these plans, we shall know that all objectives could not be fulfilled. It means that our planned efforts met with failure in many fields. The following points will enable us to discuss a few aspects in detail:
(i) Less Increase in Standard of Living: The main purpose of almost all the plans was to raise the standard of living by removing poverty but increase in per capita income was so low that standard of living could not be raised. Removal of poverty remained a dream only. More than one-third of the population still lives below poverty line.
(ii) Unemployment: Planning Commission made efforts to remove unemployment in every plan but unemployment continued to increase.
(iii) Inequality in the Distribution of Income and Wealth: One long-term purpose of the plans was, setting up of a socialistic pattern of society. However, inequality of income and wealth not only persist but seems to have increased in some field even after 65 years after the initiation of plans. The rich have become richer. Thus, concentration of wealth goes on increasing and ‘equality’ has been reduced to a mere slogan.
(iv) Poverty: One another important objective of planning has been the removal of poverty. Unfortunately, we have not been able to achieve this objective. Poverty in India has been caused mainly by slow growth rate, existence of widespread unemployment and inequalities in income and wealth.
(v) Land Reforms: The decision of the government that the owner of the land will be the one, who ploughs, could not be implemented very satisfactorily. Not much of success has been gained in spite of spending a lot on the development of co-operative societies in the rural area. In the same way, exploitation of landless agricultural labourers and tenants could not be eliminated.
(vi) Increase in Prices: Prices went on increasing in all plans except the first one. As a result, costs of development projects escalated and hence, the government had to face a lot of difficulty in mobilising adequate resources.
(vii) Less Efficiency: In India, the work in some sectors like electricity generation, transport, steel, production, efficiency can be increased to a large extent.
(viii) Crisis of Foreign Exchange: Planning failed to cover the deficit in the balance of payments. Our export rate has been low. The heavy burden of debt and its interest have been responsible for this.
Q.4. Give suggestions to make economic planning successful.
Ans. The following measures are suggested for making our planning more successful:
(i) Modest Targets and their Achievements: The targets should not be too high. These targets should be modest and reasonable, only then they will be fulfilled. This will help in the success of the plans and in earning people’s trust in the planning process.
(ii) Strict Control on Prices: Financial resources should be arranged in such a manner that there is no unnecessary and uncontrolled monetary expansion. However, if monetary expansion does take place, rigid control should be exercised on prices in order to keep inflation in check. If prices remain controlled, no disturbances in plan expenditures will be caused and chances of success of plans will increase manifold.
(iii) Increase in Employment Opportunities: The programmes which provide maximum employment to the people should be included in the plans. Employment to all will earn public approval, trust and co-operation.
(iv) Balance between Public and Private Sectors: The early plans laid too much emphasis on public sector while restricting the private sector. But public sector failed to deliver the goods. Therefore, it is essential to promote private sector also, which is usually more efficient and returns-conscious.
(v) Population Control: Rapid growth of population is the basic cause of all the problems and failure of planning. Growth of population is eating up the increase in national income. Thus, controlling population will help in solving various other social problems.
(vi) Agricultural Development: Agriculture is the base of industrial development. Agricultural development can provide more food to growing population and expand trade and commerce. Therefore, land lying waste should be brought under plough and irrigation facilities should be increased.
Q.5. Discuss the problems related to agriculture in India.
Ans. India is a developing country. Agriculture plays a vital role in its development. Most of the population is engaged in agriculture and allied activities. But the agricultural sector is not fully developed. There are many problems which are responsible for the backwardness of Indian agriculture. These problems are as follows:
(i) Lack of Proper Marketing Channels: Marketing system of agricultural products is not good in India. As a result of it, farmers could not get sound prices of their crops. Farmers sell their products in villages at lower prices as a result of it they remain poor. Markets are far from the villages and transportation facilities are not up to the mark.
(ii) Lack of Credit Facilities: Credit problem is one of the main problems of Indian farmers. They find it easy to borrow from local money lenders at exorbitant rate of interest as taking loan from banks and co-operative societies involve long and complicated procedures. This tendency of loan taking makes them fall in debt traps.
(iii) Rural Indebtedness: Indebtedness is also the main problem of Indian agriculture. Indian farmer always remains in debt. They have to take loans for cultivation and even for the sale of their products. In the words of M.L. Darling, “Indian peasant born in debt, lives in debt and dies in debt.”
(iv) Illiteracy: Large number of Indian farmers is illiterate. Hence, they are unable to use the mechanised system of agriculture. As a result, their productivity remains low.
(v) Disguised Unemployment: Disguised unemployment exists on a large scale in agriculture. The productivity of disguisedly unemployed people remains zero. Farmers cannot gain surplus from their fields due to disguised unemployment.
(vi) Lack of Irrigation Facilities: Of the total cultivated area in the country, a little less than 40 per cent is irrigated even today. In the remaining areas, farming is largely dependent on rainfall.
Q.6. Suggest some measures to remove the problems of agriculture in India.
Ans. The following measures can be adopted to improve the state of Indian agriculture and farm productivity:
(i) New Techniques of Production: New agricultural technology with emphasis on High Yielding Varieties and improved inputs must be adopted on a much wider scale. However, we do not have to adopt capital intensive techniques of the west, rather our own research institutions and experts should invent suitable techniques keeping in view the differences in topography, climate, soil and other socio-economic conditions of different regions.
(ii) Land Reforms: Land reforms providing a land system conducive for agricultural development should not only be enacted but also be faithfully implemented. The official land tenure system must aim at ‘land to the tiller’ as self-cultivation can induce maximum improvement in farming.
(iii) Creation of Economic Holdings: Most states have already passed acts relating to consolidation of holdings in order to create economic holdings through removing the problem caused by sub-division and fragmentation of holdings. However, the progress has not been satisfactory in many states. Even in states like Punjab, where the entire task of consolidation was completed years ago, new sub-division and fragmentation have taken place. Therefore, fresh measures like change in law of inheritance are required to overcome the difficulties caused by sub-division and fragmentation.
(iv) Crop Insurance: Crop insurance is needed to provide protection against natural calamities like floods, drought, locusts, thunderstorms, etc. Some states are already taking steps in this direction. For example, Haryana Government is thinking of setting up a fund for this purpose.
(v) Cooperative Farming and Other Agricultural Cooperatives: Small and marginal farmers can adopt scientific large scale commercial farming only through cooperative farming. This will also solve the problem of uneconomic size of farms and act as a very powerful measure to combat the problem of sub-division and fragmentation of holdings. Cooperative societies can also enable the farmers to purchase modern inputs at cheap rate and store, process and market their produce advantageously.
(vi) Extension of Irrigation Facilities: Expansion of irrigation facilities can contribute significantly towards improving the agriculture. Along with starting more major and medium irrigation projects to explicit our vast irrigation and hydel power potential, minor irrigation facilities should also be expanded on a much larger scale.
(vii) Agricultural Inputs: Provision of improved inputs like certified seeds, fertilisers and pesticides, etc. in adequate quantities and at fair prices is also essential for increasing farm productivity.
(viii) Improved Implements: Large scale mechanisation of Indian agriculture is neither possible nor desirable under existing conditions but use of improved implements and machines like improved ploughs, drills, chaff cutters, threshers, small tractors and pumping sets can certainly increase the efficiency of agricultural operations.
Q.7. Explain the policies which were adopted to promote equity in the agricultural sector.
Ans. The following policies can be adopted to promote equity in agricultural sector:
(i) Abolition of Intermediaries: Intermediary tenures like Zamindars, Jagirdars, etc., which prevailed over 40 per cent of the country were abolished and the ownership of land was given to the actual tillers or tenants. This ownership of land gives incentives to invest in making improvements to the tillers.
(ii) Tenancy Reforms: It envisages provision of security to tillers or tenants and conferring ownership rights on them. Under tenancy reforms, following three types of measures were adopted:
(iii) Land Ceiling: It was another policy to promote equity in the agricultural sector. The purpose of land ceiling is to reduce the concentration of land ownership in a few hands. Land ceiling laws were first enacted in the 1950s and the 1960s. It was further revised in 1972.
(iv) Updating and Maintenance of Land Records: For the promotion of equity in the agricultural sector, a drive was taken up in 1985–86 for updating land records. Patta passbooks with legal status are to be issued to land owners and tenants. Thus, without updating and maintenance of land records, land reforms cannot be properly implemented.
(v) Consolidation of Holdings: This measure is designed to solve the problem of fragmentation of holdings. The method adopted is to grant one consolidated holding to the farmer equal to the total of the land in different scattered plots under his possession.
(vi) Cooperating Farming: Cooperating farming has been advocated to solve the problems of subdivision of holdings. Under this system, farmers having very small holdings joined their hand and pooled their lands for the purpose of cultivation. In this way, they can reap profits of large scale farming.
Q.8. Why is it important to promote small scale industries? Explain.
Ans. It is important to promote small scale industries due to the following reasons:
(i) Greater Employment Opportunities: Small scale industries are more labour intensive. With less earmarked investment of capital, more persons can be employed in these industries.
(ii) Equity in the Distribution of Income: Due to small scale of production, there remains equity in the distribution of income. There is no concentration of capital in a few hands but it is distributed among all the people engaged in production. The profit of these industries is shared by many people.
(iii) Decentralisation: Small scale industries are situated in villages and towns. They reduce the regional imbalances. As a result, benefits of these industries go to the masses.
(iv) Less Pressure on Agriculture: Small scale industries have great importance in India. Most of its population is engaged in agricultural activities. Every year about 30 lakhs of people increase as dependents on agriculture in India. Therefore, it is necessary to reduce the increasing pressure on agricultural land. It can be achieved only by establishing more small scale industries.
(v) Less Capital Requirements: Small scale industries need less capital as compared to large scale industries. In country like India where capital is scarce, small scale industries can be established with less amount of capital.
(vi) Immediate Increase in Production: The gestation period of small scale industry is short. As a result, production starts immediately after the establishment of these industries. In India, 40 per cent of the industrial production is produced in small scale industries.
(vii) Production of Artistic Goods: More manual work is done in these industries. As a result, production of artistic goods is only possible in small scale industries.
(viii) Importance in Exports: Small scale industries have great importance in India’s exports. In 1990’s, the contribution of these industries in total exports was 35 per cent.
(ix) Industrial Peace: Industrial peace is the feature of these industries because there is less possibilities of labour exploitation.
Q.9. Discuss the significance of foreign trade.
Ans. The significance of foreign trade can be examined with the help of following points:
(i) Optimum Use of World’s Scarce Resources: It is compatible with the application of the principle of maximum advantage for every country. Every country is enabled to sell its products in those markets, where it gets best prices for them and to purchase raw materials and other goods in the cheapest markets. Thus, in the foreign trade process, a country enjoys full freedom both as the seller of its exports and the purchaser of its imports.
(ii) Import of Required Goods: Foreign trade enables the underdeveloped countries to import capital goods and essential raw materials, which are required for their economic development.
(iii) Earn Foreign Exchange: Foreign trade also enables the countries to procure foreign exchange.
(iv) Control Prices: Import and export often reduce the violent fluctuations of prices of those commodities, which are scarce or available in surplus.
(v) Increase in Country’s Consumption Capacities: Foreign trade enlarges a country’s consumption capacities, provides access to scarce resources and exposure to the worldwide market for products, which is needed for growth.
(vi) An Engine of Economic Growth: Foreign trade is treated as engine of economic growth as it plays an important role in the economic development of the country. Through foreign trade, a country not only earns foreign exchange to purchase materials needed for development but also leads to fuller utilisation of natural resources, increase in employment opportunities, development of means of transportation and communication; expansion of tertiary services like banking, finance and insurance; and increase government income in the form of various taxes. Thus, foreign trade is an engine of economic growth.
Q.10. What the main features of foreign trade in India? Explain
Ans. The main features of foreign trade in India are as follows:
(i) Share in National Income: The share of foreign trade in national income of India is increasing. This share was only 12 per cent in 1950-51 which presently increased to about 17 per cent in 1990-91.
(ii) Dependence on a Few Ports: India’s foreign trade is dependent mainly upon Mumbai, Kolkata 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 also 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.