Passage Based Questions: Indian Economy 1950-1990 | Economics Class 12 - Commerce PDF Download

Passage - 1

Direction: Read the following Passage and Answer the Questions.
A socialist society answers the three questions in a totally different manner. In a socialist society the government decides what goods are to be produced in accordance with the needs of society. It is assumed that the government knows what is good for the people of the country and so the desires of individual consumers are not given much importance. The government decides how goods are to be produced and how they should be distributed. In principle, distribution under socialism is supposed to be based on what people need and not on what they can afford to purchase. Unlike under capitalism, for example, a socialist nation provides free health care to all its citizens. Strictly, a socialist society has no private property since everything is owned by the state. In Cuba and China, for example, most of the economic activities are governed by socialistic principles.

Q1: How does a socialist society determine what goods are to be produced?
Ans:

• In a socialist society, the government decides what goods are to be produced according to the needs of the society, prioritizing social welfare over individual desires.

Q2: What role does the government play in the production and distribution of goods in a socialist society?
Ans:

• The government determines how goods are produced and distributed in a socialist society. Distribution is based on people's needs rather than their purchasing power, ensuring equal access to essential services like healthcare for all citizens.

Q3: What is the stance of a socialist society on private property, and can you provide examples of countries following socialist principles?
Ans:

• In a socialist society, there is no private property since everything is owned by the state. Countries like Cuba and China govern most of their economic activities based on socialist principles, emphasizing state ownership and social welfare programs like free healthcare for all citizens.

Passage - 2

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It refers to increase in the country’s capacity to produce the output of goods and services within the country. It implies either a larger stock of productive capital, or a larger size of supporting services like transport and banking, or an increase in the efficiency of productive capital and services. A good indicator of economic growth, in the language of economics, is steady increase in the Gross Domestic Product (GDP). The GDP is the market value of all the final goods and services produced in the country during a year. 

Q1: What does economic growth refer to in the context of a country's production capacity?
Ans:

• Economic growth refers to the increase in a country’s capacity to produce goods and services, which can result from a larger stock of productive capital, improved supporting services like transport and banking, or increased efficiency of capital and services.

Q2: How is economic growth measured in the language of economics?
Ans:

• Economic growth is often measured by a steady increase in Gross Domestic Product (GDP), which represents the market value of all final goods and services produced within a country during a year.

Q3: What factors can contribute to economic growth according to the passage?
Ans:

• Economic growth can result from a larger stock of productive capital, improved supporting services like transport and banking, and increased efficiency of both capital and services within a country.

Passage - 3

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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 by each of these sectors makes up the structural composition of the economy. In some countries, growth in agriculture contributes more to the GDP growth, while in some countries the growth in the service sector contributes more to GDP growth.

Q1: How is the GDP of a country derived according to the passage?
Ans:

• The GDP of a country is derived from the agricultural sector, the industrial sector, and the service sector. The contributions from each of these sectors form the structural composition of the economy.

Q2: What does the structural composition of the economy represent in terms of GDP?
Ans:

• The structural composition of the economy represents the contributions made by different sectors (agricultural, industrial, and service sectors) to the GDP of a country.

Q3: How can the contribution of sectors to GDP growth vary among different countries?
Ans:

• The contribution of sectors to GDP growth can vary; in some countries, growth in agriculture might contribute more, while in others, the service sector's growth might contribute significantly to the overall GDP growth.

Passage - 4

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Now growth, modernisation and self-reliance, by themselves, may not improve the kind of life which people are living. A country can have high growth, the most modern technology developed in the country itself, and also have most of its people living in poverty. 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. So, in addition to growth, modernisation and self-reliance, equity is also important. 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.

Q1: What does the passage emphasize as an important aspect in addition to growth, modernization, and self-reliance for improving people's lives?
Ans:

• The passage emphasizes that equity, or ensuring that the benefits of economic prosperity reach the poor sections of society, is also important for improving people's lives.

Q2: What potential situation is mentioned in the passage, which highlights the importance of equity alongside growth and modernization?
Ans:

• The passage suggests that a country can have high growth and advanced technology while still having a significant population living in poverty.
• This situation underscores the importance of ensuring equity and reducing wealth inequality.

Q3: What are some of the basic needs that every Indian should be able to meet, according to the passage?
Ans:

• Every Indian should be able to meet basic needs such as food, a decent house, education, and healthcare, as mentioned in the passage.
• Reducing inequality in the distribution of wealth is also highlighted as a goal.

Passage - 5

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The policy of ‘land to the tiller’ is based on the idea that the cultivators will take more interest — they will have more incentive — in increasing output if they are the owners of the land. This is because ownership of land enables the tiller to make profit from the increased output. Tenants do not have the incentive to make improvements on land since it is the landowner who would benefit more from higher output. The importance of ownership in providing incentives is well illustrated by the carelessness with which farmers in the former Soviet Union used to pack fruits for sale. It was not uncommon to see farmers packing rotten fruits along with fresh fruits in the same box.

Q1: What is the basis of the 'land to the tiller' policy, as mentioned in the passage?
Ans:

• The 'land to the tiller' policy is based on the idea that cultivators are more motivated to increase output when they own the land.
• Ownership provides an incentive as the tiller can profit from higher output, fostering a sense of responsibility and interest in cultivation.

Q2: Why do tenants often lack the incentive to make improvements on the land, according to the passage?
Ans:

• Tenants lack the incentive to make improvements because the landowner, not the tenant, benefits more from higher output.
• Ownership, therefore, plays a crucial role in encouraging agricultural development.

Q3: How is the importance of ownership illustrated in the passage through an example from the former Soviet Union?
Ans:

• The passage illustrates the importance of ownership by mentioning farmers in the former Soviet Union who packed rotten fruits with fresh ones.
• This carelessness stemmed from a lack of ownership incentive, showcasing how ownership motivates individuals to maintain and improve the quality of their produce.

Passage - 6

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Land ceiling was another policy to promote equity in the agricultural sector. This means fixing the maximum size of land which could be owned by an individual. The purpose of land ceiling was to reduce the concentration of land ownership in a few hands. The abolition of intermediaries meant that some 200 lakh tenants came into direct contact with the government — they were thus freed from being exploited by the zamindars. The ownership conferred on tenants gave them the incentive to increase output and this contributed to growth in agriculture. However, the goal of equity was not fully served by abolition of intermediaries.

Q1: What was the purpose of the land ceiling policy in the agricultural sector?
Ans:

• The purpose of the land ceiling policy was to reduce the concentration of land ownership in a few hands by fixing the maximum size of land that could be owned by an individual.

Q2: What was the impact of the abolition of intermediaries on tenants in the agricultural sector?
Ans:

• The abolition of intermediaries meant that around 200 lakh tenants came into direct contact with the government, freeing them from exploitation by zamindars.
• This direct ownership gave tenants the incentive to increase output, contributing to agricultural growth.

Q3: Was the goal of equity fully achieved by the abolition of intermediaries in the agricultural sector?
Ans:

• The passage suggests that the goal of equity was not fully served by the abolition of intermediaries, indicating that there were limitations in achieving complete equity through this policy alone.

Passage - 7

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The stagnation in agriculture during the colonial rule was permanently broken by the green revolution. This refers to the large increase in production of food grains resulting from the use of high yielding variety (HYV) seeds especially for wheat and rice. The use of these seeds required the use of fertiliser and pesticide in the correct quantities as well as regular supply of water; the application of these inputs in correct proportions is vital. The farmers who could benefit from HYV seeds required reliable irrigation facilities as well as the financial resources to purchase fertiliser and pesticide.

Q1: What event broke the stagnation in agriculture during colonial rule?
Ans:

• The stagnation in agriculture during colonial rule was permanently broken by the green revolution, characterized by a large increase in food grain production due to the use of high yielding variety (HYV) seeds, especially for wheat and rice.

Q2: What were the essential requirements for farmers to benefit from high yielding variety (HYV) seeds according to the passage?
Ans:

• Farmers needed reliable irrigation facilities as well as the financial resources to purchase fertilizers and pesticides.
• Correct application of these inputs, including fertilizers and pesticides in the right quantities and proper proportions, was vital for the success of HYV seeds.

Q3: What were the key inputs required for the successful use of high yielding variety (HYV) seeds in agriculture?
Ans:

• The successful use of HYV seeds required the correct application of fertilizers, pesticides, and regular supply of water.
• Farmers needed reliable irrigation facilities and financial resources to purchase these inputs in the correct quantities.

Passage - 8

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If, on the other hand, a substantial amount of agricultural produce is sold in the market by the farmers, the higher output can make a difference to the economy. The portion of agricultural produce which is sold in the market by the farmers is called marketed surplus. A good proportion of the rice and wheat produced during the green revolution period (available as marketed surplus) was sold by the farmers in the market. As a result, the price of food grains declined relative to other items of consumption. The lowincome groups, who spend a large percentage of their income on food, benefited from this decline in relative prices.

Q1: What is the portion of agricultural produce sold in the market by farmers called?
Ans:

• The portion of agricultural produce sold in the market by farmers is called marketed surplus.

Q2: How did the green revolution impact the price of food grains in relation to other items of consumption?
Ans:

• Due to a substantial increase in the marketed surplus of rice and wheat during the green revolution, the price of food grains declined relative to other consumer goods.

Q3: Who benefited from the decline in relative prices of food grains during the green revolution period, according to the passage?
Ans:

• Low-income groups, who typically spend a large percentage of their income on food, benefited from the decline in relative prices of food grains.

Passage - 9

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Some economists point out that subsidies do not allow prices to indicate the supply of a good. When electricity and water are provided at a subsidised rate or free, they will be used wastefully without any concern for their scarcity. Farmers will cultivate water intensive crops if water is supplied free, although the water resources in that region may be scarce and such crops will further deplete the already scarce resources. If water is priced to reflect scarcity, farmers will cultivate crops suitable to the region. Fertiliser and pesticide subsidies result in overuse of resources which can be harmful to the environment. Subsidies provide an incentive for wasteful use of resources. Think about subsidies in terms of incentives and ask yourself whether it is wise from the economic viewpoint to provide free electricity to farmers.

Q1: What is the concern raised by some economists regarding subsidies in the context of goods like electricity and water?
Ans:

• Some economists argue that subsidies prevent prices from indicating the actual supply of a good.
• When provided at a subsidized rate or for free, goods like electricity and water can be wastefully used without considering their scarcity.

Q2: How can subsidies for water, fertilizers, and pesticides potentially lead to negative environmental impacts?
Ans:

• Water subsidies might lead to overuse of water resources, depleting scarce water supplies.
• Similarly, fertilizer and pesticide subsidies can result in their overuse, harming the environment due to excessive application.

Q3: What incentive does the passage suggest subsidies provide, and why is it questioned from an economic viewpoint?
Ans:

• Subsidies provide an incentive for wasteful use of resources.
• From an economic viewpoint, it is questioned whether it is wise to provide free electricity to farmers, as it may lead to inefficient and unsustainable use of resources.

Passage - 10

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In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society. This resolution classified industries into three categories. The first category comprised industries which would be exclusively owned by the government; the second category consisted of industries in which the private sector could supplement the efforts of the public sector, with the government taking the sole responsibility for starting new units; the third category consisted of the remaining industries which were to be in the private sector.

Q1: What was the goal behind the Industrial Policy Resolution of 1956 in India?
Ans:

• The goal was to establish state control over the commanding heights of the economy and build the basis for a socialist pattern of society.

Q2: How were industries classified under the Industrial Policy Resolution of 1956?
Ans: Industries were classified into three categories:

• Industries exclusively owned by the government.
• Industries where the private sector could support public sector efforts, with the government responsible for starting new units.
• Remaining industries to be in the private sector.

Q3: What major economic plan was based on the Industrial Policy Resolution of 1956 in India?
Ans:

• The Industrial Policy Resolution of 1956 formed the basis of the Second Five Year Plan, which aimed to establish a socialist pattern of society in India.

Passage - 11

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Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. No new industry was allowed unless a license was obtained from the government. This policy was used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit was established in an economically backward area. In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality.

Q1: How was the private sector controlled under the Industrial Policy Resolution of 1956 in India?
Ans:

• The private sector was kept under state control through a system of licenses.
• No new industry was allowed to operate without obtaining a license from the government.

Q2: What were the incentives provided to industrial units established in economically backward areas under this policy?
Ans:

• Industrial units established in economically backward areas were given concessions such as tax benefits and electricity at a lower tariff.
• It was easier to obtain a license for setting up an industrial unit in a backward region, promoting industry in those areas.

Q3: What was the main purpose of the policy of providing licenses and concessions to industries in backward regions?
Ans:

• The main purpose of this policy was to promote regional equality by encouraging industrial development in economically backward areas through the issuance of licenses and the provision of incentives.

Passage - 12

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It is believed that small-scale industries are more ‘labour intensive’ i.e., they use more labour than the large-scale industries and, therefore, generate more employment. But these industries cannot compete with the big industrial firms; it is obvious that development of small-scale industry requires them to be shielded from the large firms. For this purpose, the production of a number of products was reserved for the small-scale industry; the criterion of reservation being the ability of these units to manufacture the goods.

Q1: Why are small-scale industries considered more labor-intensive compared to large-scale industries?
Ans:

• Small-scale industries are considered more labor-intensive because they use a higher proportion of labor in their production processes compared to large-scale industries.

Q2: What challenge do small-scale industries face in competing with large industrial firms, and how was this addressed in policy?
Ans:

• Small-scale industries struggle to compete with large firms. To shield them, certain products were reserved for the small-scale industry.
• The reservation was based on the units' ability to manufacture these goods, ensuring their protection from competition with large firms.

Q3: What criterion was used to reserve the production of specific products for small-scale industries?
Ans:

• The criterion for reserving the production of certain products for small-scale industries was based on their ability to manufacture these goods effectively.
• This reservation aimed to protect small-scale industries from the competition posed by large firms.

Passage - 13

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The achievements of India’s industrial sector during the first seven plans are impressive indeed. The proportion of GDP contributed by the industrial sector increased in the period from 13 per cent in 1950-51 to 24.6 per cent in 1990-91. The rise in the industry’s share of GDP is an important indicator of development. The six per cent annual growth rate of the industrial sector during the period is commendable.

Q1: What was the increase in the proportion of GDP contributed by India's industrial sector between 1950-51 and 1990-91?
Ans:

• The proportion of GDP contributed by India's industrial sector increased from 13 percent in 1950-51 to 24.6 percent in 1990-91.

Q2: Why is the rise in the industry’s share of GDP considered an important indicator of development?
Ans:

• The rise in the industry's share of GDP is considered an important indicator of development because it signifies economic growth and development within the country.

Q3: What was the annual growth rate of India's industrial sector during the period mentioned in the passage?
Ans:

• The industrial sector of India experienced a commendable six percent annual growth rate during the mentioned period, reflecting significant progress and development.

Passage - 14

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More time was spent by industrialists in trying to obtain a license or lobby with the concerned ministries rather than on thinking about how to improve their products. The protection from foreign competition was also being criticised on the ground that it continued even after it proved to do more harm than good. Due to restrictions on imports, the Indian consumers had to purchase whatever the Indian producers produced. The producers were aware that they had a captive market; so they had no incentive to improve the quality of their goods.

Q1: What issue did industrialists face due to the licensing system in India during the mentioned period?
Ans:

• Industrialists spent more time trying to obtain licenses or lobbying with the concerned ministries rather than focusing on improving their products due to the cumbersome licensing system.

Q2: How did protection from foreign competition affect the Indian market, according to the passage?
Ans:

• Protection from foreign competition, although intended to help, was criticized because it continued even after it proved to do more harm than good.
• Due to restrictions on imports, Indian consumers had to buy whatever Indian producers produced, creating a captive market for domestic goods.

Q3: Why did Indian producers lack incentive to improve the quality of their goods during this period?
Ans:

• Indian producers lacked the incentive to improve the quality of their goods because they knew they had a captive market due to restrictions on imports.
• With limited competition, there was little pressure to enhance the quality of their products.