NCERT Notes for Class 12 Economics Chapter 2 INDIAN ECONOMY 1950-1990

Class 12 Economics Chapter 2 INDIAN ECONOMY 1950-1990

NCERT Notes for Class 12 Economics Chapter 2 INDIAN ECONOMY 1950-1990, (Economics) exam are Students are taught thru NCERT books in some of the state board and CBSE Schools. As the chapter involves an end, there is an exercise provided to assist students to prepare for evaluation. Students need to clear up those exercises very well because the questions inside the very last asked from those.

Sometimes, students get stuck inside the exercises and are not able to clear up all of the questions.  To assist students, solve all of the questions, and maintain their studies without a doubt, we have provided step-by-step NCERT Notes for the students for all classes.  These answers will similarly help students in scoring better marks with the assist of properly illustrated Notes as a way to similarly assist the students and answer the questions right

NCERT Notes for Class 12 Economics Chapter 2 INDIAN ECONOMY 1950-1990

Class 12 Economics Chapter 2 INDIAN ECONOMY 1950-1990


1- Economic System:

The basic economic systems are Capitalism, Socialism and mixed economy. Every economy has to answer three questions: What goods and services should be produced in the country? How should the goods and services be produced?

How the goods and services should be distributed among people.

  • In capitalism (market economy) market forces of supply and demand answer this question.
  • In a socialist society the government decides what goods are to be produced in accordance with the needs of society.
  • In mixed economies, both the government and the market together answer the three questions of what to produce, how to produce and how to distribute it.


2- What is a Plan?

A plan should have some general goals as well as specific objectives which are to be achieved within a specified period of time. In 1950, the Planning

Commission was set up with the Prime Minister as its Chairperson. Now it is renamed as NITI Aayog (It was established in 1st January 2015).

  • Planning, in the real sense of the term, began with the Second Five Year Plan.
  • This plan was based on the ideas of P.C. Mahalanobis. (Prasanta Chandra Mahalanobis, He established the Indian Statistical Institute (ISI))


(i) Growth: 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.

  • A good indicator of economic growth is steady increase in the Gross Domestic Product (GDP).
  • 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.

(ii) 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.
  • A modern society makes use of the talents of women in the work place — in banks, factories, schools etc

(iii) 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 goods which could be produced in India itself.

(iv) Equity:

  • Every Indian should be able to meet his or her basic needs such as food, a decent house, education and health care.
  • Inequality in the distribution of wealth should be reduced.
  • It is important to ensure that the benefits of economic prosperity reach to the poor sections of the society.



  • At the time of independence, the land tenure system was characterised by intermediaries(zamindars, jagirdars etc.)
  • Equity in agriculture paved the way for land reforms, which change in the ownership of steps were taken to abolish intermediaries and to make the tillers, the owners of land. Land reforms resulted in abolition of the zamindari system.
  • 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 goal of equity was not fully served by abolition of intermediaries. In some areas the former zamindars continued to own large areas of land by making use of some loopholes in the legislation.
  • The big landlords challenged the legislation in the courts, delaying its implementation.
  • Land reforms were successful in Kerala and West Bengal because these states had governments committed to the policy of land to the tiller.

The Green Revolution:

  • At independence, about 75 per cent of the country’s population was dependent on agriculture. Productivity in the agricultural sector was very low because of the use of old technology and the absence of required infrastructure.
  • During this time India’s agriculture vitally depends on the monsoon.
  • The stagnation in agriculture during the colonial rule was permanently broken by the green revolution.
  • Green revolution refers to the large increase in production of food grains resulting from the use of high yielding variety (HYV) seeds, irrigation, fertilizers etc especially for wheat and rice.
  • The spread of green revolution enabled India to achieve selfsufficiency in food grains.
  • Due to the effect of green revolution a portion of agricultural produce which is sold in the market by the farmers. It is called marketed surplus.
  • The green revolution enabled the government to procure sufficient amount of food grains to build a stock which could be used in times of food shortage.
  • The shortcomings of Green revolution was that it would increase the disparities between small and big farmers. The HYV crops were more prone to attack by pests and the small farmers who adopted this technology could lose everything in a pest attack.
  • The government provided loans at a low interest rate to small farmers. As a result, the green revolution benefited the small as well as rich farmers.

The Debate Over Subsidies

The economic justification of subsidies in agriculture is, at present a debated question.

  • It is generally agreed that it was necessary to use subsidies to provide an incentive for adoption of the new HYV technology by farmers in general and small farmers in particular.
  • Subsidies were, needed to encourage farmers to test the new technology.
  • Economists believe that once the technology is found profitable and is widely adopted, subsidies should be avoided.
  • Some economists believe that the government should continued agricultural subsidies because farming in India is a risky business. Most farmers are very poor and they will not be able to afford the required inputs without subsidies.
  • Eliminating subsidies will increase the inequality between rich and poor farmers and violate the goal of equity.
  • In the late 1960s, Indian agricultural productivity had increased sufficiently to enable the country to be self-sufficient in food grains. This is an achievement.


  • Industry provides employment which is more stable than the employment in agriculture; it promotes modernisation and overall prosperity.
  • It is for this reason that the five-year plans place a lot of emphasis on industrial development.

Industrial Policy Resolution 1956 (IPR 1956):

  • IPR 1956 formed the basis of the Second Five Year Plan.
  • This resolution classified industries into three categories
  • The first category comprised industries which would be exclusively owned by the state.(strategic industries)
  • Second category consisted of industries in which the private sector could supplement the efforts of the state sector. ( state taking the sole responsibility for starting new units)
  • Third category consisted of the remaining industries which were to be in the private sector.( Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. eg:industries producing food, clothes etc)

Small-Scale Industry:

  • In 1955, the Village and Small-Scale Industries Committee, also called the Karve Committee, noted the possibility of using small-scale industries for promoting rural development.
  • A ‘small-scale industry’ is defined with reference to the maximum investment allowed on the assets of a unit. At present the maximum investment allowed is rupees one crore.
  • Small-scale industries are more ‘labour intensive as compared to large scale industries.
  • It therefore, generates more employment.
  • Small scale industries normally, cannot compete with the big industrial firms therefore production of a number of products was reserved for the small-scale industry.


  • The industrial policy that we adopted was closely related to the trade policy. In the first seven plans, trade was characterized by inward looking trade strategy.
  • This strategy is called import substitution. It means replacing or substituting imports with domestic production.
  • In this policy the government protected the domestic industries from foreign competition. Protection from imports took two forms: tariffs and quotas.
  • Tariffs are a tax on imported goods. Quotas specify the quantity of goods which can be imported.
  • The effect of tariffs and quotas is that they restrict imports and, therefore, protect the domestic firms from foreign competition.

Effect of Policies on Industrial Development

  • The achievements of India’s industrial sector during the first seven plans are impressive. The proportion of GDP contributed by the industrial sector increased. The industrial sector became well diversified by 1990, largely due to the public sector.
  • Protection from foreign competition enabled the development of indigenous industries
  • In spite of the contribution made by the public sector to the growth of the Indian economy, some economists are critical of the performance of many public sector enterprises.
  • The point is that after four decades of Planned development of Indian Economy no distinction was made between (i) what the public sector alone can do and (ii) what the private sector can also do?
  • Many public sector firms incurred huge losses but continued to function because it is difficult to close a government undertaking even if it is a drain on the nation’s limited resources.
  • Many industrialists misused by industrial license; they get a license not for starting a new firm but to prevent competitors from starting new firms.
  • The excessive regulation of permit license raj prevented certain firms from becoming more efficient.
  • A few economists point out that the public sector is not meant for earning profits but to promote the welfare of the nation.
  • Due to restrictions on imports, the Indian consumers had to purchase whatever the Indian producers produced.

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