Indian Economy (1950-1990) - Class 12 Commerce Economics - Extra Questions

India’s foreign trade was largely determined by the strategic needs of the British colonial powers prior to its independence in 1947 Like other colonies, India too was a supplier of raw materials and agricultural commodities to Britain and other industrial countries and it used to import the manufactured goods from Britain.

The dependence of colonial India on Britain for manufactured goods hindered the process of industrialization and obliterated the indigenous handicraft and cottage industries.

As a part of the British strategy, India had to export more than its imports prior to World War II, so as to meet the unilateral transfer of payments to Britain by way of the salaries and pensions of the British officers, both military and civil, dividends on British capital invested in India, and interest on sterling loans.

This helped India to achieve a favourable trade balance. In April 1946, India was able to build a huge sterling balance of Rs. 17.33 billion, even after paying of the sterling debt. However, the share of raw materials in India’s exports declined from 45 per cent in 1938-39 to 31 per cent in 1947-48 whereas the share of manufactured goods increased from 30 per cent in 1938-39 to 49 per cent in 1947-48.

It was only after independence that India’s trade patterns began to change in view of its developmental needs. India, as a newly independent country, had to import equipment and machinery that could not be manufactured domestically, in order to create new production capacity and build infrastructure, known as developmental imports.

It also had to import intermediate goods and raw material so as to make full use of its production capacity, known as maintenance imports.

Moreover, as a newly developing country, it had to import consumer goods such as food grains that were in short supply domestically, in order to curb inflationary pressures. Such heavy dependence on imports adversely influences a country’s balance of trade. It necessitates the need to expand exports to finance its imports.

The strategy adopted by India during the period of 1951 and 1991-

1. Setting up of planning commission- The mission was to carefully assess the human and physical resources of the country and to prepare the plan for the effective use of resources. The planning commission fixes the planning period at five years which begins the error of five-year plans.

2. Five-year plans- the five-year plan was also taking care of to ensure the weaker section of the population benefit from the economic progress of the country the four basic goals of five-year plans were growth modernization self-reliance and equity. Each five-year plan listed the basic goals of India's development which served as the guiding principle.

3. Land reforms- Land reforms refer to the change in the ownership of the landholding to achieve the objective of equity in agriculture firstly intermediates were abolished and the policy of land ceiling was adopted. It helps to promote equity in the agriculture sector.

4. Industrial development- Five-year plans changed a lot on the industrial development the cotton textile and jute industries were mostly developed in India however there was a strong need to expand the industries base with a variety of industries.

Import substitution is the process of promoting local industries and discouraging the imports from abroad. The economy undertakes protectionism policy of protecting domestic industries again foreign competition by the means of tariff subsidies import quotas and other restrictions on the imports of foreign competitors.

It not only reduces economy's dependence on the foreign goods but also provides impetus to domestic firms. Government provides subsidies, incentives and license to domestic producers to produce domestically the import substituted goods.