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Term I: Indian Economic and Political History

Objectives, Content & Evaluation - Part II

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. Course Objectives

Course Content Evaluation

Class Quiz 10 %

Best of three quizzes

One quiz a week (2x5), at the end of the

second session of the week, based on lectures

and an assigned reading

Third quiz based on an assigned reading will

be part of end-term examination (1x5)

End-Term 30 %

Two short notes (2x5=10%)

One essay (20%)

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Please ensure that

come to class in time

your laptops are down and mobile

phones in silent-mode while the class isin progress

you have your name boards in front of

you

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Sessions

I The Impact of Planning on EconomicGrowth

II The Consequences of Command &Control

III Liberalization in the Eighties

IV The Economic Crisis of 1991

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I The Impact of Planning onEconomic Growth

.

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The Rationale for Planning

Nehrus consolidation of power and itsimpact on economic policy

The objectives of planningWhy plan?

The three assumptions underlying theplanning process:

o the basic constraint on development was the deficiency of capital

o Industrialization provided the means for surplus labour to be

productively employed

o Government needed to control investment because if market forces

operated concentration of investment (both location and holding)

would continue and investment would flow to non-essential sectors

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The Three Pillars of Planned

Economic Growth

The Industries (Development & Regulation)

Act of 1951

The Licensing System

Progressive Taxation

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The Industries (Development &

Regulation) Act, 1951

The most complex and comprehensive

system of control and regulation of private

sector enterprise devised worldwide

Objectives:o regulation of investments according to plan priorities and

targets

o prevention of concentration of holding

o balanced industrial development to reduce disparities in levels

of development

o protection and encouragement of small-scale industries

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.

Delegated vast powers to the bureaucracy

All existing industries had to register

Licenses were required for new

investments, capacity addition or over-

production

Industries were subject to regulation that

included the power to:o investigate the operations of a firm

o assume management control if necessary

o control supply, distribution and prices of products

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.

The Act initially covered 42 industries and

150 articles of manufacture The list was expanded in 1956 to include an

additional 26 industries and by the mid-

sixties it covered all industries

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Negotiating the System

We needed to import steel and copper, and had to make thepayments to an English company. So that meant we had to: one,get an import license; two ask the RBI to release the foreignexchange; three get the payment released; four get thepermission to manufacture.

For foreign collaboration, like we had between TVS and Lucas,we had to prove it was justified: how much it would cost, howlong it would last, whether expatriates were needed, then howmuch they would be paid, how many days travelling would berequired. Each stageeach permissiontook us six months toa year. We had to set up a large office in Delhi in order to applyto the ministries. Twice every month, my father had to fly fromMadras to Delhi

Gopal Srinivasan quoted in Patrick French, India: A Portrait(Allen Lane/Penguin: 2011)

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Progressive Taxation

Taxation was related not just to economic

policy but to social strategy as well

Income tax rates were hiked both to collect

additional revenue and reduce disparities in

income

New Taxes were introduced

Estate Duty (1953)

Capital Gains Tax (1956)

Wealth Tax (1957)

Gift Tax (1958)

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The Impact of Planned Development

Growth rates remained high during the 50s

Industry grew at an average of about 7%

during this period

Agricultural production increased by an

average of 4 percent

Planned economic development was seen as

a success

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Problems of the licensing system

Delays in clearances Large number of applications, inadequate

infrastructure for review Sequential consideration of applications

Designed to prevent unnecessary investment, but

restricted competition

Absence of criteria for selection Arbitrary decisions, opportunities for corruption