Economics NCERT

CHAPTER 5

CONSUMER RIGHTS

The collage you see below contains what are the ways in which they can
some news clippings of consumer exercise their rights as consumers to
court verdicts. Why did the people go get a fair deal from the sellers when
to the consumer court in these cases? they felt they had been denied a just
These verdicts came about because treatment?
some people persisted and struggled
to get justice. In what ways were they
denied justice? More importantly,

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THE CONSUMER IN THE MARKETPLACE

We participate in the market both as Likewise, rules and regulations are
producers and consumers. As required for the protection of the
producers of goods and services we consumers in the marketplace.
could be working in any of the sectors Individual consumers often find
discussed earlier such as agriculture, themselves in a weak position.
industry, or services. Consumers Whenever there is a complaint
participate in the market when they regarding a good or service that had
purchase goods and services that they been bought, the seller tries to shift
need. These are the final goods that all the responsibility on to the buyer.
people as consumers use. Their position usually is – “If you
didn’t like what you bought, please
In the preceding chapters we go elsewhere”. As if the seller has no
discussed the need for rules and responsibility once a sale is
regulations or steps that would completed! The consumer movement,
promote development. These could be as we shall discuss later, is an effort
for the protection of workers in the to change this situation.
unorganised sector or to protect
people from high interest rates Exploitation in the marketplace
charged by moneylenders in the happens in various ways. For
informal sector. Similarly, rules and example, sometimes traders indulge
regulations are also required for in unfair trade practices such as when
protecting the environment. shopkeepers weigh less than what
they should or when traders add
For example, moneylenders in the charges that were not mentioned
informal sector that you read about before, or when adulterated/defective
in Chapter 3 adopt various tricks to goods are sold.
bind the borrower: they could make
the producer sell the produce to them Markets do not work in a fair
at a low rate in return for a timely loan; manner when producers are few and
they could force a small farmer like powerful whereas consumers
Swapna to sell her land to pay back purchase in small amounts and are
the loan. Similarly, many people who scattered. This happens especially
work in the unorganised sector have when large companies are producing
to work at a low wage and accept these goods. These companies with
conditions that are not fair and are huge wealth, power and reach can
also often harmful to their health. To manipulate the market in various
prevent such exploitation, we ways. At times false information is
have talked of rules and regulations passed on through the media, and
for their protection. There are other sources to attract consumers.
organisations that have struggled For example, a company for years
for long to ensure that these rules are sold powder milk for babies all over
followed.

THEY PURPOSELY MADE IT
SO IT WOULD FALL APART
AFTER A FEW MONTHS SO
THAT I WILL BUY A NEW ONE!

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the world as the most scientific EVERYONE KNOWS
product claiming this to be better TOBACCO KILLS PEOPLE,
than mother’s milk. It took years of BUT WHO CAN SAY THAT
struggle before the company was
forced to accept that it had been TOBACCO COMPANIES
making false claims. Similarly, a SHOULD NOT BE FREE
long battle had to be fought with
court cases to make cigarette- TO SELL TOBACCO?
manufacturing companies accept that
their product could cause cancer.
Hence, there is a need for rules and
regulations to ensure protection for
consumers.

LET’S WORK THESE OUT

1. What are the various ways by which people may be exploited in the market?
2. Think of one example from your experience where you thought that there was some

‘cheating’ in the market. Discuss in the classroom.
3. What do you think should be the role of government to protect consumers?

CONSUMER MOVEMENT

The consumer movement arose out quality of goods and services on the
of dissatisfaction of the consumers sellers.
as many unfair practices were being
indulged in by the sellers. There was In India, the consumer movement
no legal system available to as a ‘social force’ originated with the
consumers to protect them from necessity of protecting and promoting
exploitation in the marketplace. For the interests of consumers against
a long time, when a consumer was unethical and unfair trade practices.
not happy with a particular brand Rampant food shortages, hoarding,
product or shop, he or she generally black marketing, adulteration of food
avoided buying that brand product, and edible oil gave birth to the
or would stop purchasing from that consumer movement in an organised
shop. It was presumed that it was form in the 1960s. Till the 1970s,
the responsibility of consumers to be consumer organisations were largely
careful while buying a commodity engaged in writing articles and
or service. It took many years for holding exhibitions. They formed
organisations in India, and around consumer groups to look into the
the world, to create awareness malpractices in ration shops and
amongst people. This has also overcrowding in the road passenger
shifted the responsibility of ensuring transport. More recently, India
witnessed an upsurge in the number
of consumer groups.

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Consumers International

In 1985 United Nations adopted
the UN Guidelines for Consumer
Protection. This was a tool for
nations to adopt measures to
protect consumers and for
consumer advocacy groups to
press their governments to do
so. At the international level, this
has become the foundation for
consumer movement. Today,
Consumers International has
become an umbrella body to
over 220 member organisations
from over 115 countries.

Because of all these efforts, the movement succeeded in
bringing pressure on business firms as well as government
to correct business conduct which may be unfair and against
the interests of consumers at large. A major step taken in
1986 by the Indian government was the enactment of the
Consumer Protection Act 1986, popularly known as COPRA.
You will learn more about COPRA later.

LET’S WORK THESE OUT

1. What could have been the steps taken by consumer groups?
2. There may be rules and regulations but they are often not followed. Why? Discuss.

2018-19

CONSUMER RIGHTS Reji’s suffering shows how a
hospital, due to negligence by the
SAFETY IS EVERYONE’S RIGHT doctors and staff in giving
anaesthesia, crippled a student for
Reji’s Suffering life. While using many goods and
services, we as consumers, have the
Reji Mathew, a healthy boy studying in right to be protected against the
Class IX, was admitted in a private clinic in marketing of goods and delivery of
Kerala for removal of tonsils. An ENT services that are hazardous to life and
surgeon performed the tonsillectomy property. Producers need to strictly
operation under general anaesthesia. As a follow the required safety rules and
result of improper anaesthesia Reji showed regulations. There are many goods
symptoms of some brain abnormalities and services that we purchase that
because of which he was crippled for life. require special attention to safety. For
example, pressure cookers have a
His father filed a complaint in the State safety valve which, if it is defective, can
Consumer Disputes Redressal Commission cause a serious accident. The
claiming compensation of Rs 5,00,000 for manufacturers of the safety valve have
medical negligence and deficiency, in to ensure high quality. You also need
service. The State Commission, saying that public or government action to see
the evidence was not sufficient, dismissed that this quality is maintained.
it. Reji’s father appealed again in the However, we do find bad quality
National Consumer Disputes Redressal products in the market because the
supervision of these rules is weak and
Commission located the consumer movement is also not
in New Delhi. The strong enough.
National Commission
after looking into the
complaint, held the
hospital responsible
for medical negligence
and directed it to pay
the compensation.

LET’S WORK THESE OUT

1. For the following (you can add to the list) products/services discuss what safety
rules should be observed by the producer?

(a) LPG cylinder (b) cinema theatre (c) circus (d) medicines (e) edible oil
(f) marriage pandal (g) a high-rise building.

2. Find out any case of accident or negligence from people around you, where you think
that the responsibility lay with the producer. Discuss.

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Information about goods and product and find it defective well
services within the expiry period, we can ask
for a replacement. If the expiry period
When you buy any commodity, you was not printed, the manufacturer
will find certain details given on the would blame the shopkeeper and will
packing. These details are about not accept the responsibility. If people
ingredients used, price, batch sell medicines that have expired
number, date of manufacture, expiry severe action can be taken against
date and the address of the them. Similarly, one can protest and
manufacturer. When we buy complain if someone sells a good at
medicines, on the packets, you might more than the printed price on the
find ‘directions for proper use’ and packet. This is indicated by ‘MRP’ —
information relating to side effects and maximum retail price. In fact
risks associated with usage of that consumers can bargain with the seller
medicine. When you buy garments, to sell at less than the MRP.
you will find information on
‘instructions for washing’. In recent times, the right to
information has been expanded to
Why is it that rules have been made cover various services provided by the
so that the manufacturer displays this Government. In October 2005, the
information? It is because consumers Government of India enacted a law,
have the right to be informed about popularly known as RTI (Right to
the particulars of goods and services Information) Act, which ensures its
that they purchase. Consumers citizens all the information about the
can then complain and ask for functions of government departments.
compensation or replacement if the The effect of the R TI Act can be
product proves to be defective in any understood from the following case.
manner. For example, if we buy a

Waiting...

Amritha, an engineering graduate
after submitting all the certificates
and attending the interview for a
job in a government department, did
not receive any news of the result.
The officials also refused to comply
with her queries. She therefore filed
an application using the RTI Act
saying that it was her right to know
the result in a reasonable time so
that she could plan her future. She
was not only informed about the
reasons for delay in the declaration
of results but also got her call letter
for appointment as she performed
well in the interview.

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LET’S WORK THESE OUT

1. When we buy commodities we find that the price charged is sometimes higher or
lower than the Maximum Retail Price printed on the pack. Discuss the possible
reasons. Should consumer groups do something about this?

2. Pick up a few packaged goods that you want to buy and examine the information
given. In what ways are they useful? Is there some information that you think
should be given on those packaged goods but is not? Discuss.

3. People make complaints about the lack of civic amenities such as bad roads or
poor water and health facilities but no one listens. Now the RTI Act gives you the
power to question. Do you agree? Discuss.

When choice is denied

Abirami, a student of A Refund choose. The Institute

Ansari Nagar, joined a two- again appealed in the

year course at a local State Consumer Com-

coaching institute for mission. The State

professional courses in Commission upheld the

New Delhi. At the time of district court’s direction

joining the course, she and further fined the

paid the fees Rs 61,020 institute Rs 25,000 for a

as lumpsum for the entire frivolous appeal. It also

course of two years. directed the institute to

However, she decided to opt out of the pay Rs 7000 as compensation and

course at the end of one year as she litigation cost.

found that the quality of teaching was The State Commission also restrained
not up to the mark. When she asked all the educational and professional
for a refund of the fee for one year, it institutions in the state from charging
was denied to her. fees from students for the entire

When she filed the case in the District duration of the course in advance and

Consumer Court, the Court directed that too at one go. Any violation of this

the Institute to refund Rs 28,000 order may invite penalties and

saying that she had the right to imprisonment, the commission said.

What do we understand from this if you buy a tooth brush. If you are
incident? Any consumer who receives a not interested in buying the brush,
service in whatever capacity, regardless your right to choice is denied. Similarly,
of age, gender and nature of service, has sometimes gas supply dealers insist
the right to choose whether to continue that you have to buy the stove from
to receive the service. them when you take a new connection.
In this way many a times you are
Suppose you want to buy forced to buy things that you may not
toothpaste, and the shop owner says wish to and you are left with no choice.
that she can sell the toothpaste only

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LET’S WORK THIS OUT

The following are some of the catchy advertisements of products that we purchase
from the market. Which of the following offers would really benefit consumers? Discuss.
15 gm more in every 500 gm pack.
Subscribe for a newspaper with a gift at the end of a year.
Scratch and win gifts worth Rs 10 lakhs.
A milk chocolate inside a 500 gram glucose box.
Win a gold coin inside a pack.
Buy shoes worth Rs 2000 and get one pair of shoes worth Rs 500 free.

Where should consumers go effective public system by which this
to get justice? can be done.

Read again the cases of Reji Mathew The consumer can file a complaint
and Abirami given earlier in the before the appropriate consumer
chapter. forum on his/her own with or without
the services of lawyers. You might be
These are some examples in which interested in knowing how an
consumers are denied their rights. aggrieved person gets his or her
Such instances occur quite often in compensation. Let us take the
our country. Where should these case of Prakash. He had sent a
consumers go to get justice? money-order to his village for his
daughter’s marriage. The money did
Consumers have the right to seek not reach his daughter at the time
redressal against unfair trade when she needed it nor did it reach
practices and exploitation. If any months later. Prakash filed a case in
damage is done to a consumer, she a district level consumer court in New
has the right to get compensation Delhi. All the steps he undertook are
depending on the degree of damage. illustrated here.
There is a need to provide an easy and

1. PRAKASH GOES TO THE POST OFFICE TO 2. PRAKASH COMES TO KNOW THAT THE
SEND MONEY ORDER TO HIS DAUGHTER MONEY HAS NOT REACHED HIS DAUGHTER

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3. PRAKASH ENQUIRES ABOUT THE 4. THE POST OFFICE DOES NOT RESPOND
MONEY ORDER IN THE POST OFFICE TO THE QUERY SATISFACTORILY

5. PRAKASH GOES TO THE LOCAL CONSUMER 6. PRAKASH GOES TO A CONSUMER COURT TO FILE
PROTECTION COUNCIL FOR ADVICE A CASE. HE FILLS A REGISTRATION FORM. THE
COURT SENDS NOTICE TO THE OTHER PARTY

HE HIMSELF PLEADS THE COURT JUDGE VERIFIES THE DOCUMENTS

7. 8.THE CASE IN THE AND HEARS THE ARGUMENTS OF BOTH THE

COURT 9. THE JUDGE ANNOUNCES
THE COURT VERDICT.
AGGRIEVED PARTY AND THE OTHER PARTY

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The consumer movement in India Under COPRA, a three-tier quasi-
has led to the formation of various judicial machinery at the district,
organisations, locally known as state and national levels was set up
consumer forums or consumer for redressal of consumer disputes.
protection councils. They guide The district-level court called District
consumers on how to file cases in the Forum deals with the cases involving
consumer court. On many occasions, claims upto Rs 20 lakh, the state-
they also represent individual level court called State Commission
consumers in consumer courts. between Rs 20 lakh and Rs 1 crore
These voluntary organisations also and the national-level court —
receive financial support from the National Commission — deals with
government for creating awareness cases involving claims exceeding
among people. Rs 1 crore. If a case is dismissed in
district-level court, a consumer can
If you are living in a residential also appeal in the state and then in
colony, you might have noticed national-level courts.
boards of Residents’ Welfare
Associations. If there is any unfair Thus, the Act has enabled us as
trade practice meted out to their consumers to have the right to
members, they take up the case on represent in the consumer courts.
their behalf.

LET’S WORK THIS OUT

Arrange the following in the correct order.

(a) Arita files a case in the District Consumer Court.

(b) She engages a professional person.

(c) She realises that the dealer has given her defective
material.

(d) She starts attending the court proceedings.

(e) She goes and complains to the dealer and the Branch
office, to no effect.

(f) She is asked to produce the bill and warranty before
the court.

(g) She purchases a wall clock from a retail outlet.

(h) Within a few months, the dealer was ordered by the
court to replace her old wall clock with a brand new
one at no extra cost.

LEARNING TO BECOME WELL-INFORMED
CONSUMERS

When we as consumers become conscious of our rights,
while purchasing various goods and services, we will be
able to discriminate and make informed choices. This
calls for acquiring the knowledge and skill to become a
well-informed consumer. How do we become conscious

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of our rights? Look at the posters on
the right and in the previous page.
What do you think?

The enactment of COPRA has led
to the setting up of separate
departments of Consumer Affairs in
central and state governments. The
posters that you have seen are one
example through which government
spread information about legal
process which people can use.
You might also be seeing such
advertisements on television channels.

ISI and Agmark

While buying many commodities, on the
cover, you might have seen a logo with the
letters ISI, Agmark or Hallmark. These
logos and certification help consumers get
assured of quality while purchasing the
goods and services. The organisations that
monitor and issue these certificates allow
producers to use their logos provided they
follow certain quality standards.
Though these organisations develop
quality standards for many products, it is
not compulsory for all the producers to
follow standards. However, for some
products that affect the health and safety
of consumers or of products of mass
consumption like LPG cylinders, food
colours and additives, cement, packaged
drinking water, it is mandatory on the part
of the producers to get certified by these
organisations.

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LET’S WORK THESE OUT

1. Look at the posters and cartoons in this chapter. Think of any particular commodity
and the aspects that need to be looked at as a consumer. Design a poster for this.

2. Find out the nearest consumer court for your area.

3. What is the difference between consumer protection council and consumer court?

4. The Consumer Protection Act 1986 ensures the following as rights which every
consumer in India should possess

(i) Right to choice. (iv) Right to representation.

(ii) Right to information. (v) Right to safety.

(iii) Right to redressal. (vi) Right to consumer education.

Categorise the following cases under different heads and mark against each in
brackets.

(a) Lata got an electric shock from a newly purchased iron. She complained to the
shopkeeper immediately. ( )

(b) John is dissatisfied with the services provided by MTNL/BSNL/TATA INDICOM
for the past few months. He files a case in the District Level Consumer Forum.
()

(c) Your friend has been sold a medicine that has crossed the expiry date and you
are advising her to lodge a complaint ( ).

(d) Iqbal makes it a point to scan through all the particulars given on the pack of any
item that he buys. ( )

(e) You are not satisfied with the services of the cable operator catering to your
locality but you are unable to switch over to anybody else. ( )

(f) You realise that you have received a defective camera from a dealer. You are
complaining to the head office persistently ( ).

5. If the standardisation ensures the quality of a commodity, why are many goods
available in the market without ISI or Agmark certification?

6. Find out the details of who provides Hallmark and ISO certification.

TAKING THE CONSUMER MOVEMENT FORWARD

India has been observing 24 their activities. There are today more
December as the National Consumers’ than 700 consumer groups in the
Day. It was on this day that the Indian country of which only about 20-25
Parliament enacted the Consumer are well organised and recognised for
Protection Act in 1986. India is one their work.
of the countries that have exclusive
courts for consumer redressal. However, the consumer redressal
process is becoming cumbersome,
The consumer movement in India expensive and time consuming. Many
has made some progress in terms of a time, consumers are required to
numbers of organised groups and engage lawyers. These cases require

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time for filing and attending the court of laws that protect workers,
proceedings etc. In most purchases especially in the unorganised sectors
cash memos are not issued hence is weak. Similarly, rules and
evidence is not easy to gather. regulations for working of markets are
Moreover most purchases in the often not followed.
market are small retail sales. The
existing laws also are not very clear Nevertheless, there is scope for
on the issue of compensation to consumers to realise their role and
consumers injured by defective importance. It is often said that
products. After more than 25 years consumer movements can be effective
of the enactment of COPRA, consumer only with the consumers’ active
awareness in India is spreading but involvement. It requires a voluntary
slowly. Besides this the enforcement effort and struggle involving the
participation of one and all.

EXERCISES

1. Why are rules and regulations required in the marketplace? Illustrate with a few examples.

2. What factors gave birth to the consumer movement in India? Trace its evolution.

3. Explain the need for consumer consciousness by giving two examples.

4. Mention a few factors which cause exploitation of consumers.

5. What is the rationale behind the enactment of Consumer Protection Act 1986?

6. Describe some of your duties as consumers if you visit a shopping complex in your locality.

7. Suppose you buy a bottle of honey and a biscuit packet. Which logo or mark you will have
to look for and why?

8. What legal measures were taken by the government to empower the consumers in India?

9. Mention some of the rights of consumers and write a few sentences on each.

10. By what means can the consumers express their solidarity?

11. Critically examine the progress of consumer movement in India.

12. Match the following.

(i) Availing details of ingredients of a product (a) Right to safety

(ii) Agmark (b) Dealing with consumer cases

(iii) Accident due to faulty engine in a scooter (c) Certification of edible oil and cereals

(iv) District Consumer Court (d) Agency that develop standards for
goods and services

(v) Consumers International (e) Right to information

(vi) Bureau of Indian Standards (f) Global level institution of
consumer welfare organisations

13. Say True or False.

(i) COPRA applies only to goods.

(ii) India is one of the many countries in the world which has exclusive courts for consumer 87
redressal.

CONSUMER RIGHTS

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(iii) When a consumer feels that he has been exploited, he must file a case in
the District Consumer Court.

(iv) It is worthwhile to move to consumer courts only if the damages incurred
are of high value.

(v) Hallmark is the certification maintained for standardisation of jewellry.
(vi) The consumer redressal process is very simple and quick.
(vii) A consumer has the right to get compensation depending on the degree of

the damage.

ADDITIONAL PROJECTS / ACTIVITIES

1. Your school organises a consumer awareness week. As the Secretary of the
Consumer Awareness Forum, draft a poster covering all the consumer rights.
You may use the clues and ideas given in the poster on page 84 and 85. This
activity can be done with the help of your English teacher.

2. Mrs. Krishna bought a colour television (CTV) against six months warranty. The
CTV stopped working after three months. When she complained to the dealer /
shop where it was purchased, they sent an engineer to set it right. The CTV
continues to give trouble and Mrs Krishna no longer gets any reply to the complaint
she made to the dealer / shop. She decides to write to the Consumer Forum in
her area. Write a letter on her behalf. You may discuss with your partner / group
members before you write it.

3. Establish a consumer club in your school. Organise mock consumer awareness
workshops like monitoring bookshops, canteen, and shops in your school area.

4. Prepare posters with catchy slogans like:
– An alert consumer is a safe consumer
– Buyers, Beware
– Consumers be cautious
– Be aware of your rights
– As consumers, assert your right

– Arise, awake and stop not till ______________________ (Complete it)

5. Interview 4-5 persons in your neighbourhood and collect varied experiences
regarding how they have been victims of such exploitation and their responses.

6. Conduct a survey in your locality by supplying the following questionnaire to get
an idea as to how alert they are as consumers.

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For each question, tick one. Always Sometimes Never
ABC

1. When you buy some item, do you insist on a bill?

2. Do you keep the bill carefully?

3. If you realise that you have been tricked by the shop-
keeper, have you bothered to complain to him?

4. Have you been able to convince him that you’ve been
cheated?

5. Do you simply grumble to yourself reconciling that it is
your fate that you are often being victimised so and it is
nothing new?

6. Do you look for ISI mark, expiry date etc.?

7. If the expiry date mentioned is just a month or so away,
do you insist on a fresh packet?

8. Do you weigh the new gas cylinder/old newspapers
yourself before buying/selling?

9. Do you raise an objection if a vegetable seller uses stones
in place of the exact weight?

10. Do excessively bright coloured vegetables arouse your
suspicion?

11. Are you brand-conscious?

12. Do you associate high price with good quality (to reassure
yourself that after all you have not paid a higher price just
like that)?

13. Do you unhesitatingly respond to catchy offers?

14. Do you compare the price paid by you with those of
others?

15. Do you strongly believe that your shopkeeper never cheats
a regular customer like you?

16. Do you favour ‘home delivery’ of provision items without
any doubt regarding weight etc.?

17. Do you insist on ‘paying by meter’ when you travel by
auto?

Note

(i) You are extremely aware as a consumer if your answers for
Qns. 5, 12, 13, 15 and 16 are (C) and for the rest (A).

(ii) If your answers are (A) for Qns. 5, 12, 13, 15 and 16 and the
rest (C), then you have to wake up as consumer.

(iii) If your answer is (B) for all the questions – you are somewhat
aware.

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Appendix 1: Body Mass Index for Adolescent Girls (Age 14-18)

Years Month Malnourished Normal Malnourished

14 0 (underweight) 15.4 to 27.3 (obesity)
14 1 15.5 to 27.4
14 2 Less than 15.4 15.5 to 27.5 More than 27.3
14 3 Less than 15.5 15.6 to 27.6 More than 27.4
14 4 Less than 15.5 15.6 to 27.7 More than 27.5
14 5 Less than 15.6 15.6 to 27.7 More than 27.6
14 6 Less than 15.6 15.7 to 27.8 More than 26.3
14 7 Less than 15.6 15.7 to 27.9 More than 27.7
14 8 Less than 15.7 15.7 to 28.0 More than 27.8
14 9 Less than 15.7 15.8 to 28.0 More than 27.9
14 10 Less than 15.7 15.8 to 28.1 More than 28.0
14 11 Less than 15.8 15.8 to 28.2 More than 28.0
15 0 Less than 15.8 15.9 to 28.2 More than 28.1
15 1 Less than 15.8 15.9 to 28.3 More than 28.2
15 2 Less than 15.9 15.9 to 28.4 More than 28.2
15 3 Less than 15.9 16.0 to 28.4 More than 28.3
15 4 Less than 15.9 16.0 to 28.5 More than 28.4
15 5 Less than 16.0 16.0 to 28.6 More than 28.4
15 6 Less than 16.0 16.0 to 28.6 More than 28.5
15 7 Less than 16.0 16.1 to 28.7 More than 28.5
15 8 Less than 16.0 16.1 to 28.7 More than 28.6
15 9 Less than 16.1 16.1 to 28.7 More than 28.6
15 10 Less than 16.1 16.1 to 28.8 More than 28.7
15 11 Less than 16.1 16.2 to 28.8 More than 28.7
16 0 Less than 16.1 16.2 to 28.9 More than 28.8
16 1 Less than 16.2 16.2 to 28.9 More than 28.8
16 2 Less than 16.2 16.2 to 29.0 More than 28.9
16 3 Less than 16.2 16.2 to 29.0 More than 28.9
16 4 Less than 16.2 16.2 to 29.0 More than 29.0
16 5 Less than 16.2 16.3 to 29.1 More than 29.0
16 6 Less than 16.2 16.3 to 29.1 More than 29.0
16 7 Less than 16.3 16.3 to 29.1 More than 29.1
16 8 Less than 16.3 16.3 to 29.2 More than 29.1
16 9 Less than 16.3 16.3 to 29.2 More than 29.1
16 10 Less than 16.3 16.3 to 29.2 More than 29.2
16 11 Less than 16.3 16.3 to 29.3 More than 29.2
17 0 Less than 16.3 16.3 to 29.3 More than 29.2
17 1 Less than 16.3 16.3 to 29.3 More than 29.3
17 2 Less than 16.4 16.3 to 29.3 More than 29.3
17 3 Less than 16.4 16.4 to 29.4 More than 29.3
17 4 Less than 16.4 16.4 to 29.4 More than 29.3
17 5 Less than 16.4 16.4 to 29.4 More than 29.4
17 6 Less than 16.4 16.4 to 29.4 More than 29.4
17 7 Less than 16.4 16.4 to 29.4 More than 29.4
17 8 Less than 16.4 16.4 to 29.4 More than 29.4
17 9 Less than 16.4 16.4 to 29.4 More than 29.4
17 10 Less than 16.4 16.4 to 29.4 More than 29.5
17 11 Less than 16.4 16.4 to 29.4 More than 29.5
18 0 Less than 16.4 16.4 to 29.4 More than 29.5
Less than 16.4 More than 29.5
Less than 16.4 More than 29.5

90 UNDERSTANDING ECONOMIC DEVELOPMENT

2018-19

Appendix 2: Body Mass Index for Adolescent Boys (Age 14-18)

Years Month Malnourished Normal Malnourished
(underweight) (obesity)
14 0 15.5 to 25.9
14 1 Less than 15.5 15.5 to 26.0 More than 25.9
14 2 Less than 15.5 15.6 to 26.1 More than 26.0
14 3 Less than 15.6 15.6 to 26.2 More than 26.1
14 4 Less than 15.6 15.7 to 26.3 More than 26.2
14 5 Less than 15.7 15.7 to 26.4 More than 26.3
14 6 Less than 15.7 15.7 to 26.5 More than 26.4
14 7 Less than 15.7 15.8 to 26.5 More than 26.5
14 8 Less than 15.8 15.8 to 26.6 More than 26.5
14 9 Less than 15.8 15.9 to 26.7 More than 26.6
14 10 Less than 15.9 15.9 to 26.8 More than 26.7
14 11 Less than 15.9 16.0 to 26.9 More than 26.8
15 0 Less than 16.0 16.0 to 27.0 More than 26.9
15 1 Less than 16.0 16.1 to 27.1 More than 27.0
15 2 Less than 16.1 16.1 to 27.1 More than 27.1
15 3 Less than 16.1 16.1 to 27.2 More than 27.1
15 4 Less than 16.1 16.2 to 27.3 More than 27.2
15 5 Less than 16.2 16.2 to 27.4 More than 27.3
15 6 Less than 16.2 16.3 to 27.4 More than 27.4
15 7 Less than 16.3 16.3 to 27.5 More than 27.4
15 8 Less than 16.3 16.3 to 27.6 More than 27.5
15 9 Less than 16.3 16.4 to 27.7 More than 27.6
15 10 Less than 16.4 16.4 to 27.7 More than 27.7
15 11 Less than 16.4 16.5 to 27.8 More than 27.7
16 0 Less than 16.5 16.5 to 27.9 More than 27.8
16 1 Less than 16.5 16.5 to 27.9 More than 27.9
16 2 Less than 16.5 16.6 to 28.0 More than 27.9
16 3 Less than 16.6 16.6 to 28.1 More than 28.0
16 4 Less than 16.6 16.7 to 28.1 More than 28.1
16 5 Less than 16.7 16.7 to 28.2 More than 28.1
16 6 Less than 16.7 16.7 to 28.3 More than 28.2
16 7 Less than 16.7 16.8 to 28.3 More than 28.3
16 8 Less than 16.8 16.8 to 28.4 More than 28.3
16 9 Less than 16.8 16.8 to 28.5 More than 28.4
16 10 Less than 16.8 16.9 to 28.5 More than 28.5
16 11 Less than 16.9 16.9 to 28.6 More than 28.5
17 0 Less than 16.9 16.9 to 28.6 More than 28.6
17 1 Less than 16.9 17.0 to 28.7 More than 28.6
17 2 Less than 17.0 17.0 to 28.7 More than 28.7
17 3 Less than 17.0 17.1 to 28.8 More than 28.7
17 4 Less than 17.0 17.1 to 28.9 More than 28.8
17 5 Less than 17.1 17.1 to 28.9 More than 28.9
17 6 Less than 17.1 17.1 to 29.0 More than 28.9
17 7 Less than 17.1 17.1 to 29.0 More than 29.0
17 8 Less than 17.1 17.2 to 29.1 More than 29.0
17 9 Less than 17.2 17.2 to 29.1 More than 29.1
17 10 Less than 17.2 17.2 to 29.2 More than 29.1
17 11 Less than 17.2 17.3 to 29.2 More than 29.2
18 0 Less than 17.3 17.3 to 29.2 More than 29.2
Less than 17.3 More than 29.2

Source: Based on chart published by the World Health Organization APPENDIX 91

2018-19

SUGGESTED READINGS

Books

Abijit Vinayak Banerjee, Roland Benabou and Dilip Mookherjee (eds.),
Understanding Poverty, Oxford University Press, New York, 2006.

Amit Bhaduri and Deepak Nayyar, Intelligent Person’s Guide to Liberalisation,
Penguin Books, New Delhi, 1996.

Amit Bhaduri, Development with Dignity: The Case for Full Employment, National
Book Trust, New Delhi, 2005.

Amit Bhaduri, Macroeconomics: The Dynamics of Commodity Production,
Macmillan, London, 1986.

Bimal Jalan (ed.), Indian Economy, Penguin Books, New Delhi, 2002.
CUTS, Is it Really Safe, Consumer Unity Trust Society, Jaipur, 2004.
CUTS, State of the Indian Consumer: Analyses of the Implementation of the United

Nations Guidelines for Consumer Protection, 1985 in India, Consumer Unity
Trust Society, Jaipur, 2001.
Indrani Mazumdar, Women and Globalisation: The Impact on Women Workers in
the Formal and Informal Sectors in India, Stree, Delhi, 2007.
Jagdish Bhagwati In Defence of Globalisation, Oxford University Press, Delhi, 2004.
Jan Breman and Parthiv Shah, Working in the mill no more, Oxford University
Press, Delhi, 2005.
Jan Breman, Footloose Labour: Working in India’s Informal Economy, Cambridge
University Press, Cambridge, 1996.
Jean Dreze and Amartya Sen, India: Development and Participation, Oxford
University Press, Delhi, Third Impression, 2007.
John K.Galbraith, Money: Whence it Came, Whence it Went, Indian Book Company,
New Delhi, 1975.
Joseph Stiglitz, Globalisation and its Discontents, Penguin Books India,
New Delhi, 2003.
National Consumer Disputes Redressal Commission, Landmark Judgments on
Consumer Protection, Universal Law Publishing Co., Delhi, 2005.
Tirthankar Roy, The Economic History of India, 1857-1947, Oxford University
Press, Delhi, Second Edition, 2006.

Government Publications

Economic Survey, Ministry of Finance, Government of India.
Key Results of Employment-Unemployment Rounds, National Sample Survey

Organisation, Ministry of Statistics and Programme Implementation, Govt
of India, New Delhi.
National Human Development Report , Planning Commission, Government of India,
New Delhi.
National Family Health Survey 4 (2015–16), Ministry of Health and Family Welfare,
New Delhi and International Institute of Population Studies, Mumbai.

Other Reports

Handbook of Statistics on Indian Economy, Reserve Bank of India, Mumbai.
Human Development Report, United Nations Development Programme, Geneva.
World Development Indicators, The World Bank, Washington.

92 UNDERSTANDING ECONOMIC DEVELOPMENT

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INDIAN ECONOMIC DEVELOPMENT

TEXTBOOK FOR CLASS XI

2018-19

First Edition ISBN 81-7450-551-2
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page, Any revised price indicated by a rubber stamp or by a sticker
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Cover and Illustrations
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2018-19

FOREWORD

The National Curriculum Framework (NCF) 2005, recommends that
children’s life at school must be linked to their life outside the school.
This principle marks a departure from the legacy of bookish learning
which continues to shape our system and causes a gap between the
school, home and community. The syllabi and textbooks developed on
the basis of NCF signify an attempt to implement this basic idea. They
also attempt to discourage rote learning and the maintenance of sharp
boundaries between different subject areas. We hope these measures
will take us significantly further in the direction of a child-centred system
of education outlined in the National Policy on Education (1986).

The success of this effort depends on the steps that school principals
and teachers will take to encourage children to reflect on their own
learning and to pursue imaginative activities and questions. We must
recognise that, given space, time and freedom, children generate new
knowledge by engaging with the information passed on to them by adults.
Treating the prescribed textbook as the sole basis of examination is one
of the key reasons why other resources and sites of learning are ignored.
Inculcating creativity and initiative is possible if we perceive and treat
children as participants in learning, not as receivers of a fixed body of
knowledge.

These aims imply considerable change in school routines and mode
of functioning. Flexibility in the daily time-table is as necessary as rigour
in implementing the annual calendar so that the required number of
teaching days are actually devoted to teaching. The methods used for
teaching and evaluation will also determine how effective this textbook
proves for making children’s life at school a happy experience, rather
than a source of stress or boredom. Syllabus designers have tried to
address the problem of curricular burden by restructuring and
reorienting knowledge at different stages with greater consideration for
child psychology and the time available for teaching. The textbook
attempts to enhance this endeavour by giving higher priority and space
to opportunities for contemplation and wondering, discussion in small
groups, and activities requiring hands-on experience.

2018-19

The National Council of Educational Research and Training (NCERT)
appreciates the hard work done by the textbook development committee
responsible for this book. We wish to thank the Chairperson of the
advisory group in Social Sciences, Professor Hari Vasudevan and the
Chief Advisor for this book, Professor Tapas Majumdar for guiding the
work of this committee. Several teachers contributed to the development
of this textbook; we are grateful to their principals for making this
possible. We are indebted to the institutions and organisations which
have generously permitted us to draw upon their resources, material
and personnel. We are especially grateful to the members of the National
Monitoring Committee, appointed by the Department of Secondary and
Higher Education, Ministry of Human Resource Development under the
Chairpersonship of Professor Mrinal Miri and Professor G.P. Deshpande,
for their valuable time and contribution. As an organisation committed
to systemic reform and continuous improvement in the quality of its
products, NCERT welcomes comments and suggestions which will enable
us to undertake further revision and refinement.

New Delhi Director
20 December 2005 National Council of Educational

Research and Training

iv
2018-19

TEXTBOOK DEVELOPMENT COMMITTEE

CHAIRPERSON, ADVISORY COMMITTEE FOR TEXTBOOKS IN SOCIAL SCIENCES
AT HIGHER SECONDARY LEVEL
Hari Vasudevan, Professor, Department of History, University of Calcutta,
Kolkata
CHIEF ADVISOR

Tapas Majumdar, Emeritus Professor, Jawaharlal Nehru University, New
Delhi
MEMBERS
Bharat C. Thakur, PGT, Government Pratibha Vikas Vidyalaya, Surajmal
Vihar, Delhi
Gopinath Perumula, Lecturer, Tata Institute of Social Sciences, Mumbai
Jaya Singh, Lecturer, DESS, NCERT, New Delhi
Nishit Ranjan Das, PGT, New Alipore Multipurpose School, Behala, Kolkata
Naushad Ali Azad, Professor, Department of Economics, Jamia Millia
Islamia, New Delhi
Neeraja Rashmi, Reader, DESS, NCERT, New Delhi
Rama Gopal, Professor, Department of Economics, Annamalai University,
Annamalai Nagar, Tamil Nadu
Pratima Kumari, Lecturer, DERPP, NCERT, New Delhi
Poonam Bakshi, Senior Lecturer, Department of Economics, Punjab
University, Chandigarh
R. Srinivasan, S.G. Lecturer, Department of Economics, Arignar Anna
Government Arts College, Villupuram, Tamil Nadu
Sabitha Patnaik, PGT, Demonstration School, Regional Institute of
Education, Sachivalaya Marg, Bhubaneswar
Sharmista Banerjee, Headmistress, Bidya Bharti Girls High School, Kolkata
MEMBER– COORDINATOR
M.V. Srinivasan, Lecturer, DESS, NCERT, New Delhi

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ACKNOWLEDGEMENTS

Many friends and colleagues have helped in preparing this textbook. The
National Council of Educational Research and Training acknowledges
M. Karpagam, Lecturer, Department of Economics, Meenakshi College,
Chennai; J. John, Director, Centre for Education and Communication, New
Delhi; Pratyusa K. Mandal, Reader, DESS, NCERT, New Delhi; Nandana
Reddy, Director (Development), Concern for Working Children, Bangalore;
V. Selvam, Research Scholar, Centre for Study of Regional Development and
Satish Jain, Professor, Centre for Economic Studies and Planning,
Jawaharlal Nehru University, New Delhi; Pooja Kapoor, Modern School,
Barakhamba Road, New Delhi; Priya Vaidya, Sardar Patel Vidyalaya, Lodhi
Estate, New Delhi; and Nalini Padmanabhan, DTEA Senior Secondary
School, Janakpuri, New Delhi for providing their feedback and inputs.

The Council expresses its gratitude to Jan Breman and Parthiv Shah
for using photographs from their book, Working in the mill no more, published
by Oxford University Press, Delhi. Some stories were taken from the book,
Everybody Loves a Good Drought, authored by P. Sainath and published by
Penguin Books, New Delhi. A photo relating to farmers committing suicides
has been used from The Hindu. A few photographs and text materials on
environmental issues have been used from the State of India’s Environment
1 and 2 published by the Centre for Science and Environment, New Delhi.
The Council thanks the authors, copyright holders and publishers of these
reference materials. The Council also acknowledges the Press Information
Bureau, Ministry of Information and Broadcasting, New Delhi; National
Rail Museum, New Delhi for allowing to use photographs available in their
photo library. Some photographs were given by S. Thirumal Murugan,
Principal, Adhiyaman Matriculation School, Uthangarai, Tamil Nadu; John
Suresh Kumar, Synodical Board of Social Service; Sindhu Menon of Labour
File, New Delhi; R. C. Das of CIET, New Delhi; Renuka of National Institute
of Health and Family Welfare, New Delhi. The Council acknowledges their
contribution as well.

Special thanks are due to Savita Sinha, Professor and Head, Department
of Education in Social Sciences and Humanities for her support.

The Council also gratefully acknowledges the contributions of
Mamta and Arvind Sharma, DTP Operators; Neena Chandra, Copy Editor;
Dillip Kumar Agasti, Proof Reader; and Dinesh Kumar, Incharge Computer
Station in shaping this book. The efforts of the Publication Department,
NCER T are also duly acknowledged.

2018-19

HOW TO USE THIS BOOK

The main objective of this book, Indian Economic Development, is to
expose the learners to some of the key issues facing the Indian economy.
In this process, as young adults, they are expected to be sensitised about
these issues, appreciate and learn to critically assess the role of the
government in various economic spheres. The book also provides
opportunities for knowing what economic resources are and how these
resources are being utilised in different sectors. The learners are also
exposed to numerical information relating to various aspects of Indian
economy and India’s economic policies. They are expected to develop
analytical skills, interpret the economic events and visualise the
economic future of India. Nevertheless, conscious effort has been made
not to burden the learner with concepts and data.

With regard to various economic issues and trends, this book
attempts to bring out alternative views on every issue so that students
can engage themselves in well-informed debates. On completion of the
course, Indian Economic Development, the learners are expected to
acquire skills to understand macroeconomic events which occur around
them, and to critically evaluate and interpret the relevant information
provided by the media.

This course comprises of many activities with each chapter. The
students have to carry out such activities under the guidance of their
teachers. In fact, the role of the teacher in enriching the understanding
of the Indian economy is greater in this course. The activities include

classroom discussions, collecting information from
government documents such as Economic Survey, archival
materials, from newspapers, television and others sources.
Learners should also be encouraged to read the works of
scholars on various topics.

For all this to happen, the teachers have to initiate the
process by taking some steps before starting the course. At the beginning
of the academic year, students may be asked to collect clippings from
newspapers and magazines relating to different topics under the course
— five year plans; allocation of funds to various sectors like agriculture,
industry, services and for specific causes such as poverty and
employment; key issues of rural development, environment, various

2018-19

infrastructures, health, education and energy; and economic events in
China and Pakistan. They have to maintain these clippings, and when
the teacher starts teaching a particular topic, they can cull out those
news items, which they have collected from the beginning of the course,
and display/use them in the classroom. It is necessary for learners to
build this collection right from the beginning of the course so that the
relevent information is at hand as and when needed; this habit will also
come in handy during later stages of education.

The schools will have to buy a hard copy of the Economic Survey
for the latest year. You will notice that information relating to the Indian
Economy is updated in the Economic Survey. It is necessary for the
students to familiarise themselves with such reports and work on
relevant activities. The statistical tables available as Appendix in the
Economic Survey would be immensely helpful in understanding various
issues.

While discussing a particular issue, discussion of the numerical
information about the issue is inevitable. For instance, when we talk of
growth rates — overall growth rates and growth of different sectors —
though it may be necessary for the learners to have a rough idea about
the trends in growth rates, they may also be encouraged to learn the
process involved in reaching the level of growth and factors contributing
to the trend rather than mere reproduction of tabular data of growth
rate.

You will notice numbered boxes in all chapters. These boxes
supplement the information given in the text. Through these boxes, an
attempt has been made to lend a humane touch and, thus, bring the
issue under discussion closer to real life. However, these boxes, as also
‘Work These Out’ activities, are not meant for examination/evaluation
purposes.

Besides the relatively conventional
‘Exercises’, each chapter has ‘Suggested
Additional Activities’ at the end and ‘Work This/
These Out’ as part of the text; the more elaborate
of these can be treated as projects. Teachers
need to encourage the learners to explore beyond the text while attempting
these activities.

Understandably, Information Technology facilities may not be
available in all the schools, however, it is important to take note that
various information relating to the Indian economy are available on the
Internet. Students need to be introduced to the Internet and encouraged

viii

2018-19

to access the websites of the various government departments to get
the required information. For instance, the details relating to poverty
are published by the Planning Commission. Students should know that

the Planning Commission of the Government of India has
a website in which various reports relating to different
aspects of India, including poverty, are available in the
form of reports. Since it may not be always possible to
procure such reports in hard copy, students and teachers may attempt
to download such reports from websites and use them in the classroom.
The reports such as Economic Surveys of the last 10 years are
available on the website: http://www.budgetindia.nic.in. Many
organisations change their website addresses. In case a website given in
this book is not accessible, kindly search those websites through search
engines such as Google (www.google.co.in).
For the first time, each chapter has been briefly summed up in the
‘Recap’ to facilitate learning. Also, please take note that sources for all
tables have not been given with the table as these tables were sourced
from various research material which have been covered under
‘References’ for each chapter.
We wish to reiterate the fact that the prime objective of this course
on Indian economy is to introduce the basic macro issues of the Indian
economy to the student community and to initiate a well-informed
debate on our economy. We also stress that collaborative learning is an
important aspect of this course, hence the involvement of students, as
well as, teachers in collecting information on the Indian economy from
other sources is necessary and such collected information should be
used as important inputs for both teaching, as well as, learning about
the Indian economy.
You can send your queries and feedback relating to any part of this book
to the following address.
Programme Coordinator (Economics)
Department of Education in Social Sciences
National Council of Educational Research and Training
Sri Aurobindo Marg
New Delhi 110 016.

ix

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THE CONSTITUTION OF
INDIA

PREAMBLE

WE, THE PEOPLE OF INDIA, having
solemnly resolved to constitute India into a
1[SOVEREIGN SOCIALIST SECULAR
DEMOCRATIC REPUBLIC] and to secure
to all its citizens :

JUSTICE, social, economic and
political;
LIBERTY of thought, expression, belief,
faith and worship;
EQUALITY of status and of opportunity
and to promote among them all;
FRATERNITY assuring the dignity of
the individual and the 2[unity and
integrity of the Nation];
IN OUR CONSTITUENT ASSEMBLY
this twenty-sixth day of November, 1949 do
HEREBY ADOPT, ENACT AND GIVE TO
OURSELVES THIS CONSTITUTION.

1. Subs. by the Constitution (Forty-second Amendment) Act, 1976, Sec.2,
for "Sovereign Democratic Republic" (w.e.f. 3.1.1977)

2. Subs. by the Constitution (Forty-second Amendment) Act, 1976, Sec.2,
for "Unity of the Nation" (w.e.f. 3.1.1977)

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CONTENTS

FOREWORD iii

UNIT I : DEVELOPMENT POLICIES AND EXPERIENCE (1947-1990) 1-35

CHAPTER 1: INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 3
– LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER THE COLONIAL RULE 4
– AGRICULTURAL SECTOR 5
– INDUSTRIAL SECTOR 7
– FOREIGN TRADE 8
– DEMOGRAPHIC CONDITION 9
– OCCUPATIONAL STRUCTURE 10
– INFRASTRUCTURE 11

CHAPTER 2 : INDIAN ECONOMY 1950-1990 16
– THE GOALS OF FIVE YEAR PLANS 19
– AGRICULTURE 22
– INDUSTRY AND TRADE 27
– TRADE POLICY: IMPORT SUBSTITUTION 30

U NIT II : ECONOMIC REFORMS SINCE 1991 36-56

CHAPTER 3 : LIBERALISATION, PRIVATISATION AND GLOBALISATION : AN APPRAISAL 38
– BACKGROUND 39
– LIBERALISATION 41
– PRIVATISATION 44
– GLOBALISATION 45
– INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT 48

U NIT III: CURRENT CHALLENGES FACING THE INDIAN ECONOMY 57-178

CHAPTER 4 : POVERTY 59
– WHO ARE THE POOR? 60
– HOW ARE POOR PEOPLE IDENTIFIED? 63
– THE NUMBER OF POOR IN INDIA 65

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– WHAT CAUSES POVERTY? 68
– POLICIES AND PROGRAMMES TOWARDS POVERTY ALLEVIATION 72
– POVERTY ALLEVIATION PROGRAMMES — A CRITICAL ASSESSMENT 75

CHAPTER 5 : HUMAN CAPITAL FORMATION IN INDIA 82
– WHAT IS HUMAN CAPITAL? 84
– SOURCES OF HUMAN CAPITAL 84
– HUMAN CAPITAL AND HUMAN DEVELOPMENT 90
– STATE OF HUMAN CAPITAL FORMATION IN INDIA 91
– EDUCATION SECTOR IN INDIA 92
– FUTURE PROSPECTS 94

CHAPTER 6 : RURAL DEVELOPMENT 99
– WHAT IS RURAL DEVELOPMENT? 100
– CREDIT AND MARKETING IN RURAL AREAS 101
– AGRICULTURAL MARKET SYSTEM 104
– DIVERSIFICATION INTO PRODUCTIVE ACTIVITIES 106
– SUSTAINABLE DEVELOPMENT AND ORGANIC FARMING 110

CHAPTER 7 : EMPLOYMENT: GROWTH, INFORMALISATION AND OTHER ISSUES 116
– WORKERS AND EMPLOYMENT 118
– PARTICIPATION OF PEOPLE IN EMPLOYMENT 119
– SELF-EMPLOYED AND HIRED WORKERS 120
– EMPLOYMENT IN FIRMS, FACTORIES AND OFFICES 123
– GROWTH AND CHANGING STRUCTURE OF EMPLOYMENT 124
– INFORMALISATION OF INDIAN WORKFORCE 127
– UNEMPLOYMENT 130
– GOVERNMENT AND EMPLOYMENT GENERATION 132

CHAPTER 8 : INFRASTRUCTURE 139
– WHAT IS INFRASTRUCTURE? 140
– RELEVANCE OF INFRASTRUCTURE 141
– THE STATE OF INFRASTRUCTURE IN INDIA 141
– ENERGY 144
– HEALTH 150

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C HAPTER 9 : ENVIRONMENT AND SUSTAINABLE DEVELOPMENT 162
– ENVIRONMENT — DEFINITION AND FUNCTIONS 163
– STATE OF INDIA’S ENVIRONMENT 167
– SUSTAINABLE DEVELOPMENT 171
– STRATEGIES FOR SUSTAINABLE DEVELOPMENT 172

U NIT IV : DEVELOPMENT EXPERIENCES OF INDIA : A COMPARISON 179-197
WITH NEIGHBOURS

CHAPTER 10 : COMPARATIVE DEVELOPMENT EXPERIENCES OF 181
INDIA AND ITS NEIGHBOURS
182
– DEVELOPMENTAL PATH — A SNAPSHOT VIEW 185
– DEMOGRAPHIC INDICATORS 186
– GROSS DOMESTIC PRODUCT AND SECTORS 189
– INDICATORS OF HUMAN DEVELOPMENT 190
– DEVELOPMENT STRATEGIES — AN APPRAISAL

G LOSSARY 198-206

xiii
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Constitution of India

Part IV A (Article 51 A)

Fundamental Duties

It shall be the duty of every citizen of India —
(a) to abide by the Constitution and respect its ideals and institutions, the
National Flag and the National Anthem;
(b) to cherish and follow the noble ideals which inspired our national struggle
for freedom;
(c) to uphold and protect the sovereignty, unity and integrity of India;
(d) to defend the country and render national service when called upon to
do so;
(e) to promote harmony and the spirit of common brotherhood amongst all
the people of India transcending religious, linguistic and regional or
sectional diversities; to renounce practices derogatory to the dignity of
women;
(f) to value and preserve the rich heritage of our composite culture;
(g) to protect and improve the natural environment including forests, lakes,
rivers, wildlife and to have compassion for living creatures;
(h) to develop the scientific temper, humanism and the spirit of inquiry and
reform;
(i) to safeguard public property and to abjure violence;
(j) to strive towards excellence in all spheres of individual and collective
activity so that the nation constantly rises to higher levels of endeavour
and achievement;

*(k) who is a parent or guardian, to provide opportunities for education to
his child or, as the case may be, ward between the age of six and
fourteen years.

Note: The Article 51A containing Fundamental Duties was inserted by the Constitution
(42nd Amendment) Act, 1976 (with effect from 3 January 1977).
*(k) was inserted by the Constitution (86th Amendment) Act, 2002 (with effect from
1 April 2010).

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UUNNIITT

III

DEVELOPMENT POLICIES AND EXPERIENCE
(1947-90)

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The two chapters in this unit give us an overview
of the state of the Indian economy as it was at the
eve of independence till after four decades of
planned development, which was a path that India
chose. This meant that the Government of India
had to take a series of steps such as the
establishment of the Planning Commission and
announcement of five year plans. An overview of
the goals of five year plans and a critical appraisal
of the merits and limitations of planned development
has been covered in this unit.

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1

INDIAN ECONOMY

ON THE

EVE OF INDEPENDENCE

After studying this chapter, the learners will

• become familiar with the state of the Indian economy in 1947, the

year of India’s Independence

• understand the factors that led to the underdevelopment and

stagnation of the Indian economy.

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“India is the pivot of our Empire... If the Empire loses any other part of its
Dominion we can survive, but if we lose India, the sun of our Empire will have
set.”

Victor Alexander Vruce, the Viceroy of British India in 1894

1.1 INTRODUCTION own rapidly expanding modern
industrial base. An understanding of
The primary objective of this book, the exploitative nature of this
Indian Economic Development, is to relationship is essential for any
familiarise you with the basic features assessment of the kind and level of
of the Indian economy, and its development which the Indian
development, as it is today, in the economy has been able to attain over
aftermath of Independence. However, it the last six and half decades. 1.2
is equally important to know something
about the country’s economic past even 1.2 LOW LEVEL OF ECONOMIC
as you learn about its present state and DEVELOPMENT UNDER THE
future prospects. So, let us first look at COLONIAL RULE
the state of India’s economy prior to the
country’s independence and form an India had an independent economy
idea of the various considerations that before the advent of the British rule.
shaped India’s post-independence Though agriculture was the main
development strategy. source of livelihood for most people,
yet, the country’s economy was
The structure of India’s present- characterised by various kinds of
day economy is not just of current manufacturing activities. India was
making; it has its roots steeped in particularly well known for its
history, particularly in the period when handicraft industries in the fields of
India was under British rule which cotton and silk textiles, metal and
lasted for almost two centuries before precious stone works etc. These
India finally won its independence on products enjoyed a worldwide market
15 August 1947. The sole purpose of based on the reputation of the fine
the British colonial rule in India was quality of material used and the high
to reduce the country to being a raw standards of craftsmanship seen in all
material supplier for Great Britain’s imports from India.

Box 1.1: Textile Industry in Bengal

Muslin is a type of cotton textile which had its origin in Bengal, particularly,
places in and around Dhaka (spelled during the pre-independence period as
Dacca), now the capital city of Bangladesh. ‘Daccai Muslin’ had gained worldwide
fame as an exquisite type of cotton textile. The finest variety of muslin was
called malmal. Sometimes, foreign travellers also used to refer to it as malmal
shahi or malmal khas implying that it was worn by, or fit for, the royalty.

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The economic policies pursued by R.C. Desai — it was Rao, whose
the colonial government in India were estimates during the colonial period
concerned more with the protection was considered very significant.
and promotion of the economic However, most studies did find that
interests of their home country than the country’s growth of aggregate real
with the development of the Indian output during the first half of the
economy. Such policies brought about twentieth century was less than two
a fundamental change in the structure per cent coupled with a meagre half
of the Indian economy — transforming per cent growth in per capita output
the country into supplier of raw per year.
materials and consumer of finished
industrial products from Britain. 1.3 AGRICULTURAL SECTOR

Obviously, the colonial govern- India’s economy under the British
ment never made any sincere colonial rule remained fundamentally
attempt to estimate India’s national agrarian — about 85 per cent
and per capita income. Some of the country’s population lived
individual attempts which were mostly in villages and derived
made to measure such incomes livelihood directly or indirectly from
yielded conflicting and inconsistent agriculture. However, despite being
results. Among the notable estimators the occupation of such a large
— Dadabhai Naoroji, William Digby, population, the agricultural sector
Findlay Shirras, V.K.R.V. Rao and

Box 1.2: Agriculture During
Pre-British India

The French traveller, Bernier, described Fig. 1.1 India’s agricultural stagnation
seventeenth century Bengal in the under the British colonial rule
following way: “The knowledge I have
acquired of Bengal in two visits inclines
me to believe that it is richer than Egypt.
It exports, in abundance, cottons and
silks, rice, sugar and butter. It produces
amply — for its own consumption —
wheat, vegetables, grains, fowls, ducks
and geese. It has immense herds of pigs
and flocks of sheep and goats. Fish of
every kind it has in profusion. From
rajmahal to the sea is an endless
number of canals, cut in bygone ages
from the Ganges by immense labour for
navigation and irrigation.”

Take note of the agricultural prosperity in our country in the seventeenth century. Contrast it
with agricultural stagnation around the time when the British left India, around 200 years later.

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continued to experience stagnation interest of the zamindars was only to
and, not infrequently, unusual collect rent regardless of the
deterioration. Agricultural pro- economic condition of the cultivators;
ductivity became low though, in this caused immense misery and
absolute terms, the sector experienced social tension among the latter. To a
some growth due to the expansion of very great extent, the terms of the
the aggregate area under cultivation. revenue settlement were also
This stagnation in the agricultural responsible for the zamindars
sector was caused mainly because of adopting such an attitude; dates for
the various systems of land depositing specified sums of revenue
settlement that were introduced by were fixed, failing which the
the colonial government. Particularly, zamindars were to lose their rights.
under the zamindari system which Besides this, low levels of technology,
was implemented in the then Bengal lack of irrigation facilities and
Presidency comprising parts of negligible use of fertilisers, all added
India’s present-day eastern states, up to aggravate the plight of the
the profit accruing out of the farmers and contributed to the
agriculture sector went to the dismal level of agricultural
zamindars instead of the cultivators. productivity. There was, of course,
However, a considerable number of some evidence of a relatively higher
zamindars, and not just the colonial yield of cash crops in certain
government, did nothing to improve areas of the country due to
the condition of agriculture. The main commercialisation of agriculture.

Work These Out

Compare the map of British India with that of independent India and find
out the areas that became parts of Pakistan. Why were those parts so
important to India from the economic point of view? (Refer, to your
advantage, Dr Rajendra Prasad’s book, India Divided).

What were the various forms of revenue settlement adopted by the British
in India? Where did they implement them and to what effect? How far do
you think those settlements have a bearing on the current agricultural
scenario in India? (In your attempt to find answers to these questions, you
may refer to Ramesh Chandra Dutt’s Economic History of India, which comes
in three volumes, and B.H. Baden-Powell’s The Land Systems of British
India, also in two volumes. For better comprehension of the subject, you
can also try and develop an illustrated agrarian map of British India either
by hand or with the help of your school computer. Remember, nothing
helps better than an illustrated map to understand the subject at hand).

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But this could hardly help farmers in their home country — Britain. In the
improving their economic condition unfolding economic scenario, the
as, instead of producing food crops, decline of the indigenous handicraft
now they were producing cash crops industries created not only massive
which were to be ultimately used by unemployment in India but also a new
British industries back home. Despite demand in the Indian consumer
some progress made in irrigation, market, which was now deprived of the
India’s agriculture was starved of supply of locally made goods. This
investment in terracing, flood-control, demand was profitably met by the
drainage and desalinisation of soil. increasing imports of cheap
While a small section of farmers manufactured goods from Britain.
changed their cropping pattern from
food crops to commercial crops, a large During the second half of the
section of tenants, small farmers and nineteenth century, modern industry
sharecroppers neither had resources began to take root in India but its
and technology nor had incentive to progress remained very slow.
invest in agriculure. Initially, this development was
confined to the setting up of cotton
1.4 INDUSTRIAL SECTOR and jute textile mills. The cotton
textile mills, mainly dominated by
As in the case of agriculture, so also Indians, were located in the western
in manufacturing, India could not parts of the country, namely,
develop a sound industrial base under Maharashtra and Gujarat, while
the colonial rule. Even as the country’s the jute mills dominated by the
world famous handicraft industries foreigners were mainly concentrated
declined, no corresponding modern in Bengal. Subsequently, the iron
industrial base was allowed to come and steel industries began coming up
up to take pride of place so long in the beginning of the twentieth
enjoyed by the former. The primary century. The Tata Iron and Steel
motive of the colonial government Company (TISCO) was incorporated
behind this policy of systematically de- in 1907. A few other industries in the
industrialising India was two-fold. The fields of sugar, cement, paper etc.
intention was, first, to reduce India to came up after the Second World War.
the status of a mere exporter of
important raw materials for the However, there was hardly any
upcoming modern industries in capital goods industry to help
Britain and, second, to turn India into promote further industrialisation in
a sprawling market for the finished India. Capital goods industry means
products of those industries so that industries which can produce machine
their continued expansion could be tools which are, in turn, used for
ensured to the maximum advantage of producing articles for current
consumption. The establishment of a
few manufacturing units here and

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Work These Out

Prepare a list showing where and when other modern industries of India
were first set up. Can you also find out what the basic requirements are for
setting up any modern industry? What, for example, might have been the
reasons for the setting up of the Tata Iron and Steel Company at Jamshedpur,
which is now in the state of Jharkhand?

How many iron and steel factories are there in India at present? Are these
iron and steel factories among the best in the world or do you think that
these factories need restructuring and upgradation? If yes, how can this be
done? There is an argument that industries which are not strategic in nature
should not continue to be in the public sector. What is your view?

On a map of India, mark the cotton textiles, jute mills and textile mills that
existed at the time of independence.

there was no substitute to the near exporter of primary products such as
wholesale displacement of the raw silk, cotton, wool, sugar, indigo,
country’s traditional handicraft jute etc. and an importer of finished
industries. Furthermore, the growth consumer goods like cotton, silk and
rate of the new industrial sector and woollen clothes and capital goods like
its contribution to the Gross Domestic light machinery produced in the
Product (GDP) remained very small. factories of Britain. For all practical
Another significant drawback of the purposes, Britain maintained a
new industrial sector was the very monopoly control over India’s exports
limited area of operation of the public and imports. As a result, more than
sector. This sector remained confined half of India’s foreign trade was
only to the railways, power generation, restricted to Britain while the rest was
communications, ports and some allowed with a few other countries like
other departmental undertakings. China, Ceylon (Sri Lanka) and Persia
(Iran). The opening of the Suez Canal
1.5 FOREIGN TRADE further intensified British control over
India’s foreign trade (see Box 1.3).
India has been an important trading
nation since ancient times. But the The most important characteristic
restrictive policies of commodity of India’s foreign trade throughout the
production, trade and tariff pursued colonial period was the generation of
by the colonial government adversely a large export surplus. But this
affected the structure, composition and surplus came at a huge cost to the
volume of India’s foreign trade. country’s economy. Several essential
Consequently, India became an commodities —food grains, clothes,

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Work These Out

Prepare a list of items that were exported from and imported into India during
the British rule.

Collect information from the Economic Survey for various years published
by the Ministry of Finance, Government of India, on various items of export
from India and its imports. Compare these with imports and exports from
the pre-independence era. Also find out the names of prominent ports which
now handle the bulk of India’s foreign trade.

kerosene etc. — were scarcely available items, all of which led to the drain of
in the domestic market. Furthermore, Indian wealth.
this export surplus did not result in
any flow of gold or silver into India. 1.6 DEMOGRAPHIC CONDITION
Rather, this was used to make
payments for the expenses incurred by Various details about the population
an office set up by the colonial of British India were first collected
government in Britain, expenses on war, through a census in 1881. Though
again fought by the British suffering from certain limitations, it
government, and the import of invisible revealed the unevenness in India’s
population growth. Subsequently,

NNoott ttoo ssccaallee Box 1.3: Trade Through the Suez
Canal
Fig.1.2 Suez Canal: Used as highway
between India and Britain Suez Canal is an artificial waterway
running from north to south across the
Isthmus of Suez in north-eastern
Egypt. It connects Port Said on the
Mediterranean Sea with the Gulf of
Suez, an arm of the Red Sea. The canal
provides a direct trade route for ships
operating between European or
American ports and ports located in
South Asia, East Africa and Oceania by
doing away with the need to sail around
Africa. Strategically and economically,
it is one of the most important
waterways in the world. Its opening in
1869 reduced the cost of transportation
and made access to the Indian market
easier.

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every ten years such census operations particularly, the infant mortality
were carried out. Before 1921, India rate was quite alarming—about 218
was in the first stage of demographic per thousand in contrast to the
transition. The second stage of present infant mortality rate of 40 per
transition began after 1921. However, thousand. Life expectancy was also
neither the total population of India nor very low— 44 years in contrast to the
the rate of population growth at this present 68 years. In the absence of
stage was very high. reliable data, it is difficult to specify the
extent of poverty at that time but there
The various social development is no doubt that extensive poverty
indicators were also not quite prevailed in India during the colonial
encouraging. The overall literacy level period which contributed to the
was less than 16 per cent. Out of this, worsening profile of India’s population
the female literacy level was at a of the time.
negligible low of about seven per
cent. Public health facilities were 1.7 OCCUPATIONAL STRUCTURE
either unavailable to large chunks of
population or, when available, were During the colonial period, the
highly inadequate. Consequently, occupational structure of India, i.e.,
water and air-borne diseases were distribution of working persons
rampant and took a huge toll on across different industries and
life. No wonder, the overall mortality sectors, showed little sign of change.
rate was very high and in that, The agricultural sector accounted for

Fig. 1.3 A large section of India’s population did not have basic needs such as housing
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Work These Out telegraphs did develop. However, the
real motive behind this development
Can you find out the was not to provide basic amenities to
reasons behind frequent the people but to subserve various
occurrence of famines in colonial interests. Roads constructed
India before independence? in India prior to the advent of the
You may read from Nobel British rule were not fit for modern
Laureate Amartya Sen’s transport. The roads that were built
book, Poverty and Famines. primarily served the purposes of
Prepare a pie chart for mobilising the army within India and
the occupational structure drawing out raw materials from the
in India at the time of countryside to the nearest railway
independence. station or the port to send these to
far away England or other lucrative
the largest share of workforce, which foreign destinations. There always
usually remained at a high of 70-75 remained an acute shortage of all-
per cent while the manufacturing and weather roads to reach out to the
the services sectors accounted for only rural areas during the rainy season.
10 and 15-20 per cent respectively. Naturally, therefore, people mostly
Another striking aspect was the living in these areas suffered
growing regional variation. Parts grievously during natural calamities
of the then Madras Presidency and famines.
(comprising areas of the present-day
states of Tamil Nadu, Andhra The British introduced the
Pradesh, Kerala and Karnataka), railways in India in 1850 and it is
Bombay and Bengal witnessed a considered as one of their most
decline in the dependence of the important contributions. The
workforce on the agricultural sector railways affected the structure of the
with a commensurate increase in the Indian economy in two important
manufacturing and the services ways. On the one hand it enabled
sectors. However, there had been an people to undertake long distance
increase in the share of workforce in travel and thereby break
agriculture during the same time in geographical and cultural barriers
states such as Orissa, Rajasthan and while, on the other hand, it fostered
Punjab. commercialisation of Indian
agriculture which adversely affected
1.8 INFRASTRUCTURE the self-sufficiency of the village
economies in India. The volume of
Under the colonial regime, basic India’s exports undoubtedly
infrastructure such as railways, expanded but its benefits rarely
ports, water transport, posts and accrued to the Indian people.
The social benefits, which the

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Fig. 1.4 First Railway Bridge linking Bombay with Thane, 1854

Indian people gained owing to the Work This Out
introduction of the railways, were
thus outweighed by the country’s There is a perception still
huge economic loss. going around that in
m a n y ways the British
Along with the development of administration in India
roads and railways, the colonial was quite beneficial. This
dispensation also took measures for perception needs an
developing the inland trade and sea informed debate. How
lanes. However, these measures were would you look at this
far from satisfactory. The inland perception? Argue this
waterways, at times, also proved out in your class — ‘Was
uneconomical as in the case of the the British Raj good for
Coast Canal on the Orissa coast. India’?
Though the canal was built at a huge

Fig.1.5 Tata Airlines, a division of Tata and cost to the government exchequer, yet,
Sons, was established in 1932 it failed to compete with the railways,
inaugurating the aviation sector in India which soon traversed the region
running parallel to the canal, and had
to be ultimately abandoned. The
introduction of the expensive system
of electric telegraph in India, similarly,
served the purpose of maintaining law
and order. The postal services, on the
other hand, despite serving a useful
public purpose, remained all through

12 INDIAN ECONOMIC DEVELOPMENT

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inadequate. You will learn more about modernisation, diversification, capacity
the present status of various building and increased public
infrastructure in Chapter 8. investment. Foreign trade was oriented
to feed the Industrial Revolution in
1.9 CONCLUSION Britain. Infrastructure facilities,
including the famed railway network,
By the time India won its independence, needed upgradation, expansion and
the impact of the two-century long public orientation. Prevalence of
British colonial rule was already rampant poverty and unemployment
showing on all aspects of the Indian required welfare orientation of public
economy. The agricultural sector was economic policy. In a nutshell, the
already saddled with surplus labour social and economic challenges before
and extremely low productivity. The the country were enormous.
industrial sector was crying for

Recap

An understanding of the economy before independence is necessary to
know and appreciate the level of development achieved during the post-
independence period.

Under the colonial dispensation, the economic policies of the government
were concerned more with the protection and promotion of British
economic interests than with the need to develop the economic condition
of the colonised country and its people.

The agricultural sector continued to experience stagnation and
deterioration despite the fact that the largest section of Indian population
depended on it for sustenance.

The rule of the British-India government led to the collapse of India’s
world famous handicraft industries without contributing, in any
significant manner, to its replacement by a modern industrial base.

Lack of adequate public health facilities, occurrence of frequent natural
calamities and famines pauperised the hapless Indian people and
resulted in engendering high mortality rates.

Some efforts were made by the colonial regime to improve infrastructure
facilities but these efforts were spiced with selfish motives. However, the
independent Indian government had to built on this base through
planning.

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EXERCISES

1. What was the focus of the economic policies pursued by the colonial
government in India? What were the impacts of these policies?

2. Name some notable economists who estimated India’s per capita
income during the colonial period.

3. What were the main causes of India’s agricultural stagnation during
the colonial period?

4. Name some modern industries which were in operation in our country
at the time of independence.

5. What was the two-fold motive behind the systematic de-
industrialisation effected by the British in pre-independent India?

6. The traditional handicrafts industries were ruined under the British
rule. Do you agree with this view? Give reasons in support of your
answer.

7. What objectives did the British intend to achieve through their
policies of infrastructure development in India?

8. Critically appraise some of the shortfalls of the industrial policy
pursued by the British colonial administration.

9. What do you understand by the drain of Indian wealth during the
colonial period?

10. Which is regarded as the defining year to mark the demographic
transition from its first to the second decisive stage?

11. Give a quantitative appraisal of India’s demographic profile during
the colonial period.

12. Highlight the salient features of India’s pre-independence occupational
structure.

13. Underscore some of India’s most crucial economic challenges at the
time of independence.

14. When was India’s first official census operation undertaken?
15. Indicate the volume and direction of trade at the time of

independence.
16. Were there any positive contributions made by the British in India?

Discuss.

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SUGGESTED ADDITIONAL ACTIVITIES

1. Prepare a list of goods and services that were available to people in
pre-independence India in rural and urban areas. Compare it with
the consumption pattern of such goods and services by the people
today. Highlight the perceptible difference in the people’s standard
of living.

2. Find pictures of towns/villages, in your vicinity, of the pre-
independence period and compare these with their present scenario.
What changes can you mark? Are such changes for better or for
worse? Discuss.

3. Rally around your teacher and organise a group discussion on ‘Has
the zamindari system really been abolished in India’? If the
consensus is negative, then what measures would you think should
be taken to banish it and why?

4. Identify the major occupations followed by the people of our country
at the time of independence. What major occupations do the people
follow today? In the light of reform policies, how would you visualise
the occupational scenario in India 15 years from now — say, 2020?

REFERENCES

BADEN-POWELL, B.H. 1892. The Land Systems of British India, Vols I, II and III.
Oxford Clarendon Press, Oxford.

BUCHANAN, D.H. 1966. Development of Capitalist Enterprise in India. Frank
Cass and Co, London.

CHANDRA, BIPAN. 1993. ‘The Colonial Legacy’ in Bimal Jalan (Ed.), The Indian
Economy: Problems and Prospects. Penguin Books, New Delhi.

DUTT, R.C. 1963. Economic History of India, Vols I and II. Ministry of
Information and Broadcasting, Government of India, New Delhi.

KUMAR, D. AND MEGHNAD DESAI (Eds.). 1983. Cambridge Economic History of
India. Cambridge University Press, Cambridge.

MILL, JAMES.1972. History of British India. Associated Publishing House,
New Delhi.

PRASAD, RAJENDRA. 1946. India Divided. Hind Kitabs, Bombay.

SEN, AMARTYA. 1999. Poverty and Famines. Oxford University Press, New Delhi.

Government Reports

Economic Survey (for various years). Ministry of Finance, Government of India.

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2

Indian Economy
1950-1990

After studying this chapter, the learners will
• come to know the goals of India’s five year plans
• know about the development policies in different sectors such as

agriculture and industry from 1950-1990
• learn to think about the merits and limitations of a regulated economy.

2018-19

The central objective of Planning in India... is to initiate a process of
development which will raise the living standards and open out to the people
new opportunities for a richer and more varied life.

First Five Year Plan

2.1 INTRODUCTION answer in an economic system which,
in their view, combined the best
On 15 August 1947, India woke to a features of socialism without its
new dawn of freedom. Finally we were drawbacks. In this view, India would
masters of our own destiny after be a socialist society with a strong
some two hundred years of British public sector but also with private
rule; the job of nation building was property and democracy; the government
now in our own hands. The leaders would plan (see Box 2.2) for the
of independent India had to decide,
among other things, the type of Work These Out
economic system most suitable for
our nation, a system which would Prepare a chart on the
promote the welfare of all rather than different types of economic
a few. There are different types of systems prevalent in the
economic systems (see Box 2.1) and world. List out the countries
among them, socialism appealed to as capitalist, socialist and
Jawaharlal Nehru the most. However, mixed economy.
he was not in favour of the kind of
socialism established in the former Plan a class trip to an
Soviet Union where all the means of agriculture farm. Divide the
production, i.e. all the factories and class into seven groups with
farms in the country, were owned by each group to plan a specific
the government. There was no private goal, for example, the
property. It is not possible in a purpose of the visit, money
democracy like India for the expenditure involved, time
government to change the ownership taken, resources, people
pattern of land and other properties accompanying the group
of its citizens in the way that it was and who need to be
done in the former Soviet Union. contacted, possible places
of visit, possible questions
Nehru, and many other leaders and to be asked etc. Now, with
thinkers of the newly independent the help of your teacher,
India, sought an alternative to the compile these specific goals
extreme versions of capitalism and and compare with long-term
socialism. Basically sympathising with goals of successful visit to
the socialist outlook, they found the an agricultural farm.

INDIAN ECONOMY 1950-1990 17

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Box 2.1: Types of Economic Systems

Every society has to answer three questions
What goods and services should be produced in the country?
How should the goods and services be produced? Should producers use
more human labour or more capital (machines) for producing things?
How should the goods and services be distributed among people?

One answer to these questions is to depend on the market forces of
supply and demand. In a market economy, also called capitalism, only those
consumer goods will be produced that are in demand, i.e., goods that can
be sold profitably either in the domestic or in the foreign markets. If cars
are in demand, cars will be produced and if bicycles are in demand, bicycles
will be produced. If labour is cheaper than capital, more labour-intensive
methods of production will be used and vice-versa. In a capitalist society
the goods produced are distributed among people not on the basis of what
people need but on the basis of Purchasing Power—the ability to buy goods
and services. That is, one has to have the money in the pocket to buy it. Low
cost housing for the poor is much needed but will not count as demand in
the market sense because the poor do not have the purchasing power to
back the demand. As a result this commodity will not be produced and
supplied as per market forces. Such a society did not appeal to Jawaharlal
Nehru, our first prime minister, for it meant that the great majority of people
of the country would be left behind without the chance to improve their
quality of life.

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 the socialistic principles.

Most economies are mixed economies, i.e. the government and the
market together answer the three questions of what to produce, how to
produce and how to distribute what is produced. In a mixed economy, the
market will provide whatever goods and services it can produce well, and
the government will provide essential goods and services which the market
fails to do.

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