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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%)

Please ensure that
come to class in time
your laptops are down and mobile
phones in silent-mode while the class is
in progress
you have your name boards in front of
you

Sessions
I The Impact of Planning on Economic
Growth

II The Consequences of Command &
Control

III Liberalization in the Eighties

IV The Economic Crisis of 1991
I The Impact of Planning on
Economic Growth
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The Rationale for Planning
Nehrus consolidation of power and its
impact on economic policy
The objectives of planning Why plan?
The three assumptions underlying the
planning 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
The Three Pillars of Planned
Economic Growth

The Industries (Development & Regulation)
Act of 1951

The Licensing System

Progressive Taxation


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
Negotiating the System
We needed to import steel and copper, and had to make the
payments to an English company. So that meant we had to: one,
get an import license; two ask the RBI to release the foreign
exchange; three get the payment released; four get the
permission to manufacture.

For foreign collaboration, like we had between TVS and Lucas,
we had to prove it was justified: how much it would cost, how
long it would last, whether expatriates were needed, then how
much they would be paid, how many days travelling would be
required. Each stage each permission took us six months to
a year. We had to set up a large office in Delhi in order to apply
to the ministries. Twice every month, my father had to fly from
Madras to Delhi

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

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