Mixed economy and the Planning Commission
In a school canteen some things are run by the school and some by outsiders. In the same way in the country’s economy both the government and private entrepreneurs work.
An economy in which both government and private sectors work together is called a mixed economy. Independent India adopted it.
Key idea 1 : Capitalism, socialism and the middle path — In capitalism the means of production are privately owned. In socialism they are owned by the State in the name of society. Pandit Nehru avoided the extremes, chose the middle path and adopted a mixed economy.
Key idea 2 : Three sectors — The public sector is fully under government control, for example production of defence equipment. Industries in the private sector belong to private entrepreneurs, for example consumer goods. In the joint sector some industries are run privately and some under government management.
Key idea 3 : The Planning Commission — The colonial power had exploited India economically. Planning was necessary to solve problems like poverty, unemployment and low productivity. So in 1950 the Planning Commission was set up with Prime Minister Nehru as chairman. It prepared the Five Year Plans.
- Easy : Production of defence equipment is in which sector? — Public sector.
- Medium : Consumer goods are in which sector? — Private sector.
- Exam-type : When was the Planning Commission set up? — In 1950.
In the figure: Three parts of a mixed economy.
What happened before the Planning Commission was formed? In 1944 a group of leading industrialists, including J. R. D. Tata and G. D. Birla, drew up the ‘Bombay Plan’ for the country’s economic development.
What happened after the Planning Commission was formed? The Planning Commission was set up on 15 March 1950 with Nehru as chairman, and the First Five Year Plan (1951–56) gave priority to agriculture and irrigation. In 2015 NITI Aayog replaced it.
Capitalism = private; socialism = State; mixed = both.
A mixed economy does not mean all industries are government-run; it accepts profit and enterprise too.
Memory clue: Public-private-joint. Memory clue: “three stoves, three owners”.
Spot the difference
| Type | Owner | Example |
|---|---|---|
| Public | Government | Defence equipment |
| Private | Entrepreneurs | Consumer goods |
| Joint | Government + private | Some industries |
Practice questions
- 1What is a mixed economy?
- 2State the difference between capitalism and socialism.
- 3Give one example of the public sector.
- 4Who was the chairman of the Planning Commission?
- 5Why did independent India choose a mixed economy?
- 6Why does the government have to take the initiative in areas like defence and railways?
- 7Why was planning needed?
- 8Write information about the three sectors with examples.
Show answers (try them yourself first)
- 1An economy where government and private sectors work together.
- 2In capitalism means are private; in socialism they are State-owned.
- 3Production of defence equipment.
- 4Pandit Jawaharlal Nehru.
- 5Because the good aspects of both were to be taken and extremes avoided.
- 6Because huge capital is needed and returns come late, so private entrepreneurs are less keen.
- 7To solve problems of poverty, unemployment and low productivity.
- 8Public = government (defence); private = entrepreneurs (consumer goods); joint = both.
Five Year Plans
We make a yearly timetable for exams. In the same way the country set targets for five years and made plans.
A Five Year Plan is the planning of the country’s economic development targets and spending for five years. The first plan was for 1951 to 1956.
Key idea 1 : The first three plans — The first plan (1951-56) stressed agriculture, irrigation and social development. The second plan (1956-61) stressed industrialisation; steel plants came up at Durgapur, Bhilai and Rourkela and dams like Bhakra-Nangal were built. The third plan (1961-66) aimed at balance between industry and agriculture.
Key idea 2 : The middle period and later plans — After the third plan, three annual plans came from 1966 to 1969; because of famine and the wars with China and Pakistan the focus had to be on defence. The fourth plan (1969-74) aimed at self-reliance; 14 banks were nationalised in its time, but because of the Bangladesh war and refugee expenses it was not as successful as expected. The fifth plan (1974-79) focused on removing poverty; from 1978 the Janata government brought the ‘Rolling Plan’ but it was later dropped.
Key idea 3 : Sixth to Ninth plans — The sixth plan (1980-85) stressed reducing poverty and unemployment and a small-family policy; rural development programmes began. The seventh plan (1985-90) focused on food, employment and productivity. In the eighth plan (1992-97) the private sector got great scope and the mid-day meal scheme started in 1995. The ninth plan (1997-2002) stressed agriculture and rural development.
- Easy : What was the main stress of the second plan? — Industrialisation.
- Medium : How many years was the first plan? — Five years (1951 to 1956).
- Exam-type : In which plan did mid-day meals start? — In the eighth plan (1995).
In the figure: Some important plans and their stress.
As per the textbook, in the second plan steel plants at Durgapur, Bhilai and Rourkela, a fertiliser plant at Sindri and a railway engine factory at Chittaranjan were set up. (check with the book)
1st farming; 2nd industry; 3rd balance; 4th self-reliance; 8th private sector.
There was no five-year plan from 1966 to 1969; three annual plans were made then.
Memory clue: Farm-Industry-Balance-Self-reliance-Private = 1-2-3-4-8. Memory clue: “from farm to private”.
Spot the difference
| Plan | Period | Stress |
|---|---|---|
| First | 1951-56 | Agriculture, irrigation |
| Second | 1956-61 | Industry |
| Fourth | 1969-74 | Self-reliance |
Practice questions
- 1What is a Five Year Plan?
- 2What was the stress of the first plan?
- 3Name two steel plants set up in the second plan.
- 4Why did annual plans have to be made from 1966 to 1969?
- 5Why did the fourth plan not get the expected success?
- 6State the feature of the eighth plan.
- 7Write the general goals of planning (any four).
- 8Prepare a chronological table of the first five plans.
Show answers (try them yourself first)
- 1Economic development planning made for five years.
- 2On agriculture, irrigation and social development.
- 3Bhilai and Rourkela (or Durgapur).
- 4Because of famine and the wars with China and Pakistan the focus had to be on defence.
- 5Because of the burden of the Bangladesh war, refugee expenses, pay raises and rising petrol prices.
- 6The private sector got great scope; a reflection of the 1991 liberalisation.
- 7Raising national income, industrialisation, raising farm output, increasing employment.
- 81st 1951-56 farming; 2nd 1956-61 industry; 3rd 1961-66 balance; 4th 1969-74 self-reliance; 5th 1974-79 poverty removal.
Bank nationalisation, 20-point programme and mill workers’ strike
Money collected for a school trip is used for the benefit of all. In the same way the idea behind nationalisation was that bank money should be used for the development of ordinary people.
Nationalisation means bringing private institutions under government ownership. In India 14 big banks were nationalised in 1969.
Key idea 1 : Nationalisation of banks — In 1955 the Imperial Bank was nationalised and became the State Bank of India. On 19 July 1969 Indira Gandhi nationalised 14 banks and in 1980 six more. A group in Congress with socialist ideas and also the Communist Party had demanded this.
Key idea 2 : 20-point programme — On 1 July 1975 Indira Gandhi announced the 20-point programme. Its provisions included ceiling on land holdings, minimum wages, workers’ participation in industry, freeing bonded labour, and curbing tax evasion and smuggling.
Key idea 3 : Mill workers’ strike — The textile mill area of Mumbai was known as ‘Girangaon’. In 1982 mill workers went on a big strike under the leadership of Dr Datta Samant. The strike dragged on and thousands of workers lost jobs; many mills closed.
- Easy : When were 14 banks nationalised? — 19 July 1969.
- Medium : Who announced the 20-point programme? — Indira Gandhi.
- Exam-type : Who led the mill workers? — Dr Datta Samant.
In the figure: Timeline of banks, programme and strike.
What happened before the 1969 bank nationalisation? In July 1969 Indira Gandhi took the finance portfolio from Morarji Desai, who opposed bank nationalisation. Three days later, on Saturday 19 July, an ordinance was issued late in the afternoon and 14 banks became government-owned.
What happened after the 1969 bank nationalisation? Within two days R. C. Cooper, a bank director and shareholder, rushed to the Supreme Court. On 10 February 1970 the court struck down the 1969 Act. After that the government made a new revised Act.
What happened before the 1982 mill strike? In September 1981 the mill workers held a one-day strike and later chose Datta Samant as leader for higher wages and bonus.
What happened after the 1982 mill strike? On 18 January 1982 about two and a half lakh workers went on strike. The strike lasted about 18 months (the textbook says about a year). After the strike many mills closed and an estimated more than one lakh workers lost their jobs.
As per the textbook the Sunday weekly holiday for mill workers came through the efforts of Narayan Meghaji Lokhande; the book gives the date 1 January 1882, but a government labour institute study says the mill owners’ association accepted this demand on 10 June 1890. (check with the book; use the book’s date for exams)
1969 = 14 banks; 1975 = 20-point; 1982 = mill strike.
In 1980 six more banks were nationalised, not all banks. The State Bank was formed already in 1955.
Memory clue: 55 SBI; 69 fourteen; 80 six. Memory clue: “55 SBI, 69 fourteen”.
Spot the difference
| Decision/Event | Year | Result |
|---|---|---|
| Imperial Bank nationalised | 1955 | State Bank of India |
| 14 banks nationalised | 1969 | Banking under government control |
| Mill strike | 1982 | Many mills closed, jobs lost |
Practice questions
- 1What is nationalisation?
- 2On which day and how many banks were nationalised in 1969?
- 3How was the State Bank of India formed?
- 4State any two provisions of the 20-point programme.
- 5What happened before and after bank nationalisation?
- 6State the result of the 1982 mill strike.
- 7Explain why banks were nationalised in 1969.
- 8Why do you think the mill workers went on strike?
Show answers (try them yourself first)
- 1Bringing private institutions under government ownership.
- 214 banks on 19 July 1969.
- 3By nationalising the Imperial Bank in 1955.
- 4Minimum wages and freeing bonded labour.
- 5Before: the change in the finance ministry; after: Cooper’s court case and the revised Act of 1970.
- 6Many mills closed and a large number of workers became jobless.
- 7So that bank money could be used for general development instead of industrial houses and deficits could be covered.
- 8For higher wages and bonus (student’s view).
The New Economic Policy of 1991
If household spending rises a lot and savings are over, the family has to change its way. In the same way in 1991 the country had to change its economic policies.
The 1991 new economic policy had three points: privatisation, liberalisation and globalisation. The P. V. Narasimha Rao government started it.
Key idea 1 : Causes of the crisis — As per the textbook, during the Chandra Shekhar government inflation was about 17% and foreign exchange reserves had fallen very low. Foreign debt rose from about 2350 crore dollars in 1980-81 to about 8380 crore dollars in 1990-91. Iraq’s invasion of Kuwait raised oil prices and non-resident Indians began withdrawing deposits.
Key idea 2 : Remedies — Narasimha Rao made Dr Manmohan Singh Finance Minister. He removed restrictions on foreign investment, limited the licence system to 18 industries and opened loss-making public industries to private investment. As the telecom sector opened, mobile services started across the country.
Key idea 3 : World Trade Organisation — In 1995 India became a member of the World Trade Organisation (WTO). The aim of this organisation is to remove obstacles to free trade between countries. Before it, GATT regulated world trade. India also signed the South Asian Preferential Trade Arrangement (SAPTA).
- Easy : When did India become a member of the WTO? — In 1995.
- Medium : Who was the Finance Minister in 1991? — Dr Manmohan Singh.
- Exam-type : What are the three points of the new policy? — Privatisation, liberalisation, globalisation.
In the figure: From crisis to the World Trade Organisation.
As per the textbook, in the crisis the foreign exchange reserves were enough only for a few weeks of imports and in May 1991 gold was sold and mortgaged to ease the situation. (check with the book; the book says ‘one week’, other sources say about three weeks)
Privatisation + liberalisation + globalisation = 1991; WTO = 1995.
The new policy does not mean selling all government industries; it means reducing controls and giving scope to private and foreign investment.
Memory clue: P-L-G = privatisation, liberalisation, globalisation. Memory clue: “private, liberal, global — three steps”.
Spot the difference
| Point | Meaning | Example |
|---|---|---|
| Privatisation | Private participation in industry | Public industries opened |
| Liberalisation | Fewer government controls | Licence limited to 18 industries |
| Globalisation | Economic linking with the world | WTO membership |
The New Economic Policy of 1991
In the app you can move this figure with your finger.
Open in the appPractice questions
- 1On which three points was the 1991 new economic policy based?
- 2How did the 1991 economic crisis arise?
- 3Whom did Narasimha Rao choose as Finance Minister?
- 4What reforms did Dr Manmohan Singh make? Name two.
- 5What is the aim of the WTO?
- 6What was the result of opening the telecom sector?
- 7Explain why the 1991 policy was necessary.
- 8Write briefly the journey from mixed economy to globalisation.
Show answers (try them yourself first)
- 1Privatisation, liberalisation and globalisation.
- 2Foreign debt and inflation rose, reserves fell, oil prices rose and NRIs withdrew deposits.
- 3Dr Manmohan Singh.
- 4Removed restrictions on foreign investment; limited the licence system to 18 industries.
- 5To remove obstacles to free trade between countries.
- 6Mobile services started across the country.
- 7Because the economic situation was serious and repaying loans became difficult.
- 8Mixed economy → Five Year Plans → bank nationalisation → 1991 liberalisation → globalisation.