Economy Class 11: Industry and Trade During Five-Year Plans

Industry and Trade During Five-Year Plans

Industry and Trade:

1. The good industrial sector leads to the development of emerging nations. Employment in the industry is more stable than in agriculture because it contributes to overall prosperity. For this reason, the five-year plans placed a lot of emphasis on industrial development.                                                                                                                                                                                                      
2. Indian industrialists did not have the capital to invest in industrial ventures essential for the nation’s development.
3. The market is not very massive, which would bring in investment.
4. Indian economic development on socialist lines led to the government’s policy controlling the commanding heights of the economy (as put by the second five-year plan).  

Industrial Policy Resolution 1956: 

This resolution formed the basis of the Second Five Year Plan, which tried to build the basis for a socialist pattern of society. There are three categories under this: 

• The industries owned by the government would make up the first category
• The private industries that supplemented public industries are under the second category
• The private industries under the control of the state are under the third category
• The industry without a license was not allowed
• The existing industry also needs a license to expand their company
• This policy was used for promoting industry in backward regions

Small-Scale Industry

• The small-scale industries invested five lakhs back in the 1950s, whose  maximum investment has gone up to 1 crore
• Rural development saw a new face in small-scale industries in 1955. This was observed by the village and small-scale industries committee (Karve committee).
• These industries demand more labour than large-scale industries, thus generating employment
• Thus, the production of several products was reserved for the small-scale industry, the criterion of reservation being the ability of these units to manufacture the goods
• Huge support was offered to small-scale industries such as lower excise duty and loans at the minimum interest rate

Trade policy: Import substitution

1. Import substitution is an inward-looking trading scheme. 
2. This policy aims to encourage the use of domestic products. 
3. Under this policy, the government protected the domestic industries from foreign competition in two forms: 
4. Tariffs: A tax on imported goods; makes imported goods more expensive and discourages their use. 
5. Quotas: They limit the number of goods that can be imported. Tariffs and quotas are the tools that restrict imports and, therefore, protect domestic firms from foreign competition.
6. It was believed that if domestic products were given a chance, they would survive in the market for over a while. 
7. The security strategy depended on the thought that ventures of developing countries were not in a situation to contend with the goods delivered by more developed economies.
8. It was assumed that if the domestic industries were protected, they would learn to compete over time. 
9. There was also a fear of the possibility of foreign exchange being spent on importing luxury goods if no restrictions were placed on imports.

Effect of Policies on Industrial Development:

Positive effects:

• The annual growth rate increased by 6% in over 40 years from 1950-to 1990
• The industrial sector became well-diversified by 1990
• The promotion of small-scale industries gave opportunities to people with limited capital
• The electronic and automobile industries boomed in India because of no imports from foreign countries

Negative effects: 

• Certain goods were produced by the State enterprises
• Though it was a huge loss for the public sector under the government undertaking and also limited the nation’s resources
• Licensing norms were misused by industrial houses, often spending more time to get a license with the respected ministries instead of thinking about how to work on the quality of their products
• The efficiency of firms was reduced with the excessive regulation of permit licenses
• Indian policies were ‘inward oriented’ that failed to develop a strong export sector
•  The need for reform of economic policy was widely used in the sense of changing global economic cases, and the new economic policy was initiated in 1991 to make the Indian economy more efficient

In conclusion:- 

This Plan prioritised industry, infrastructure, and job creation. The plan recognised the importance of rapid industrial development in reducing poverty, creating jobs, and providing essential services such as health and education to all segments of society.