CBSE Class 12 Economics - Indian Economy 1950–1990

Economic Planning - A system where a central authority,  in this case, Planning Commission, now NITI Ayog, in India sets a set of targets and mention sit programmes to be achieved within a specific period of time.

NEED OF PLANNING IN INDIA: Owing to the backwardness and stagnation in the economy it could not be left in the hands of market forces of supply and demand to make way for growth and development. A heavy investment supported by the government was required and therefore Planning in India was needed.


Directive Planning: System of planning where planning is just used to direct the forces of supply and demand. There is no direct participation of the state in the process of growth and is solely there for ensuring law and order. This principal is mostly pursued in capitalist economies.

Comprehensive Planning:  System in which government participates in the process of growth and development. This planning is mostly pursued in mixed and socialist economies



An economy where the means of production are owned by individuals who can freely take their decisions by the motive of profit-maximization is called a capitalist economy.

Features of Capitalist Economy are:

  1. Private ownership of means of production
  2. Profit maximization is the primary motive and government is confined to ensure law an order.


  1. Promotes self- interest, profit maximization and acceleration of GDP growth.


  1. The collective interest of society ignored.
  2. Production of only high-profit goods.
  3. Growth without social justice.


The economy in which there is social ownership of means of production and the important decisions are taken by some central authority of the government with a view of maximising social welfare is called a socialist economy.

Features of Socialist Economy are:

  1. Collective ownership of means of production.
  2. Maximised social welfare due to direct participation of the state.


Tries to achieve equality in the distribution of income, along with inclusive growth and social justice.


1.Slow GDP growth

2. Profit maximization replaced by the principle of ‘ Equity and Justice’


An economy which has both private and public ownership of means of production is called Mixed economy.

Features of Mixed economy are:

  1. Private and government(public) ownership.
  2. Profit- maximization is the governing principle in decisions for Private ownership and Social welfare in Govt or Public ownership.

Merit: Combines the best features of both capitalist and socialist economies like GDP growth ensured by Private entrepreneurs and social justice by government.

Demerit: Government sector often inflicted with corruption therefore a low level of efficiency.


Long Period Goals- Common to all Five-year plans and studied as Objectives of Planning.

Short Period Goals- Plan- Specific and studied as Objectives of Plans.

Long period and Short period objectives should not contradict each other and be in sync.

Long Period Goals/Objectives

  1. GDP Growth- Increase in GDP means an increase in the level of output which further means an increase in the flow of goods and services. A consistent increase in the flow of goods and services in an economy for a long period of time is called Economic growth, therefore, an increase in GDP is equal to the increase in economic growth.

This increase depends upon Increasing the resource base of the country and an increase in productivity through innovative technology.

2. Full Employment- it's a situation where people who are willing to work and able to work at the given market wage rate.

This leads to ‘inclusive growth’, achieving the motive of growth and social justice together

3. Equitable Distribution or Equity- Economic growth becomes meaningless if only a few people receive its benefits, therefore it should reach to all sections of the society in order to become equitable.

4. Modernization - Means updation and adoption of modern technology. For example the Green Revolution, IT Revolution. Modernization in terms of social outlook as well for example women empowerment.

5. Self-Sufficiency-  Means dependence on domestically produced goods, primarily food grains so the country is not exposed to any political pressure from the rest o the world.

Short Period Goals/Objectives

The depend on the current needs of the economy.

Initially started with First plan focusing on higher agricultural production,

The second plan focused on the industry, Third self-sufficiency and fuller utilisation of manpower and so on.

They have to compliment the long period goals and objectives, be in sync with them and not contradict them.


1)Heavy Reliance on Public Sector

  • In Industrial Policy Resolution 1956, 17 industries were reserved for public sector and 12 industries were reserved for private sector.
  • Achieving the socialist pattern of society through comprehensive development of the public sector.


2) Regulated Development of Private Sector 

  • A new industry in the private sector cannot be established without a license and registration.
  • Restrictions on the expansion of existing industries in the private sector placed by the MRTP Act.
  • No concentration of power in private hands.

 3) Protection of small - scale industry and Regulation of large - scale industries

  • Monopolistic and Restrictive Trade Practices Act (MRTP) regulated large - scale industries
  • Few areas of production reserved exclusively for small - scale industries.
  • Development of financial institutions to aid small - scale industries.

4) Development of Heavy Industry of Strategic Significance

  • Industries of strategic significance like electricity generation were developed on a prior basis.

5)Focus on Saving and Investment

  • Being key determinants of economic growth Saving was promoted by offering high-interest rates and Investment through subsidies and capital grant

6) Protection from Foreign Competition

  • High import duties and quantitative restrictions placed on imports.

7) Focus on Import Substitution

  • To save foreign exchange na doe self- sufficient at the same time.

8) Restriction on Foreign Capital

  • FDI controlled and regulated through FERA.
  • Minimising economic control of foreign investors on the domestic market.

9) Centralized Planning

  • State programs aligned with the centralized planning in order to avoid the contradiction with the overall strategy of growth as specified in Five Year Plans.


1. Increase in National Income

  • Increase in National Income was seen during the First Plan and this gradually started increasing though not at a very fast pace and rate.
  • The economy was free from the deadlock and economic stagnation.

2. Increase in Per Capita Income

  • Per capita income was extremely low prior to the period of planning which started to increase on average basis now.
  • This increase in per capita income shows that there is the availability of goods and services to all sectors of society.

3. Institutional and Technical Change in Agriculture

  • Development of Agriculture took place through Land Reforms and Improvement in Technology.
  • Land reforms included the abolition of middle men between the state and tillers of the soil, moderation of rent, land ceilings, redistribution of land and consolidation of landholdings.
  • Improvement through the use of HYV seeds which resulted from rise in output and self - sufficiency in food grains.

 4. The rise in Savings and Investment

  • Increase in both the principle elements of economic growth noted.

5. Growth and Diversification of the Industry

  • Basic and capital goods industries like iron and steel started developing.
  • Self - sufficiency achieved in the consumer goods industries.

6. Infrastructure (Social & Economic)

  • Key elements of economic infrastructure like means of communication, transport, power generation, IT sector, etc. started showing significant growth.
  • Healthcare and educational facilities were improved and accessible which can be seen in the lower Death Rate and increased Life - Expectancy.

7.  Employment

  • Several employment schemes introduced by the government in different Five Year Plans, which resulted in a decreased rate of unemployment.

8.  International Trade

  • Volume and Value of India’s foreign trade increased and the composition of exports imports was changed as well. India started exporting finished goods and importing inputs for industrial output.


1. Abject Poverty

  • Despite poverty alleviation was the central motive of planning still around 20% population in India lives below the poverty line and fifty percent of worlds absolutely poor reside in India.

2. High Rate of Inflation

  • Planning failed to control inflationary spiral in India.

3. Unemployment Crisis

  • Despite more employment opportunities, unemployment has not yet subsided which is a threat to social unrest and growth process.

4. Inadequate Infrastructure

  • Actual growth failed to meet the targets of growth even after 67 years of planning.

5. Skewed Distribution

- Widening of an economic gap between the rich and the poor constantly leading to social inequality and therefore the requirements of reservations for weaker sections of society both socially and economically.