Model Answer
0 min readIntroduction
Post-independence India inherited a largely agrarian economy characterized by low productivity, limited industrial capacity, and widespread poverty. Early economic policies focused on self-reliance and state-led development. The Industrial Policy Resolution (IPR) of 1956, a landmark document, was designed to accelerate industrialization and shift the economic focus from agriculture to industry. This resolution categorized industries into three groups – those exclusively owned by the state, those primarily owned by the state with private sector participation, and those left to the private sector. The IPR 1956, along with subsequent policies, fundamentally reshaped the Indian economic landscape, though its success in achieving a complete transformation was debated.
The Pre-1956 Economic Landscape
Before 1956, India’s economy was overwhelmingly agrarian, with agriculture contributing approximately 50-55% to the GDP. The industrial sector was nascent, comprising only around 10-15% of the GDP. This sector was largely dominated by textiles, jute, and some basic iron and steel production. Capital formation was low, technological capabilities were limited, and the economy was heavily reliant on imports. The First Five-Year Plan (1951-56) laid the foundation for planned economic development, prioritizing irrigation and power projects to support agricultural growth, but industrial development remained modest.
The Industrial Policy Resolution, 1956: A Transformative Agenda
The IPR 1956 marked a decisive shift towards a mixed economy, emphasizing the role of the public sector. Key features included:
- Categorization of Industries: Industries were classified into three categories as mentioned earlier, with strategic sectors like steel, railways, and atomic energy reserved for the public sector.
- Emphasis on Heavy Industries: The policy prioritized the development of heavy industries like steel, iron, and machinery, believing they were crucial for long-term economic growth.
- Regional Balance: Efforts were made to promote industrial development in backward regions to reduce regional disparities.
- Import Substitution: The policy advocated for import substitution to reduce dependence on foreign goods and promote domestic production.
The IPR 1956 led to significant investments in the public sector, establishing large-scale industries like Bhilai Steel Plant (with Soviet assistance), Rourkela Steel Plant (with German assistance), and Hindustan Aeronautics Limited (HAL). This resulted in a gradual increase in the share of industry in the GDP.
Sectoral Composition of Growth (1956-1990)
The period between 1956 and 1990 witnessed a gradual but uneven shift in the sectoral composition of the Indian economy. While the share of agriculture declined, it remained significant. The industrial sector experienced fluctuating growth rates, influenced by policy changes and external factors.
| Sector | Average Growth Rate (1956-1965) | Average Growth Rate (1965-1980) | Average Growth Rate (1980-1990) |
|---|---|---|---|
| Agriculture | 3.7% | 2.3% | 3.2% |
| Industry | 7.3% | 6.8% | 8.0% |
| Services | 1.7% | 4.5% | 6.8% |
Key Observations:
- Dominance of Agriculture: Despite the focus on industrialization, agriculture continued to be the largest contributor to GDP throughout this period, employing the majority of the workforce.
- Slow Industrial Growth: Industrial growth, while positive, was often hampered by bureaucratic hurdles, licensing requirements (the “License Raj”), and a lack of competition.
- Emergence of the Service Sector: The service sector began to gain prominence in the 1980s, driven by growth in areas like finance, transportation, and communication.
- Public Sector Dominance: The public sector played a dominant role in many key industries, often leading to inefficiencies and a lack of innovation.
The 1980s saw some liberalization measures, but these were limited in scope. The balance of payments crisis in 1991 ultimately forced India to undertake more comprehensive economic reforms, marking a departure from the industrial policy framework established in 1956.
Conclusion
The Industrial Policy Resolution of 1956 undeniably played a crucial role in laying the foundations for India’s industrial development. It shifted the economic focus towards industry and established a strong public sector presence. However, the rigidities of the policy framework and the dominance of the public sector ultimately constrained industrial growth and prevented a complete transformation of the economy from agrarian to industrial. The sectoral composition of growth before 1990 reflected this uneven progress, with agriculture remaining dominant and the service sector emerging as a significant contributor. The reforms of 1991 signaled a move away from this model, paving the way for a more market-oriented and globally integrated economy.
Answer Length
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