Class 11 Economics

Indian Economy:

NCERT Solution

Question 1: Define a plan.

Answer: A plan is a long term strategy which spells out how the resources of a nation are going to be used. A plan should have some general goals and some specific goals which are to be achieved within a specified time period.

Question 2: Why did India opt for planning?

Answer: At the time of independence, Indian economy was in very poor shape. The private capital was at a low level. Basic industries were very few in numbers. The whole economy was dependent on a few sectors. Agriculture was doe through primitive methods and needed a lot of improvement to feed a growing population. The first Prime Minister and other thinkers of the time thought it suitable to opt for a planned economy.

Question 3: Why should plans have goals?

Answer: For any plan to succeed you need to have some goals. Without a goal, one does not know where to reach. It is similar to setting a destination before beginning a journey. Without a preset destination, you will reach nowhere at the end of a journey.

Question 4: What are High Yielding Variety (HYV) seeds?

Answer: High Yielding Variety (HYV) seeds are new variety of seeds which are produced after cross breeding or genetic engineering. As the name suggests; HYV seeds give higher yields per acreage than the conventional seeds.

Question 5: What is marketable surplus?

Answer: If a farmer produces so much of farm produce that a surplus amount can be saved after his own consumption, this surplus amount can be sold in the market. This surplus amount is called market surplus.

Question 6: Explain the need and type of land reforms implemented in the agriculture sector.

Answer: Two types of reforms were introduced in the agriculture sector. The first reform was related to the ownership of land. The actual tillers; who were not the owners of the land were given the ownership of land. It was assumed that ownership would give them motivation to invest in improvement of land and it would help in better farm productivity.

The second reform was related to the land ceiling. This put a ceiling on maximum land holding which a farmer could have. This reform helped in equitable distribution of land. Previously, a few farmers held the ownership of biggest chunks of land; while most of the farmers were marginal farmers or landless farmers.

Question 7: What is Green Revolution? Why was it implemented and how did it benefit the farmers? Explain in brief.

Answer: Green Revolution refers to the large increase in food grain production due to use of High Yielding Variety (HYV) seeds; especially for wheat and rice.

Question 8: Explain ‘growth with equity’ as a planning objective.

Answer: Equity was one of the major goals of planning. Growth, modernization and self-reliance (the other goals of planning) could not be enough if the fruits of these developments did not reach a large section of the society. If the issue of equity is not taken care of, then the rich would become richer and the poor would become poorer. Prosperity would be concentrated in only a few hands and a vast section of the society would be devoid of the quality of life which a prosperous economy can give. Thus, equity should be a major objective of planned economy.

Question 9: Does modernisation as a planning objective create contradiction in the light of employment generation? Explain.

Answer: It is a wrong notion that modernization as a planning objective creates contradiction in the light of employment generation. Modernization not only involves adoption of new technology but also changes in social norms. Many early thinkers thought that new machines can reduce employment opportunities because one machine can do the work of hundreds of people in less time. But we should not forget that a new machine can help in opening up new employment opportunities which could not have been even thought of. Following example illustrates this in a relevant way.

When our former Prime Minister, Rajiv Gandhi talked about computerization to modernize various sectors; there were huge protest. People thought that since a computer can do the work of thousands of people in a fraction of time, it would result in mass unemployment. But current scenario tells a different story. Thanks to the advent of computer and IT, many new employment opportunities have opened up about which people could not even imagine in the past.

Question 10: Why was it necessary for a developing country like India to follow self-reliance as a planning objective?

Answer: For a developing country, it is very important that local business grows to a size that develops the ability to compete with companies from other nations. Moreover, at the time of independence; it was feared that overdependence on other countries may lead to interference in domestic policies. Self-reliance was desirable at least in those products and services which catered to the basic needs such as food and clothing.

Question 11: What is sectoral composition of an economy? Is it necessary that the service sector should contribute maximum to GDP of an economy? Comment.

Answer: An economy can be divided into three main sectors, viz. primary, secondary and tertiary sectors. Agriculture and related activities come under primary sector, industries come under secondary sector and services come under tertiary sector. Relative share in GDP and in employment opportunities of different sectors shows the sectoral composition of an economy. Traditionally, it has been seen that an economy remains over-dependent on agriculture during initial stages of development. It gradually progresses to being dependent on the industries. In case of developed economies, dependency on services sector is the highest. This is not a rule but experience from most of the developed economies suggests that a higher contribution by services sector is an indication towards a developed economy.

Question 12: Why was public sector given a leading role in industrial development during the planning period?

Answer: At the time of independence, India was a poor country and private capital was not very high. Thus, most of the sectors which required huge investments could not be operated by private businesspersons. The basic industries; like iron and steel and heavy machinery needed immediate infusion of capital and technology. Infrastructure needed to be built. All of this could not have been possible without the intervention of the government. Hence, public sector was given a leading role in industrial development during the planning period.

Question 13: Explain the statement that green revolution enabled the government to procure sufficient food grains to build its stocks that could be used during times of shortage.

Answer: Before the beginning of the Green Revolution, the government had to depend on American imports to fulfill the demand of food during times of shortage. Green Revolution helped in creating market surplus of foodgrains; especially wheat and rice. This resulted in falling prices of food grains. There was so much surplus food available that the government got enough food grains to build buffer stocks. This buffer stock could be used during the times of shortage. There was no more dependency on imports to meet the need during times of shortage.

Question 14: While subsidies encourage farmers to use new technology, they are a huge burden on government finances. Discuss the usefulness of subsidies in the light of this fact.

Answer: Subsidies to farmers has always been a debatable issue. It is beyond doubt that subsidies result in huge financial burden on the government. But in the absence of subsidy, only the rich farmers would be benefited from new technologies; like HYV, fertilizers, pesticides and irrigation facilities. This will make the rich farmers more prosperous but the poor farmers would become even worse. Subsidizing HYV seeds, fertilizers, farm equipments, etc. helps even small farmers to improve their productivity. In the long run, good farm output benefits not only the farmers but the whole nation. Hence, in spite of putting some financial burden on the government, subsidies definitely help the farming community in particular and the whole society in general.

Question 15: Why, despite the implementation of green revolution, 65 per cent of our population continued to be engaged in the agriculture sector till 1990?

Answer: During 1950s, the contribution of agriculture to the GDP was 59%; which decreased substantially to 35% by 1990. Contribution of other sectors in the GDP increased sharply during this period. But employment generation in secondary and tertiary sectors did not increase at the same pace. As a result, even after about four decades of the planned economy, contribution of agricultural sector in employment generation remained more or less same. 65% of the total population still continued to be engaged in agriculture till 1990.

Question 16: Though public sector is very essential for industries, many public sector undertakings incur huge losses and are a drain on the economy’s resources. Discuss the usefulness of public sector undertakings in the light of this fact.

Answer: Public sector undertaking’s main goal is public welfare rather than profit making. If a private sector company is running into losses, then it will close its shop. It looks like an ideal scenario but imagine about the families of those people who lose jobs in this process. In case of a public sector company; incurring losses; the government continues to operate the loss making undertaking to keep the larger interest of the society in mind. Moreover, public sector undertakings usually produce goods or services which are needed by people so that even the poor can afford such goods and services.

Question 17: Explain how import substitution can protect domestic industry.

Answer: If domestic industry can grow to such a level then it will be able to substitute the imports. Imports are always costlier than locally produced goods, because importing something involves transportation costs and tariffs. Apart from reducing the cost of a particular product, import substitution also gives an opportunity to local players to gain expertise and to grow in terms of revenue. Thus, import substitution helps in protecting the domestic industry as well.

Question 18: Why and how was private sector regulated under the IPR 1956?

Answer: Under the IPR 1956, private sector was regulated through licensing system. To start a business, a company had to obtain a license from the government. The government also put limit on the quantity of goods produced so that production should not be more than what the economy needed. Certain sectors were exclusively reserved for small scale sector. It was believed that small scale sector would provide more employment to people. If a company wished to open a factory in backward area, then obtaining a license was very easy. Thus, opening a new venture or capacity expansion was strictly controlled by the government.

Question 19: Match the columns


  1. Prime Minister: Chairperson of the Planning Commission
  2. Gross Domestic Product: The money value of all the final goods and services produced within the economy in one year.
  3. Quota: Quantity of goods that can be imported.
  4. Land Reforms: Improvements in the field of agriculture to increase its productivity.
  5. HYV Seeds: Seeds that give large proportion of output.
  6. Subsidy: The monetary assistance given by government for production activities.