Lecture 6 IEPH-1 Sebastian
Lecture 6 IEPH-1 Sebastian
Lecture 6 IEPH-1 Sebastian
History
Objectives, Content & Evaluation - Part II
3. Progressive Taxation
The Industries (Development &
Regulation) Act, 1951
The most complex and comprehensive system of
control and regulation of private sector
enterprise devised worldwide
Objectives:
o regulation of investments according to plan
priorities and targets
o prevention of concentration of holding in the private
sector
o balanced industrial development to reduce disparities in
levels of development
o protection and encouragement of small-scale industries
.
Delegated vast powers to the bureaucracy
All existing industries had to register
60.00
50.00
40.00
30.00 Series1
20.00
10.00
0.00
Why was growth in the 50s not
sustained?
• Rapid growth in the 50s was the result of
unique circumstances
• Huge increases in budgetary support for public
sector investment increased output
• Good monsoons in 1953-54 and 1954-55 which
increased agricultural production, reduced
inflation and generated demand for manufactured
goods
• Large sterling balances accumulated during the
war years provided capital necessary for imports
Low growth and policy change
By the mid-sixties it became apparent that
growth in the 50s would not be sustained into
the 60s
The sixties was a decade of relatively low
growth caused by the inefficiencies in
investment, the cost of two wars, a series of
poor monsoons and also policy instability
Public sector investments were not generating
sufficient returns, and resource scarcities and
the inefficiency of the licensing system was
hampering investment
GDP Growth and GDP Growth
Per Capita 1951-66
6
3 GDP
PER-CAPITA
0
1951-56 1956-61 1961-66
Two wars diverted capital to defence
spending
The monsoons failed in 65-66 and 66-67
and the country relied on food-aid under the
US PL-480 programme
‘Export pessimism’ depleted foreign
exchange reserves and created inefficiencies
in investment
In June 1966 the rupee was devalued by
57% from Rs.4.76 to Rs.7.50
Export Pessimism and its
Impact on Policy
The emphasis in planning was on investment
in the public sector, particularly heavy
industry which was seen as the key to growth
‘Export pessimism’ meant that an export led
model was seen as unworkable
India had to become ‘self-reliant’ through
import substitution industrialization, made
viable by high trade barriers
Self-reliance also meant development of
diversified indigenous industrial capabilities
that would eventually create a base for
exports
The policy of import substitution led to an excessive
pre-occupation with self-reliance without regard to
efficiency or economies of scale
Licensing constrained private investment (except by
large firms) and created inefficiencies in the
economy
Impact on location and holding
Political Instability
• Nehru, Shastri and Mrs.Gandhi
• The ‘Syndicate’ and the ‘Young Turks’
Policy at crossroads
AICC recommendations
• Social control over banking
• Nationalization of general insurance
• Implementation of the Monopolies Commission
Report
• Abolition of privy purses