(a) Land system during the British rule was responsible for sustained poverty and stagnant growth in India. Comment. (10…

(a) British land system and poverty and stagnation

The British introduced the Permanent Settlement (zamindari) in Bengal and parts of the south, the ryotwari system in Madras and Bombay, and the mahalwari system in the north. Land revenue was fixed high, collected in cash and rigidly, and land became a saleable property. This produced absentee landlords and intermediaries, rack-renting, peasant indebtedness, loss of land to moneylenders and commercialisation forced by the need to pay revenue. Cultivators had little surplus or incentive to invest, and landlords spent on consumption or rent-seeking rather than improvement. Together with the decline of handicrafts, which increased the pressure on land, agricultural output per head stagnated.

It is not the only cause. Colonial neglect of irrigation and technology, the drain of surplus abroad and low public spending on education also mattered, and railways and canals raised commercial cropping in some regions. But the land system was a major cause of rural poverty and low productivity.

(b) V. K. R. V. Rao's improvement on earlier national income estimates

Earlier estimates, by Dadabhai Naoroji (1868), Digby, Findlay Shirras and Wadia and Joshi, were mostly partial, using limited data, focusing on agricultural output and giving crude allowances for other sectors. Rao's estimates for British India (1925-29 and 1931-32, published in 1939 and 1940) were the first scientific ones.

His improvements: he used the product (output) method for agriculture, mining and industry and the income method for services, and avoided double-counting by taking net output. He estimated output crop by crop from official statistics, valued it at prices at the time, and deducted costs and depreciation. He included rural non-agricultural and service incomes, and gave estimates of sector-wise income and per capita income. He also discussed concepts, such as treating services as income, and the limits of data, which set the basis for later work by the National Income Committee (1949) and the Central Statistical Office.

(c) Impact of the Green Revolution on production and productivity

The Green Revolution of the mid-1960s combined high-yielding variety seeds, fertiliser, irrigation and assured prices.

Effects on production and productivity: foodgrain output rose from about 72 million tonnes in 1965-66 to much higher levels, ending dependence on food imports such as PL-480 wheat. Wheat yields rose very quickly, and rice followed, and yields per hectare rose through multiple cropping and more use of inputs. India became self-sufficient in foodgrains and built buffer stocks.

Limits: the gains were concentrated in wheat and rice, with pulses, coarse cereals and oilseeds neglected; they were regional, in Punjab, Haryana and western Uttar Pradesh, with rain-fed and eastern areas left behind; large farmers gained more initially; and intensive chemical use and groundwater depletion caused salinity, falling water tables and soil degradation, which raises sustainability problems.

(d) Industrial deceleration and structural retrogression, 1965-80

Industrial growth slowed from about 7 per cent a year in the first three plans to about 4 per cent, while the capital goods and basic industries lost momentum and the structure of industry shifted back towards consumer goods. Reasons:

• Public investment fell after the wars of 1962, 1965 and 1971, the droughts of 1965-67 and the foreign exchange shortage, and the agricultural slowdown reduced demand and wage goods.
• The licensing system, the MRTP Act (1969) and FERA (1973) restricted expansion and entry, and discouraged investment and technology.
• Infrastructure bottlenecks in power, coal and railways, and inefficiency and low capacity utilisation in public enterprises raised capital-output ratios.
• The oil shocks of 1973 and 1979 strained the balance of payments, and inward-looking import substitution limited exports and technological upgrading.
• Low income growth among the poor restrained the market for mass manufactures.

(e) Why growth accelerated in the 1980s

National income grew by about 5.6 per cent a year in the 1980s, against about 3.5 per cent in 1950-80. The factors were:

• Pro-business reform: partial liberalisation in industry, such as relaxing licensing and MRTP limits, easier import of capital goods and technology, and a change in attitude to the private sector, raised productivity and investment.
• Agriculture: the spread of high-yielding varieties to the east and south and better yields improved output and rural demand.
• Public investment and expansionary fiscal policy, financed by borrowing, raised demand, though at the cost of a rising fiscal deficit and external debt, which ended in the crisis of 1991.
• Energy and infrastructure: new domestic oil output (Bombay High) and improved power capacity.
• Services, remittances and foreign borrowing supported demand and imports.

The growth was thus partly unsustainable, as it rested on deficits and debt.