Economy (English)

Important Landmarks of Indian Economic History: Part 2

Janata Plan

Janata Plan was adopted in 1977 by the Janata Party after J.P movement and defeat of Congress party in the General Elections. The Janata Party was an amalgam of Indian political parties opposed to the State of Emergency that was imposed between 1975 and 1977 by the Government of India under the Prime Ministership of Indira Gandhi.

The new government wanted to reverse the model of economic growth based on capital intensive large scale industrialization and give more focus on production of “wage goods” rather than “capital goods” and small and cottage industry. There was a debate on “Mahalanobis Model” and “Wage Goods Model” of economic growth when India embarked on five year palns for economic growth. Mahalanobis Model represented Nehruvian Model of economic growth while Wage Goods Model represented Gandhian Model of economic growth. Earlier Mahalanobis model had been selected which was based on capital intensive large scale industrialization strategy, but the Janata Party was more inclined towards small scale and cottage industry based industrialization to produce wage goods, i.e., commodities required by labour households. The Janata plan also focused on rural development and agriculture, employment generation and poverty alleviation. It also wanted to promote indigenous industries and curb the market dominance of the MNCs.

Janata Party launched the Sixth Five-Year Plan (1978-80), aiming to boost agricultural production and rural industries. Seeking to promote economic self-reliance and indigenous industries, the government required multi-national corporations to go into partnership with Indian corporations. The policy proved controversial, diminishing foreign investment and led to the high-profile exit of corporations such as Coca-Cola and IBM from India. But the government was unable to address the issues of resurging inflation, fuel shortages, unemployment and poverty. The legalisation of strikes and re-empowerment of trade unions affected business efficiency and economic production.

Despite a strong start, the Janata government began to wither as significant ideological and political divisions emerged. The party consisted of veteran socialists, trade unionists and pro-business leaders, making major economic reforms difficult to achieve without triggering a public divide.Socialists and secular Janata politicians shared an aversion to the Hindu nationalist agenda of the Rashtriya Swayamsevak Sangh, whose members included Vajpayee, Advani and other leaders from the former Bharatiya Jana Sangh. Violence between Hindus and Muslims led to further confrontations within the Janata party, with most Janata leaders demanding that Atal Bihari Vajpayee and Lal Krishna Advani choose between staying in government and being members of the RSS. Both Vajpayee and Advani as well as other members of the former BJS opted to remain members of the RSS and consequently resigned from their posts and from the party. The Janata Government fell in 1979. Through 1979, support for Morarji Desai had declined considerably due to worsening economic conditions as well as the emergence of allegations of nepotism and corruption involving members of his family. On 19 July 1979 Desai resigned from the government and in the 1980 General Election the Congress Part bounced back to power, reverting again to Mahalanobis strategy albeit some elements of liberalization and export promotion.

Rolling Plan

Rolling Plan was adopted by Janata Party in 1978 for Sixth Five Year Plan (1978–1983) after scrapping the Fifth Five-Year Plan before its completion in 1979. Rolling Plan was an effort to integrate annual plan (short term plan) with the Five Year Plan (medium term plan) and further to integrate 5-year plan with perspective plan (a long term plan for 15 years). First is the plan for the current year which comprises the annual budget. Second is a plan for a fixed number of years, which may be 3, 4 or 5 years. Third is a perspective plan which is for 10, 15 or 20 years. Thus, there is no fixation of dates in respect of commencement and end of the plan in the rolling plans. This plan was again rejected by the Indian National Congress government in 1980 and a new Sixth Plan was made for the period 1980-85.There was an annual plan for the year 1979-80 when the Janata Government fell.

Priority Sector Lending

After the nationalization of banks it was decided to make available more funds by the banks to priority sector including agriculture, small and cottage industry and weaker sections. Priority sector was first properly defined in 1972, after the National Credit Council emphasized that there should be a larger involvement of the commercial banks in the priority sector. The sector was then defined by Dr. K S Krishnaswamy Committee. Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.. This is essentially meant for an all round development of the economy as opposed to focusing only on the financial sector. In 1974, the banks were given a target of 33.33 % as share of the priority sector in the total bank credit. On the basis of Dr. K S Krishnaswamy committee, the target was raised to 40%. The current Priority sector targets are as follows:


Domestic Scheduled Commercial Banks and Foreign banks with 20 branches and above

Foreign banks with less than 20 branches

Total Priority Sector

40 percent of Adjusted Net Bank Credit (ANBC)$

34% for 2016-17 and 36% for 2017-18*


18 percent of ANBC

Not applicable

Micro Enterprises

7.5 percent of ANBC

Not Applicable

Advances to Weaker Sections

10 percent of ANBC

Not Applicable

* Total Priority Sector target of 40 percent for foreign banks with less than 20 branches has to be achieved in a phased manner as below:

$It can be either ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

Apart from the above mentioned subjects priority sector lending also covers newer areas. They include the following:

  • Export credit is a part of priority sector loan subject to 2% cap for domestic banks and foreign banks with >20 branches. However, for foreign banks with <20 branches, the export credit limit is up to 32% of the ANBC.

  • Education funding is also included in priority sector lending. This includes loans to individuals for educational purposes including vocational courses up to Rs. 10 lakh irrespective of the sanctioned amount will be considered as eligible for priority sector.

  • Loan for Housing is also considered a part of priority sector lending. This includes housing loans to individuals (up to Rs. 28 Lakh in Metros and Rs. 20 Lakh in other cities, towns and villages), repairing of house (up to Rs. 5 Lakh in metros and Rs. 2 lakh in others), loans to any government agency for construction of houses subject to ceiling of Rs. 10 Lakh per house / dwelling unit for weaker sections or slum clearing and outstanding deposits with NHB on account of priority sector shortfall.

  • Social infrastructure is also included in priority sector lending. This includes loans up to ₹5 crore per borrower for building social infrastructure for activities viz. schools, health care facilities, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and household level water improvements in Tier II to Tier VI centres. It also includes loan to Micro-finance Institutions (MFIs) for on-lending to SHGs and JLGs for water and sanitation facilities.

  • Another important component of priority sector lending is renewable energy. This includes loan up to Rs. 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities Viz. Street lighting systems, and remote village electrification. For individual households, the loan limit will be ₹10 lakh per borrower.

  • And finally loans to weaker section are also included in the priority sector lending. For example, personal loans to weaker sections up to Rs. 50,000 per borrower and loans to distressed persons with a limit to Rs. 1,00,000/- per borrower to prepay their debt to non-institutional lenders etc.

Creation of NABARD

National Bank for Agriculture and Rural Development (NABARD) is an apex development financial institution in India, headquartered at Mumbai with regional offices all over India. NABARD was established on the recommendations of B.Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). It is one of the premier agencies providing developmental credit in rural areas. NABARD is India’s specialised bank for Agriculture and Rural Development in India.

The initial corpus of NABARD was Rs.100 crores. Consequent to the revision in the composition of share capital between Government of India and RBI, the paid up capital as on 31 May 2017, stood at Rs.6,700 crore with Government of India holding Rs.6,700 crore (100% share). The authorized share capital is Rs.30,000 crore. International associates of NABARD include World Bank-affiliated organizations and global developmental agencies working in the field of agriculture and rural development. These organizations help NABARD by advising and giving monetary aid for the upliftment of the people in the rural areas and optimizing the agricultural process.

NABARD discharge its duty by undertaking the following roles :

  1. Serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas

  2. Takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.

  3. Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, state governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation

  4. Undertakes monitoring and evaluation of projects refinanced by it.

  5. NABARD refinances the financial institutions which finances the rural sector.

  6. NABARD partakes in development of institutions which help the rural economy.

  7. NABARD also keeps a check on its client institutes.

  8. It regulates the institutions which provide financial help to the rural economy.

  9. It provides training facilities to the institutions working in the field of rural upliftment.

  10. It regulates the cooperative banks and the RRB’s, and manages talent acquisition through IBPS CWE.

Creation of Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 30 January 1992 through the SEBI Act, 1992. This is a body for regulating the, securities market. It became an autonomous body by The Government of India on 12 April 1992 and given statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Controller of Capital Issues (under the RBI)was the regulatory authority before SEBI came into existence; it derived authority from the Capital Issues (Control) Act, 1947.SEBI has its headquarters at the business district of Bandra Kurla Complexin Mumbai, and has Northern, Eastern, Southern and Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively. It has opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 – 2014. Ajay Tyagi was appointed SEBI Chairman on 10 January 2017 replacing U.K Sinha.

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected there with or incidental there to”.

SEBI has to be responsive to the needs of three groups, which constitute the market: (1) the issuers of securities (2) the investors (3) the market intermediaries. SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeal process to create accountability. There is a Securities Appellate Tribunal which is a three-member tribunal and is headed by Mr. Justice J P Devadhar, a former judge of the Bombay High Court. A second appeal lies directly to the Supreme Court. SEBI has taken a very proactive role in streamlining disclosure requirements to international standards.

BOP Crisis and New Economic Policy

India was exposed to a massive BOP crisis in 1990 when it came almost on the verge of default on its international payments as it had only $1.5 billion in its foreign exchange reserves. Although the situation was salvaged by swapping gold to the Bank of England and getting the requisite funds followed by an IMF loan, , it was realized that the economic crisis was due to structural problems deep rooted in the development planning in India.

Therefore, India adopted the new economic policy 1991 to address its structural constraints. The New Economic Policy had two components- (1) Stabilisation policies (short term) – aimed at reducing inflation, fiscal deficit, trade deficit and current account deficit and exchange rate reforms (convertibility of rupee), and (2) Structural Reforms (medium and long term)—mainly based on the premises of liberalization, privatization and globalization. The first generation of economic reforms included the new industrial policy 1991, Chellaih Committee recommendations on tax reforms and Narasimhan Committee Banking sector reforms. The second generation of reforms included newer subjects such as infrastructure and insurance. The third generation reforms further included reforms in labour law, subsidies, fiscal consolidation and value added taxes at state level followed by the GST.

Montek-Manmohan-Rao Strategy

Montek-Manmohan-Rao Strategy refers to the strategy of the New Economic Policy of 1991 which was based on the three pillars of liberalization, privatization and globalization. This policy gave emphasis on private enterprises, export promotion, integration of domestic economy with the global economy and market mechanism instead of import substitution, protectionism and commanding heights envisaged by the Mahalanobis strategy.

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