India has established itself as the largest democracy with the fastest growing economy in the 21st Century. Our nation has come a long way since 1947, to establish itself as a recognisable non-aligned power. The Indian economy is defined as a developing mixed economy by Sumit Ganguly in his book India Since 1980.
It currently holds the title of the seventh largest nation in terms of geographical spread, as well as economical prowess in terms of nominal GDP. It has been reigning as the fastest growing economy since 2014, with an exception in the year 2017.
Our nation did not gain this momentum overnight. Instead, it gradually grew out of the poverty-stricken country that the British had left into a modern and progressive economy. During its journey, it has seen numerous ups and downs, and had quite often slowed down; nonetheless, the development did not stop.
There is a significant increase in life expectancy and decrease in mortality rates. The poverty line has been raised by 18.5% in the rural areas and 42.4% in the urban regions. Infrastructure has improved which has raised the standard of Indian Market.
Better facilities for education and healthcare are being provided and the connectivity using rail, roads, waterways and airways have also undergone drastic changes which has signified the development in India.
Yet, our country still faces the bane of poverty. As per the Tendulkar Committee, even after the planning commission raised the Poverty line, almost 100 million more Indians were added under the list of impoverished sufferers of our country.
Corruption and red-tapeism in the legislative as well as administrative departments has led to slowing down and stagnation of multiple projects. Finally, basic healthcare, education and hygiene are still big issues which we have not dealt with properly.
To understand how India has been sustaining this problem in the face of growth and development, we need to comprehend the history of the Indian Economy, followed by the factors that are affecting it adversely, and finally ending with solutions and existing models that are being implemented to fix the socio-economic problems that we face today.
Post-independence economic situation
Under the British rule, while the Europeans were going through an industrial revolution, India on the other hand experienced deindustrialization. This occurred when there were fast growing economies and a population bloom in the western nations.
Naturally, India’s share of the world economy declined from 24.4% in 1700 to 4.2% in 1950, and its share of global industrial output reduced from 25% in 1750 to 2% in 1900. Yet it was able to maintain its economic integrity and engaged in high level trade, investment and migration with the world, mostly due to the colonial status.
Once we gained our independence from the British rule and had broken free of the colonial era, the first of the economic model of India that our newly formed democratic government had laid down was inspired by socialism with certain elements of capitalism. The economic growth management was inspired from the soviet conceived ‘Five Year Plan’ scheme.
Domestic policy tended towards protectionism, with a strong emphasis on import substitution industrialisation, economic interventionism, a large government-run public sector, business regulation, and central planning, while trade and foreign investment policies were relatively liberal. Steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950’s.
The centre took to the policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries. Economist Milton Friedman thought it would waste capital and labour, and retard the development of small manufacturers, hence criticised the model.
The rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the Hindu rate of growth by economists, because of the unfavourable comparison with growth rates in other Asian countries. Another important factor was strengthening forward and backward linkages between agriculture and industry.
This was achieved during 1965 under the Green Revolution. The use of high-yielding varieties of seeds, increased fertilisers and improved irrigation facilities collectively contributed to the Green Revolution in India, which improved the condition of agriculture by increasing crop productivity.
But at the same time, it was a subject of criticism for some who thought it was an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities. Even so, the problem can be evidently felt amongst the Indians as described by JRD Tata,
“I cannot decide how much to borrow, what shares to issue, at what price, what wages and bonus to pay, and what dividend to give. I even need the government’s permission for the salary I pay to a senior executive.”
This policy was also infamously known as the ‘Licence Raj’.
Liberalisation and its effects
The Soviet Union had been India’s major trading partner after our country gained independence, so its collapse paired with the on-going Gulf War caused a sudden increase in oil prices which resulted in a balance-of-payment crisis in India. Additionally, the fixed exchange rate system existed in India even in 1991.
The rupee was pegged at the value of the basket of currencies of the major trading partners of our nation. It was around 1985, when the first signs of balance of payments started to develop in the Indian Economy. Within five years, the state plunged into a serious economic crisis.
The IMF lent India a bailout loan of US$ 1.8 billion in return of de-regulation. Responding to this financial crisis were our then prime minister Narasimha Rao and finance minister Dr. Manmohan Singh.
The economic reforms that were brought into motion under their regime reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. This was able to successfully end the license Raj. Liberalisation has been credited by its proponents for the high economic growth recorded by the country in the 1990’s and 2000’s.
Economic Development in India
The Economic Survey of India in 2007 had stated that India’s growth had reached 7.5% in the late 2000’s and predicted that the average income will be doubled in the coming decade. The services sector has played a major role in the economic development of our nation.
Yet problems like poverty and unemployment prevail in our society and are a major hindrance to our economic growth. While macroeconomic development has helped reduce the extent of poverty, it has been not sufficient enough to eradicate this social malignity.
The World Bank has been closely monitoring India’s economy and has suggested focusing on the subjects of public sector reform, infrastructure, agricultural and rural development, removal of labour regulations, reforms in lagging states, and HIV/AIDS.
In the beginning of the 21st century, the Indian economy was estimated to be at US$ 480 billion. By 2015, it increased by five-folds to US$ 2.2 trillion. India’s GDP growth rate in the beginning of 2015 was 7.5% as compared to China’s 7%.
Ever since then, India has remained the fastest growing economy, with an exception of the year 2017 due to the introduction of demonetization and GST which slowed down the growth rate for a while. It is expected to Grow at 6.7 and Forecasted to Rebound by 8.2% in 2018–19.
To understand the growth in the nation’s economy, it is vital to analyse the growth in the various sectors of economy that function in India. India’s service sector grew by 10.1%, agriculture by 0.2% and manufacturing sector by 7.6%.
India ranks 2nd in terms of agricultural outputs. Farming and its allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005. Despite a steady decline in its share of the GDP, it still remains as the largest economic sector and plays a significant role in improving the overall growth rate.
The main reason for being the maximum contributor to the GDP is the majority of Indian population being engaged in Agriculture. While India is rapidly undertaking urbanisation, the majority of the inhabited landscape is still rural. The current environmental scenario is causing draughts which has led to crop failures in multiple locations.
The farmers are distraught. Additionally, the low prices of indigenous crops are also affecting their livelihood. Due to this many farmers have been changing profession or going to the extremity of committing suicide due to the incurred debts. Hence, agricultural sector has been gradually slowing down over the years.
Even though, India has seen a lot of development in this field ever since independence. In 1950, the first five-year plan under Harrod Domar laid special emphasis on agriculture and improving the quality and infrastructure of the sector. The green revolution which followed made a significant impact in improving the agricultural condition in India.
India is the largest producer of milk, ashew nuts, coconuts, tea, ginger, turmeric and black pepper in the world. It is the second largest producer of wheat, rice, sugar, groundnut and inland fish and third largest producer of tobacco. India accounts for 10% of the world fruit production with first rank in the production of banana and sapota, also known as chiku.
Government has implemented many schemes to improve the level of investment for the development of marketing, storage and cold storage infrastructure. Amongst these schemes are Construction of Rural Go downs, Market Research and Information Network, and Development / Strengthening of Agricultural Marketing Infrastructure, Grading and Standardisation.
In the recent interim budget in 2019, finance minister Piyush Goyal announced the Pradhan Mantri KISAN scheme under which a direct income support of IN₹ 6,000 per annum will be made available to small and marginal farmers. This plan is supposed to benefit around 12 crore farmers who are suffering in debt and have gone through crop failures.
Similar schemes should be applied, also keeping in mind the farmers without lands or working in others farms to provide a comprehensive relief to the farmers of India and develop the agriculture sector in the upcoming years.
India holds the 10th position in the world rankings as per manufacturing output. This sector consists of mining, quarrying, electricity and gas amongst other fields. They account for 27.6% of the GDP and employ 17% of the total Indian workforce.
Post-liberalisation, foreign companies were introduced in the Indian Market which increased the competition and improved the market situation. This also led to privatisation of many public sector undertakings and opened areas of undertakings that were previously reserved for the public sector.
In recent years, Indian cities have continued to liberalise, but excessive and burdensome business regulations remain a problem in some cities, like Kochi and Kolkata. Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports.
It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology.
India is fifteenth in services output. Service industry employ English-speaking Indian workers on the supply side and on the demand side, has increased demand from foreign consumers interested in India’s service exports or those looking to outsource their operations.
India’s IT industry, despite contributing significantly to its balance of payments, accounts for only about 1% of the total GDP or 1/50th of the total services. During the Internet bubble that led up to 2000, heavy investments in undersea fibre-optic cables linked Asia with the rest of the world.
The fall that followed the economic boom resulted in the auction of cheap fiber optic cables at one-tenth of their original price. This development resulted in widely available low-cost communications infrastructure. All of these investments and events, not to mention a swell of available talent, resulted in India becoming almost overnight the centre for outsourcing of Business process.
Within this sector and events, the ITES-BPO sector has become a big employment generator especially amongst young college graduates. The number of professionals employed by IT and ITES sectors is estimated at around 1.3 million as of March 2006.
Also, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect, induced and in helpful manner have created employment.
Due to the extensive Colonial rule, India’s rich economic history had been crippled. When the English rulers left our nation, it was reduced to just a fragment of its previous self. Adopting the title of Democratic Republic in 1949, the citizens of India had joined hands to rebuild the nation into a powerful economy.
Ever since then, India has been slowly developing into a world power in not only economic terms, but also as a geopolitical and military power. Economic development is evident in the form of the improvement in the lifestyle of a common Indian as compared to seventy years ago.
Yet we are facing poverty, hunger and lack of education and employment in our country. The reasons for this slow growth are mostly due to the existing corruption in our governance, administration and corporations. The lack of transparency in the age of Right to Information Act shows we still have a long way to go to fix this issue.
Furthermore, with the environmental degradation and the rising temperature, many working Indians have developed disorders and diseases which has hampered their productivity. Additionally, it is also disturbing the ecosystems that exist in our geographical boundaries. India has identified this problem and is already working on it.
India joined the club of trillion-dollar economies six years ago and it will undoubtedly double its size to 2 trillion dollars because of economic reforms and globalization in the early 1990’s, but some numbers still remain disappointing. More than 40% live on little more than a few hundred rupees per day and a lot of people live below the national poverty line in both urban and rural India.
A diverse nation like ours requires an equally diverse number of schemes and policies that are tailor-made for each region across the face of India. A diversifying strategy would compel the government to invest more money in rural infrastructure and other basic public services, such as electricity, sanitation, and clean drinking water, to support manufacturing facilities as well as people living in that vicinity.
People living in rural areas are now aware of India’s economic progress and it is important to include the people who were left behind and ignored for twenty some years.