Evolution of the Indian Economy: A Journey from Agrarian Roots to Industrial Growth (1947-1991)

The period between 1947 and 1991 represents a transformative phase in the history of the Indian economy. During this era, India witnessed remarkable shifts in its economic landscape, moving from a primarily agrarian economy to one with a developing industrial sector.

• Central to this transformation was the adoption of a planned economic model, known as the Five Year Plan, aimed at achieving balanced growth and reducing poverty.
• The chapter explores the key economic policies, such as import substitution and public sector expansion, and their impact on various sectors of the economy along with challenges that shaped the development of the Indian economy during these decades.

India’s Post-Independence Quest for a Balanced Socioeconomic System

• Post-Independence Economic System Decision: After independence, the then national leaders had to decide upon an economic system which would promote the welfare of all rather than a few.
• Pragmatic Approach: Socialism like in the Soviet Union appealed to Jawaharlal Nehru (the first Prime minister of India) the most.
  • But Nehru realised outright socialism in which there is no private property is not possible in a democracy like India. 
•  A Balanced Approach to Socialism: So, the national leaders looked to avoid the extreme versions of capitalism and socialism.
  • They chose to be a socialist society with a strong public sector along with private property and democracy. 

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• The Framework of Indian Economy Policy:
  • The government would plan the economy with the private sector also being a part of it. 
  • This idea was reflected in ‘Industrial Policy Resolution’ of 1948 and the Directive Principles of the Indian Constitution. 
• In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson marking the beginning of five year plans  for the comprehensive development of the Indian economy.

The Comprehensive Goals of India’s Five Year Plans

The general goals of Five Year Plans  in the Indian economy were multifaceted: growth, modernisation, self-reliance and equity. 

• Due to limited resources, priority was given to different goals in each plan. 
• However, planners tried to ensure that the policies of the plans did not contradict the importance of these 4 goals. 

Let’s study these goals in detail. 

1. Understanding Growth in the Indian Economy

• • Meaning: It denotes the increase in a country’s capacity to produce goods and services. 
    • • This may be reflected in a larger stock of productive capital or an increase in the efficiency of productive capital and services.
  • Gross Domestic Product (GDP):In the context of the Indian economy, the significance of GDP as an economic indicator is paramount, as it perfectly mirrors the nation’s economic growth
  • Definition: GDP is the market value of all the final goods and services produced in the country during a year.
    • • Example: If a cake is bigger, more people can enjoy it.Similarly, a larger GDP in the Indian economy translates to an improved quality of life for more citizens.
  • Determinants of GDP:
    • • GDP depends on contributions from agriculture, industry and the service sector.
      • The contributions of each of these sectors make up the structural composition of the economy. 
  • Example: In some countries, agriculture contributes more to GDP, while in others, the service sector contributes more to GDP. 

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2. Dimensions of Modernization in Economic and Social Frontiers

• • Modernisation within the context of the Indian economy refers to the adoption of new technology which helps in increasing the production of goods and services. 
  • Example: A factory can increase output by using a new type of machine. 
  • Changing Outlook: Modernisation also refers to changes in outlook like the recognition of equal rights for women. 
    • Thus a modern society makes use of women in the workplaces like banks, schools, factories etc. which helps in making the society prosperous. 

3. The Imperative of Self-Reliance and Equitable Growth in Economic Development

• • Meaning: Self-reliance refers to the usage of a nation’s own resources to increase production rather than using imported materials. 
  • The first seven five year plans gave importance to self-reliance. 
  • This helped us to reduce dependence on foreign countries, especially for food. 

4. Pursuing Equity in the Context of Indian Economic Development

• • Equity aims to reduce the inequality in the distribution of wealth. 
  • All three of the above, that is Growth, Modernisation and self-reliance alone cannot improve the quality of life of all people. 
  • This means the rich will have all the benefits of the above and a poor section lives in poverty. 
  • In the context of the Indian economy, equity becomes a linchpin in addressing the  basic need of every Indian to meet their basic needs of food, education, housing and healthcare.

Let us see how the First seven Five Year Plans (1950-1990) attempted to fulfill the above 4 goals and the extent to which they succeeded in doing so, with reference to agriculture, industry and trade.