Indian Economy: Evolution, Colonial Era to Present Day & Future Prospects

To prepare for INDIAN ECONOMY for any competitive exam, aspirants have to know about the INDIAN ECONOMY- BEFORE AND AFTER INDEPENDENCE. It gives an idea of all the important topics for the IAS Exam and the Indian Economy syllabus (GS-III). Important INDIAN ECONOMY- BEFORE AND AFTER INDEPENDENCE terms are important from Indian Economy perspectives in the UPSC exam. IAS aspirants should thoroughly understand their meaning and application, as questions can be asked from this static portion of the IAS Syllabus in both the UPSC Prelims and the UPSC Mains exams.

British Conquest on India and Its Impact on Indian Economy

• Pre-British Conquests: India had been conquered several times before the British conquest, but invaders like the Portuguese settled in India.
• Distinctive Impact of British Conquest: The differences of the British conquest lies in the fact that it led to the emergence of a new political and economic system whose interests were rooted in foreign soil and whose policies were guided solely by their own interest.
• British Economic Exploitation and Policy: The main motive of the Britishers was to exploit the Indian resources for their advantages. They shifted trade with the rest of the world. They established a developed system of railways, telegraphs and legal systems.
• Stagnation of Indian Economy: The British concentrated that the Indian economy, trade and commerce and industrialization should not flourish, and made it stagnant in the developmental process.
• Comparative Analysis: In 1600, Indian GDP per capita was 60% of British GDP per capita. Indian GDP estimates from 1600 to 1871 are based on output and population data. During the 17th and 18th centuries, Indian per capita GDP decreased steadily but stabilized in the 19th century. As British growth surged in the mid-17th century, India fell further behind.
• The Great Divergence: The Great Divergence began partly due to India’s decline and partly due to British growth. Indian living standards declined in the 18th century and stagnated in the 19th century.

History Of INDIAN ECONOMY: Pre-British Era and Colonial Impact (BEFORE 1947)

• Pre-Colonial Indian Economy: India had an independent economy before the advent of British rule.
• Indian Handicraft Industries: India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and precious stone works, etc.
• Aim of the British Colonial Rule in India: To reduce the country to being a feeder Indian economy for Great Britain’s own rapidly expanding modern industrial base.
• British Economic Policies: Concerned more with the protection and promotion of the economic interests of Britain than with the development of the Indian economy.

• Transformation of Indian Economy: A fundamental change in the structure of the Indian economy transformed India into a net supplier of raw materials and consumer of finished industrial products from Britain.
• Neglect of Economic Measurement: The colonial government never made any sincere attempt to estimate the national and per capita income of India.
• Notable Estimators: Dadabhai Naoroji (Poverty and Un-British Rule in India), William Digby, Findlay Shirras, V.K.R.V. Rao (considered very significant) and R.C. Desai.

 Indian Economy: Impact of British Rule on Agriculture and Challenges Faced

• Agrarian Economy: Indian economy under the British rule was fundamentally agrarian. About 85 percent of the country’s population lived mostly in villages and derived livelihood directly or indirectly from AGRICULTURE.
• Stagnated Agriculture Sector: Reason being over-crowded with involvement of maximum population leading to a very low agricultural productivity, in absolute terms.
• However, the sector experienced some growth due to the expansion of the aggregate area under cultivation.
• Land Settlement Systems: Regarding systems of land settlement, the profit accruing from the agriculture sector went to the zamindars instead of the cultivators, with no zamindars initiating the development of agriculture.
• Lack of Agricultural Inputs: Low levels of technology, lack of irrigation facilities and negligible use of fertilizers resulted in a dismal level of agricultural productivity and efficiency.
• Neglect of Agricultural Infrastructure Investment: India’s agriculture was starved of investment in terracing, flood-control, drainage and desalination of soil.
• Impact of Commercialisation on Indian Farmers: The commercialisation of agriculture could hardly help farmers in improving their economic condition as they were producing cash crops which were to be ultimately used by British industries back home.
• Partition of the Country: A sizeable portion of the undivided country’s highly irrigated and fertile land went to Pakistan leading to an adverse impact upon India’s output from the agriculture sector especially, Jute industry (the whole of the area went away to East Pakistan)

Industrial Sector in Indian Economy: Challenges, Deindustrialization, and the Call for Modernization

• Lack of Industrial Development in India: Indian Economy could not develop a sound industrial base even while carrying the legacy of churning out the best handicraft stuff in the world – it declined rapidly and no corresponding modern industrial base was allowed to take its place.
• Policy of Systematic Deindustrialization: To reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain.
• British Objective: To turn the Indian economy  into a sprawling market for the finished products of those industries so that their continued expansion could be ensured to the maximum advantage of Britain.
• Impact of Handicraft Industry Decline: Decline of the indigenous handicraft industries created massive unemployment and rural distress in india.
• Cotton and Jute Textile Mills: These were mainly concentrated in the western parts of the country – Maharashtra and Gujarat (Indians).
• Slow Progress of Modern Industry: During the second half of the nineteenth century, modern industry began to take root in India but its progress remained very slow and stagnant.
  • The iron and steel industries began to rise. Tata Iron and Steel Company (TISCO) was incorporated in 1907.
  • Other industries like sugar, cement, paper, etc. came up after the Second World War.
• Capital Goods Industry: Though necessary to help promote further industrialisation, this industry did not bloom.
• Underwhelming Growth Rate: Growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained dismal and piecemeal.
• Need for Increased Public Investment: The industrial sector thus, was left out crying for modernisation, diversification, capacity building and increased public investment.
• Limited Area of Operation of the Public Sector: It remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.

Foreign Trade in Indian Economy: Historical Significance, British Monopoly, and Impact

• Historical Significance: India has been an important trading nation since ancient times.
• Impact of Restrictive Policies: Restrictive policies of commodity production, trade and tariff made India an exporter of primary products (raw silk, cotton, wool, sugar, indigo, jute etc.) and an importer of finished consumer goods (cotton, silk and woolen clothes and capital goods like light machinery) produced in the factories of Britain
• British Monopoly Control: Britain maintained a monopoly control over India’s exports and imports, leading to more than half of India’s foreign trade being restricted to Britain while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia (Iran).
• Impact of Suez Canal Opening: The opening of the Suez Canal further intensified British control over India’s foreign trade.
• Acute Scarcity of Essential Commodities: Several essential commodities, such as food grains, clothes, kerosene etc. suffered acute scarcity in the domestic market.
• Utilization of Indian Revenue: The expenses incurred by an office, set up by the colonial government in Britain and expenses on war fought by the British government were accrued from revenue generated from the Indian Economy.

DEMOGRAPHIC TREND

• First documentation of the population of British India was conducted through the 1881 (decennial) census. This census revealed the unevenness in India’s population growth. India’s stages of demographic transition:
  • The year 1921 is called the Big Divide.
  • 1st Stage: Before 1921
  • 2nd Stage: After 1921, neither the total population of India nor the rate of population growth at this stage was very high and the various social development indicators were also not quite encouraging.
• Overall Literacy Level: less than 16 per cent; (the female literacy level was at about seven per cent)
• Public Health Facilities: either unavailable to the larger population or, when available, were grossly inadequate.
• High Mortality Rates: Rampant occurrence of water and air-borne diseases taking a huge toll on life
  • The overall mortality rate was very high and the infant mortality rate was quite alarming – about 218:1000
• Life Expectancy: It was also very low – 32 years
• Extensive Poverty: prevailed in India during the colonial period which contributed to the worsening profile of India’s population of the time.

 OCCUPATIONAL STRUCTURE

• Definition: Occupational structure connotes the distribution of working persons across different industries and sectors
• Stagnation: Very little signs of changes in occupational structure witnessed during the colonial
• Dominance of Agriculture: Largest share of the workforce is about 70-75 per cent witnessed in agriculture.
• Minimal Growth in Manufacturing and the Services Sectors: accounted for only 10 and 15-20 per cent growth in regional variation respectively.
• Regional Variations: The parts of the then Madras Presidency, Maharashtra and West Bengal witnessed a decline in the dependence of the workforce on the agricultural sector with a commensurate increase in the manufacturing and the services sectors
  • Orissa, Rajasthan and Punjab experienced an increase in the share of workforce in agriculture during the same time.

 Indian Economy and Infrastructure: Colonial Development and Its Economic Implications

• Colonial Infrastructure Development in India: To sub-serve various colonial interests (not to provide basic amenities to the people), development of basic infrastructure (railways, ports, water transport, posts and telegraphs) took place in India.
• Roads: 
  • To mobilize the army within Indian Economy
  • To draw out raw materials from the countryside to the nearest railway station or to the ports to send these to far away England
  • To reach out to the rural areas during the rainy season.
• Railways:
  • Introduced in 1850s by Lord Dalhousie
  • Enabled people to undertake long-distance travel, thereby breaking geographical and cultural barriers
  • facilitated commercialisation of Indian agriculture, which adversely affected the comparative self-sufficiency of the village economies in India
  • volume of India’s export trade expanded, with benefits rarely accruing to the Indian people
  • Social benefits outweighed the country’s huge economic loss, with the ‘railways’ needing further upgradation, expansion and public orientation
• Electric Telegraphs: served the purpose of maintaining law and order in remote parts.
• Postal Services: were useful but remained inadequate.
• Development of the Inland Trade and Sea Lanes: Mixed reaction to the development of these as sometimes they proved uneconomical (Coast Canal on the Orissa coast)

Types of Economic Systems: A Simplified Guide with a Focus on Indian Economy

• Central Questions in Economic Management: In managing an economy, three central questions arise: what to produce, how to produce, and for whom to produce.
  • These questions guide decisions on what goods to make based on market demand, the choice of production techniques, and the distribution of goods based on income and resource availability

Exploring Capitalist (Market) Economy: Insights and Its Relevance to Indian Economy

• Distribution of Goods in a Capitalist System: In a capitalist system, the products manufactured are divided among people not according to what people want but on the foundation of Purchasing Power – which is the ability to buy products and services.
  • Which means an individual needs to have the money with him to buy the goods and services.
  • Example: The affordable housing for the underprivileged is much required but will not include demand in the market because the needy do not have the buying power to back the demand.
• Therefore, the commodity will not be manufactured and provided as per market forces.

Socialist Economic System: Government Control and Its Implications on Indian Economy

• Central Planning: In a socialist society, the government determines what products are to be manufactured in accordance with the requirements of society.
• Collective Decision-Making: It is believed that the government understands what is appropriate for the citizens of the country, therefore, the passions of individual buyers are not given much attention.
• Production and Disposal: The government concludes how products are to be created and how the product should be disposed of.
• Need-Based Distribution: In principle, sharing under socialism is assumed to be based on what an individual needs and not what they can buy.
• Absence of Private Ownership: A socialist system does not have a separate estate because everything is controlled by the government.

Mixed Economy: The Blend of Socialism and Capitalism in Indian Economy

• Defining the Golden Blend: It is a golden combination of a command (Socialist) Indian economy and a market (Capitalist) economy.
  • For this purpose, the mixed economic systems are also called dual economic systems.
• Challenges in Defining Mixed Economic Systems: However, there is no sincere method to determine a mixed system, sometimes the word represents a market system beneath the strict administrative control in certain sections of the Indian economy.

 Indian Economy: Objectives and Strategies in a Mixed Economic System

Economic Models Demystified: Capitalist, Socialist, and Mixed Approaches with a Focus on Indian Economy

WHAT TYPE OF ECONOMY IS INDIA?

• India’s Mixed Economic Landscape: Indian Economy is a mixed economy. Nearly half of India’s working population is engaged in agriculture, the signature of an Indian economy.
  • One-third of its workers are employed by the services industry, which contributes two-third of India’s output.
• Market-driven Productivity: The productivity of this segment is made possible by India’s shift towards a market Indian  economy.
• Deregulation and Privatisation: Since the 1990s, India has deregulated several industries.
  • It has privatized many state-owned enterprises, and opened doors to foreign direct investment.

Adopting a Mixed Economy: Reasons and Implications for Indian Economy Landscape

• Balancing Public and Private Sectors: To maintain a healthy balance between the public and the private sector.
  • This ensures cooperation and competition between them which is conducive to attain high growth targets.
• Efficient Resource Allocation: Through its pricing mechanisms as well as freedoms of production, consumption, occupation, and the presence of a profit motive, it ensures that there is an efficient allocation of resources in the Indian economy.
• Addressing Inequalities: By working towards minimizing the inequalities of income, wealth etc.
• Tackling Unemployment and Poverty: Eliminating unemployment and poverty.
• Maximizing Social Welfare: Mixed Indian economy maximizes social welfare. It has all the main features of a welfare state.

 Concept of ‘Plan’ in Indian Economy: A Closer Look at India’s Five-Year Plans

• The Role of Plans in Economic Management: A plan spells out how the resources of a nation should be put to use. It should have some general goals as well as specific objectives which are to be achieved within a specified period of time;
• The Structure of Indian Planning: In India plans are of five years duration and are called five year plans (we borrowed this from the former Soviet Union).
• Setting Objectives: Our plan documents specify the objectives to be attained in the five years of a plan and what is to be achieved over a period of twenty years (called as perspective plan)

In 1950, the Planning Commission was set up with the Prime Minister as its Chairperson and the era of five year plans had begun.

Indian Economy: Exploring Types of Economic Planning in Simple Terms

Directional Planning

• Directional type of planning followed by countries which believe in socialism.
• The targets of plans are pre-determined and executed with the help of the government in power.
• In Directional type of planning all things are under control of the state including, financial institutions, industrial sector, transport, infrastructure, etc.

Planning by Inducement

• This planning is independent planning. In this type, the state regulates and controls the process of production, forming the enterprise and various patterns of consumption.
• The government formulates various monetary and fiscal policies to regulate the Indian economy effectively.

Perspective Planning

• Perspective planning is long term planning for a time period of 20 to 25 years. It’s an outline of development to be undertaken over a longer period in a phased manner.
• They can further be divided into annual plans. These five-year plans generally maintain continuity.

Indicative Planning

• Indicative planning is a comparatively flexible type (soft planning) of planning, as it is different from comprehensive or imperative planning.
• It works on decentralized principles in the completion of target plans.
• In this planning, the targets for the public sector are mandatory while for the private sector they are only indicative.
• It was initially used in countries like France and Japan.

Imperative Planning

• In this, the government in power directs and controls all the Indian economy activities and resources in the Indian economy.
• All available resources are used with high efficiency to complete set targets of the plan. Since the government’s decision and policymaking is very rigid they are to be followed by the market players.
• Imperative planning is in use in Russia and China.

Democratic Planning

• The basic ideology in democratic planning is to form the democratic form of government. Plans are prepared according to the requirements and needs of the people.
• The discussion with various parties involved in the economy is the main principle of democratic planning.
• Aim of democratic planning is eradicating inequalities of income and wealth.

Fixed planning

• Plans are prepared for a fixed period of time. The objectives and targets of a fixed plan are to be achieved within the plan period.
• Physical targets and spending on these targets are often not changed except during an emergency.
• Fixed planning is used in India.

 Centralized Planning

• The centralized authority plans and formulates all planning activities in the country in centralized planning.
• This authority fixes targets for all industries and fixes priorities for all sectors.
• It takes all the investment decisions according to the goals and targets set in the plan.

 Decentralized Planning

• In decentralized planning, the plans are executed at the grass-roots level.
• In this, the plan is prepared by the central authority along with discussion with all the administrative units in the country, whether at the state  or district level.
• Plans for industries are prepared with full discussion with all the major representative stakeholders in the industries.

INDIAN ECONOMY – POST-INDEPENDENCE ERA (1950-1990)

1. PRE-INDEPENDENCE PLANNING IN INDIAN ECONOMY

• M. Visvesvaraya’s “Planned Indian Economy”: Visvesvaraya published his book “Planned Indian economy” in 1934.
  • In this book, he presents a constructive draft of the development of India in 10 years.
  • His core idea was to lay out a plan to shift labor from agriculture to industries and double national income in ten years.
  • This was the first concrete scholarly work on planning.
• INC Sessions of 1931 and 1936: The Indian economy perspective of India’s freedom movement was formulated during the Karachi session of INC (1931), Faizpur session of INC (1936).
• National Planning Committee (1938): This was the first attempt to develop a national plan for India.
  • This committee was set up by Congress president Subhash Chandra Bose and was chaired by Jawaharlal Nehru.
  • However, the reports of the committee could not be prepared, and only for the first time in 1948–49 did some papers come out.
• Bombay Plan: In 1944, industrialists in Bombay, including Mr. JRD Tata, GD Birla, Purshottamdas Thakurdas, Lala Shriram, Kasturbhai Lalbhai, AD Shroff, Ardeshir Dalal, & John Mathai, worked together to prepare “A Brief Memorandum Outlining a Plan of Indian Economy Development for India,” which was popularly known as the Bombay Plan.
  • This plan envisaged doubling the per capita income in 15 years and tripling the national income during this period.
• In August 1944, the British Indian government set up a “Planning and Development Department” under the charge of Ardeshir Dalal.
  • But this department was abolished in 1946.
• People’s Plan: The plan was based upon Marxist socialism and drafted by M. N. Roy. This plan was for a ten-year period and gave the greatest priority to agriculture.
  • The nationalization of all agriculture and production was the main feature of this plan.
• Gandhian Plan (1944): Put forward by Sri Shriman Narayan in 1944 who was principal of Wardha Commercial College.
  • It was a modest kind of plan.
  • The plan emphasized economic decentralization with primacy for rural development by developing cottage industries.
• Sarvodaya Plan (1950): Plan was drafted by Jaiprakash Narayan inspired by Gandhian plan as well as Sarvodaya Idea of Vinoba Bhave.
  • It emphasized small and cotton industries and agriculture as well.
  • Plan also stressed upon land reforms and decentralized participatory planning.

2. POST-INDEPENDENCE

• Economic Programme Committee (EPC): formed by All India Congress Committee (AICC) with Nehru as its chairman.
  • The aim of this committee was to make a plan which could balance private and public partnership and urban and rural economies.
  • The EPC recommended in 1948 to form a permanent Planning Commission in India.
• Establishment of the Planning Commission (1950): In March 1950 in pursuance of declared objectives of the Government, the Planning Commission was set up by a Resolution, with Jawaharlal Nehru as the first Chairman of the Planning Commission.
• Mandate of the Planning Commission: The Planning Commission was charged with the responsibility of making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities.

Indian Economy: Unpacking the Objectives of Five-Year Plans

GROWTH

• Definition: Growth refers to an increase in the country’s capacity to produce the output of goods and services within the country.
• Growth Measure: Good indicator of Indian economic growth is the steady increase in the country’s Gross Domestic Product (GDP) – the market value of all the goods and services produced in the country during a year.
• Sectoral Composition of India’s GDP: The GDP of a country is derived from the different sectors (Primary, Secondary and Tertiary) of the Indian economy.
  • The contribution made by each of these sectors makes up the structural composition of the Indian economy.

Modernisation

• Definition: Steps taken by a factory to increase output by using a new type of machine and technology is called modernization.
• Social Evolution: Modernisation also leads to changes in social outlook such as the recognition that women should have the same rights as men.

Self Reliance

• Promoting Economic Growth and Modernization: A nation can promote Indian economy growth and modernisation by using its own resources or by using resources imported from other nations.
• Emphasis on Self-Reliance in Planning: The first seven five year plans gave importance to self-reliance which means avoiding imports of those goods which could be produced in India itself, in order to reduce our dependence on foreign countries, especially for food.
• Safeguarding Sovereignty: There was a fear that dependence on imported food supplies, foreign technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our policies.
• Contemporary Call for Self-Reliance: Recently, PM stressed for a self-reliant India (Atma Nirbhar Bharat) in the backdrop of the Covid-19 outbreak.

Equity

• Ensuring Prosperity Reaches All: To ensure that the benefits of Indian economy prosperity reach the poor sections as well instead of being enjoyed only by the rich.
• Reducing Wealth Inequality: Every Indian should be able to meet his or her basic needs such as food, a decent house, education, and health care; and reducing inequality in the distribution of wealth.

OBJECTIVES OF PLANNING: Insights into Indian Economic Development

• Indian Economy, Social Planning, and the Establishment of a Welfare State Pattern.
• Sustainable Indian economic growth.
• Poverty alleviation
• Employment generation and self-employment
• Focus on Agriculture Sector: Modernizing the traditional Indian economy was set as a foremost objective of planning especially the agriculture sector
• Alignment with Constitutional Aspirations: According to place and weightage to all the aspirations of the Preamble, the Fundamental Duties, the Fundamental Rights and the Directive Principles of the State Policy – adequate means of livelihood, opportunities for employment and a socio-economic order based on justice and equality.
• Promotion of Self-Reliance: Self-reliance, an effort to strike against a subordinate position in the world economy.
• Ensuring economic equality

Financial Resources for Indian Economy Development 

• Central Budget and State Budgets: revenue and capital receipt side
• Public Sector Enterprises (PSEs)
• Domestic Private Sector
• Gross Budgetary Support: This is an amount from the central budget which goes to fund the planned investment during the plan period.
• Foreign Direct Investment (FDI) in India

Prime Moving Force – Agriculture VS. INDUSTRY

• Infrastructure Deficiency: The government of the time opted for industry to be India’s prime moving force of the Indian economy.
• Shortage of Basic Industries: Given the available resource base it seems an illogical decision as India lacked all those prerequisites which could suggest the declaration of industry as its prime mover –
• Almost no presence in the infrastructure sector.
• Lack of robust infrastructure industries, i.e., iron and steel, cement, coal, crude oil, oil refining and electricity.
• Capital Constraints: Lack of availability of investible capital – either by the government or the private sector.
• Absence of required technology to support the process of industrialisation and lack of research and development.
• Lack of skilled and semi-skilled manpower.
• Lack of entrepreneurship spirit among the people.
• Lack of a market for industrial goods.
• Many other socio-psychological factors that acted as negative forces for the proper industrialisation of the Indian economy.

 The obvious choice for India would have been the agriculture sector as the prime moving force of the Indian economy because:

• Abundance of Fertile Land: The country was having the natural resource of fertile land which was fit for cultivation.
• Human capital did not require any kind of higher training.
• Higher population in rural areas with involvement in agriculture
• Just by organizing our land ownership, irrigation and other inputs to agriculture, India could have gone for better prospects of development.
• Once the masses were able to achieve a level of purchasing capacity through remunerative income from agriculture, India could have gone for the expansion of industries.

Following developments were in favor of industrialisation – Positive Shifts in the Indian Economy 

• By choosing industry as the prime moving force, India opted to industrialise the Indian economy as well as modernise the traditional mode of farming.
• The dominant ideology around the world as well as in the WB (World Bank) and the IMF (International Monetary Fund) was in favour of industrialisation as a means to faster growth and development.
• The Second World War had proved the supremacy of defence power, which needs support not just of science and technology, but also of a robust industrial base.
• India also required a powerful defence base for herself as a deterrent force.
• By the time of independence the might of industrialisation was already proven, and there were no doubts regarding its efficacy.
• A major shift took place in the Indian economic landscape, when the government announced in 2002 that, from now on, agriculture will be the prime moving force of the Indian economy.
• According to the Planning Commission such a policy shift will solve the following major challenges faced by the Indian economy:
• The Indian economy will be able to achieve food security with the increase in agricultural production.
• The agricultural surplus will generate exports in the globalizing world economy, benefiting out of the WTO (World Trade Organisation) regime.
• The challenge of poverty alleviation will be solved to a great extent as the emphasis will make agriculture a remunerative occupation and induce growth in the rural economy by generating more gainful employment.
• The situation of India as an example of ‘market failure’ will cease.

 Indian Economy : A Close Look at Planned and Mixed Economy Models

• Post-independence, India was declared to be a planned and a mixed Indian economy.
• India was not only facing regional disparities at the level of resources, but inter-regional disparities were also prevalent, for centuries.
• Deeply entrenched mass poverty could only be remedied once the government started the process of Indian economy planning.
• The abject poverty of the masses made the government go for planning so that it could play an active role in the allocation of resources and mobilise them for equitable growth and development.
• Although, constitutionally India was declared a federation of states, in the process of planning, the authority of regulation, directing and undertaking Indian economy activities got more and more centralised in the Union government.
• Following factors made pressing points to opt for planned and mixed Indian  economy –
  • Great Depression (1929) and the reconstruction challenges after the second world War favoured a state intervention in the Indian  economy
  • In the 1950s and 1960s, the dominant view among policymakers around the world was in favour of an active role of the state in the Indian  economy – Soviet Union and the East European countries were notable examples.
  • A dominant role of the State in the Indian economy to neutralise market failure situations
  • The dominant force behind planning in India was Nehru himself who had strong socialist leanings.

WHY EMPHASIS ON PUBLIC SECTOR : Rationale and Impact on Indian Economy

• The state was to be given an active and dominant role in the Indian economy, it was very much decided by the time India became independent.
• Naturally, there was going to be a giant structure of the government-controlled enterprises to be known as the PSUs.
• The reason behind the ambitious expansion of the PSUs was in the face of the following major requirements:
  • Infrastructural Needs
  • Industrial Needs
  • Employment Generation
  • Development of the Social Sector
  • Emergence of the Private Sector

Building the Indian Economy: The Simplified Nehru-Mahalanobis Model

• The turning point in India’s planning strategy came with the second five-year (1956- 61) plan.
• The model adopted for the plan is known as the Nehru-Mahalanobis strategy of development as it was articulated by Jawahar Lal Nehru’s vision and P.C. Mahalnobis was its chief architect.
• The Mahalanobis model of growth was based on the predominance of the basic goods (Capital goods or investment goods that are used to make further goods).
• It was based on the premise that it would attract all round investment and result in a higher rate of growth of output in the Indian Economy .
• That will develop a small scale and ancillary industry to boost employment generation, poverty alleviation, exports, etc.
• Other elements of the model were –
  • Import Substitution: Protective barriers against foreign competition to enable Indian companies to develop domestically produced alternatives for imported goods.
  • A sizable public sector is active in vital areas of the Indian economy, including atomic energy and rail transport.
  • A vibrant small-scale sector driving consumer goods production for dispersed and equitable growth and producing entrepreneurs.

Model Effects: Impacts on the Indian Economy

• In terms of the core objective of raising the rate of growth of industrial production, the strategy was successful.
• Rate of growth of overall industrial production picked up.
• The strategy laid the foundation for a well-diversified industrial structure within a reasonably short period and this was a major achievement in the Indian Economy .
• It gave the basis for self-reliance.

Criticism –

• There are visible imbalances between the growth of the heavy industry sector and other spheres like agriculture and consumer goods etc.
• It heavily relied on trickle-down effects. The benefits of growth will flow to all sections in course of time in the Indian Economy .
• Eradication of poverty is slow and incremental.

Strategy for Indian Economy – RAO-MANMOHAN SINGH MODEL OF GROWTH

Indian Economy reforms since 1991 are based on Rao-Manmohan model (Narsimha Rao, PM and Manmohan Singh, Finance minister)

Features of model

• Selectively dismantle controls and permits in order to permit the private sector to invest liberally.
• Reorient the role of the state in Indian economy management. State should refocus on social and infrastructural development.
• External sector liberalization in order to integrate the Indian economy with the global economy and benefit from the resource flow and competition.
• Open up the Indian economy and create competition for PSEs – for better profitability, productivity and efficiency.
• Forex reserves accumulation thus alleviating the BoP pressures and the foreign flows – FDI and FII increased. Indian economy became competitive.
• Its success is seen in the more than 6.5% average annual rate of growth of the Indian economy during the 8th Plan (1992-1997).
• Forex reserves accumulated leaving the BOP crisis in history; taming of inflation; and the foreign flows- FDI and FII increased.

Five-Year Plans: Duration and Performance Analysis in Indian Economy

CONCLUSION

• To conclude, India’s five year plans did not achieve much in terms of what they set out to do.
• The Indian economic progress that we have witnessed so far is, by and large, a result of the opening up of India’s economy post 1991 BoP crisis.
• Today the private sector has overtaken the public sector and taken the lead across various sectors of the Indian economy.
• There are both positive and negative aspects to this.

Indian Economy: Multi-Level Planning: An Examination in the Indian Context

• By the mid-1960s, the states were given the power to plan, by the Centre, advising them that they should promote planning at the lower levels of the administrative strata.
• By the early 1980s, India was a country of multi-level planning (MLP) with the structure and strata of planning as follows:

ACHIEVEMENTS OF PLANNING: Notable Achievements in Shaping the Indian Economy

• National income increased manifold in Indian Economy
• India became one of the largest and emerging economies in Asia, with a GDP of about 2.7 trillion USD.
• India has become the fifth-largest economy in 2019, overtaking the United Kingdom and France.
• India ranks third when GDP is compared in terms of purchasing power parity at $11.33 trillion.
• Improvement in social indicators (IMR, MMR, Literacy among others).
• Robust Industrial Sector: cement, fertilizers, steel, pharma, etc.
• Agriculture growth is also gaining momentum with record-breaking food grains productions.
• whopping rise in FOREX reserves—about 480 bn USD (June 2020)
• India holds a prominent position globally in the service sector, contributing significantly to the economy.
• Considerable expansion of the higher and vocational education sector—health universities, engineering institutions, etc.
• Poverty dropped to about 20% of the population

Indian Economy: Analyzing the Failures of Planning Strategies

• High rate of unemployment
• Quality of outcome from education is dismal
• Rampant poverty.
• Gender parity is still steep and widespread
• R&D is not globally competitive along with poor spending (about 0.6% of GDP)
• Export growth is not much high.
• Regional imbalances are clearly visible
• Low productivity of agriculture sector
• Half of the children suffer from malnutrition.

Pre-Reform Era (Pre-1990s): Shaping the Landscape of Indian Economy

Achievements

• Acceleration of the Growth Rate: during the first three decades of planning, the growth rate averaged around 3.5 to 4 percent (known as Hindu growth rate, coined by Raj Krishna)
• Growth of the Agriculture Sector: average spending on agriculture and allied sector was around 23–25 percent of the plan outlay in each FYP. Multipurpose projects such as the Damodar Valley and Bhakra Nangal brought prospects for agriculture, paving the way for initiatives like the Green Revolution.
• Development of Economic Infrastructure: development of irrigation projects, hydro electric projects, thermal power projects and expansion of network of surface transports.
• Development of heavy capital goods industry base.

Failures

• Failure to create employment opportunities – India is facing a problem of underemployment and disguised unemployment.
• Failure to eradicate poverty – more than quarter of the population in India was living below poverty line even after four decades of planning, this speaks about the failure of planning in creating ‘growth for all’.
• Failure in undertaking land reforms and other institutional reforms in agriculture – productivity of agriculture is dismal. Non remunerative nature of agriculture.
• Failure in setting up a strong, competitive, diversified industrial base – promotion of capital goods industries by the state led to concentration and inefficiency.

INDIAN ECONOMY REFORMS SINCE 1991

• The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. Government’s expenditure was more than its income.

UNDERSTANDING ECONOMIC CRISIS OF 1980s: A Chapter In Indian Economy 

• Government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable.
• There was a sharp rise in the prices of many essential goods.
• Imports grew at a very high rate without matching growth of exports.
• Foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks.
• No sufficient foreign exchange to pay the interest to international lenders.

To avert and mitigate the crisis, India approached the International Bank for Reconstruction and Development (IBRD) (World Bank) and the International Monetary Fund (IMF) and received $7 billion as loan to manage the crisis in Indian Economy.

Indian Economy: How India Seeks Loans from IMF and World Bank 

IMF Support for Indian Economy: Conditions and Considerations

• Devaluation of the rupee by 22 percent.
• Drastic reduction in the peak import tariff from the prevailing level of 130 per cent to 30 per cent.
• Excise duties to be hiked by 20 percent to neutralize the revenue shortfalls due to the custom cut.
• All government expenditure to be cut down by 10 per cent, annually.
• India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP), which consisted of the following economic reforms:

1. 1. Creating a more competitive environment in the Indian economy by removing the barriers to entry and growth of firms;
   2. Introduced liberalization with a view to integrating the Indian economy with the world economy;
   3. To remove restrictions on FDI as well as to free the domestic entrepreneur from the restrictions of Monopolies and Restrictive Trade Practices (MRTP) Act;
   4. To unleash the Indian industrial economy from the web of unnecessary bureaucratic controls;
   5. To reduce the load of public sector enterprises which have shown a very low rate of return or have were incurring losses over the years.

Why Economic Reforms? Understanding the Reasons Shaping Indian Economy

• Rise in Prices: Inflation surged from 7% to 16.7%. attributed to rapid increase in money supply.
• Rise in Fiscal Deficit: Due to an increase in non-development expenditure, the fiscal deficit of the government has been increasing. This was accompanied by a rise in public debt and resultant interest.
• Adverse Balance of Payments: When foreign exchange falls short for payment or total imports exceeds total exports, problems of adverse balance of payments arise.
• Iraq-Kuwait War 1990-91: This led to rise in petrol prices. The flow of remittances from Gulf countries stopped.
• Dismal Performance of the PSUs: These were not performing well due to political interference and became a big liability for the Government.
• Fall in Foreign Exchange Reserves – Indians foreign exchange reserve fell to lowest in 1990-91 and it was insufficient to pay for an import bill for 2 weeks (In 1989-90, it declined to Rs. 6252 crores)

Indian Economy: Charting the Course of Economic Reforms for Prosperity

• Indian Economy reforms is the process in which a government prescribes a declining role for the state and an expanding role for the private sector in the Indian economy.
• Indian Economy reforms started in India in 1991 have been widely termed by experts as gradualist or incremental in nature, with characteristic of occasional reversals.
• Process of economic reforms started in India with the motto and slogan of ‘reforms with human face’. However, it has utterly failed to garner the empathy of the masses. Reforms are to benefit all.
• Countries such as Brazil, Argentina, South Africa, etc. also went for the stop-and-go approach of reforms, unlike India.
• In these reforms, the governments first decide the sector where reform is needed, then they pin-point the prerequisites, and finally both sets of reforms are activated simultaneously.

Indian Economy: Important Reform Measures and Their Impact

1. Macroeconomic Stabilization Measures

• These include all those Indian economy policies which intend to boost the aggregate demand in the Indian economy, be it domestic or external.
• For enhancing domestic demand, increasing the purchasing power of the masses is essential, which connotes an emphasis on the creation of gainful and quality employment

 2. Structural Reform Measures

• Measures that include all the policy reforms which have been initiated by the government to boost the aggregate supply of goods and services in the Indian economy.
• It naturally entails unshackling the economy so that it may search for its own potential of enhanced productivity.
• For the purchasing capacity of the people to be increased, the Indian economy needs increased income, which comes from increased levels of activities.
• Income so increased is later distributed among the people whose purchasing power has to be increased.
• This will take place by properly initiating a suitable set of macroeconomic policies.

Indian Economy: The LPG Framework – Initiating Reforms

• The process of reforming the Indian Economy had to be completed via a roadmap of three processes: liberalisation, privatisation and globalisation (LPG).
• These three processes specify the characteristics and extent of the reform process India initiated.
  • Liberalisation: the direction of reform
  • Privatisation: the path of reform
  • Globalisation: shows the ultimate goal of the reform.

Opening Up: How Liberalization Changed in Indian Economy

• The term “liberalization” in this context implies liberalization of the Indian economy.
• This policy connotes that greater freedom is to be given to the entrepreneur of any industry, trade or business and that governmental control on the same be reduced to the minimum.
• Liberalization was introduced to put an end to regulations and restrictions and open up various sectors of the Indian economy.
• Only key issues of welfare and other regulatory mechanisms are left with the state.

Understanding Indian Economy in Context of Liberalization

Exploring Indian Economy Changes : Removal of Industrial Licensing and Registration

• Reducing the quantitative restrictions on imports also reduces import duties.
• Reduced control on FOREX management, both in current and capital accounts.
• Financial systems reforms
• Reduction in the level of both personal and corporate taxation.
• Liberalized rules for FDI and foreign portfolio investment (FPI).
• Opening of public-sector domains like power, transport, banking, etc to private players.
• Partial privatization of public sector units.
• Change in approach towards industrial sickness

Key Steps in Liberalization: Exploring Important Measures for Indian Economy

1. Removal of Industrial Licensing:

• All industrial licensing was abolished except a shortlist of 18 industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons.
• Subsequently, all industries except for a small group of five (alcohol, cigarettes, hazardous chemicals industrial explosives, electronics, aerospace and drugs and pharmaceuticals), industrial licensing requirements have been done away with.
• Reservations for the Public sector for defense equipment, atomic energy generation and railway transport.
• Market mechanism to determine the prices.

2. Financial Sector Reforms:

• The major aim of financial sector reforms is to reduce the role of the RBI from regulator to facilitator of the financial sector.
• The RBI regulates financial institutions such as commercial banks, investment banks, stock exchange operations, and foreign exchange markets.
• All the banks and other financial institutions in India are regulated through the various norms and regulations of the RBI.
• Financial sector reforms led to the establishment of private sector banks, both Indian and foreign.

3. Liberalization of Foreign Investment:

• Earlier, prior approval was required by foreign companies, now, automatic approvals are given for FDI to flow into the country.
• High-priority and investment-intensive industries were de-licensed and could now invite up to 100% FDI, including sectors such as hotel and tourism, infrastructure, software development,etc.
• Use of foreign brand name or trademark was permitted for sale of goods.

 4. Public Sector Reforms:

• Greater autonomy was accorded to the PSUs in-order to restrict interference by government officials and allow their management greater freedom in decision-making.

5. MRTP Act :

• The Industrial Policy 1991 restructured the Monopolies and Restrictive Trade Practices Act.
• Regulations relating to concentration of Indian economy power, pre-entry restrictions for setting up new enterprises, expansion of existing businesses, mergers and acquisitions etc. have been abolished.

 Effects of liberalization on Indian Economy

• India’s annual average growth rate (GDP) from 1990 – 2018 has been 7 % which is almost double than the pre-reforms era.
• Industrial Growth Rate: The performance of the industrial sector is dismal, barring a few exceptional years. Its share in GDP is still at 29% (2017–18).
• Foreign companies got free access to Indian markets and made domestic products uncompetitive.

Indian Economy: Reasons for the Poor Industrial Growth Rate

• Lower productivity in industry than in services within India, predominance of the ‘unorganized’ sector ( accounts for almost two-thirds of industrial employment in India)
• Wages in India are low. However, manufacturing in India is more capital-intensive than in comparable countries.
• One cause of low productivity is poor infrastructural facilities.
• Transmission and distribution losses in the power sector in India are more than 20 per cent – higher than in any comparable country.
• State-owned power companies are inefficient and cannot supply electricity round the clock.
• World Bank studies have repeatedly found India to be low in ease of doing business as compared to its counterparts, such as China.
• Labour laws are more complicated and made by both the Centre and the states.
• India has invested too little in transport infrastructure, resulting in poor connectivity.
• The rise of twin balance sheet problems in India.
• Share of agriculture in the Indian economy has declined to about 17% (2017-18). However, people dependent upon agriculture are still around 47%.
• Indian Economy reform for agricultural development are critical for
  • Raising living standards,
  • Alleviating poverty,
  • Assuring food security,
  • Generating buoyant market for expansion of industry and services
  • Making substantial contribution to the Indian economy growth

PRIVATIZATION: Changing the Game in Indian Economy 

• The policies through which the ‘roll back’ of the state was done included deregulation, privatization and introduction of market reforms in public services.
• Privatization at that time was used as a process under which state assets were transferred to the private sector.
• Another variant of privatization is disinvestment.
• Disinvestment is the de-nationalization of less than 100 percent of ownership transferred from the state to the private sector.
• If the sale of shares of the state-owned assets has been to the tune of 51 per cent, the ownership is really transferred to the private sector, even though it is termed privatization.
• In a general sense, all the policies of the Indian economy that directly or indirectly seem to promote the expansion of the private sector or the market ( Indian economy) have been termed the process of privatization.

Globalization and Indian Economy: A Simplified Overview

• Globalization is defined as the increased integration of the Indian economy with nations worldwide.
• For the WTO, the official meaning of globalization is movement of the Indian economy around the world towards “unrestricted cross-border movements of goods and services, capital and the labor force”.
• Globalization is world economic integration through free movement across national borders of:
  • Financial capital represented by investment in capital markets and money markets,
  • Physical capital represented by plant and machinery
  • Technology

 Aspects of Globalization: Understanding its Impact on Indian Economy

• To open the domestic markets for inflow of foreign goods, India reduced customs duties on imports to only 10%
• Import licensing has been almost abolished.
• Tariff barriers have also been significantly eliminated to encourage trade volume to rise, in keeping with the World trade Organization (WTO)
• Foreign Exchange Regulation Act (FERA) was liberalized in 1993 and the Foreign Exchange Management Act (FEMA) 1999 was passed to enable foreign currency transactions.
• The FDI policy of the GoI encouraged the inflow of fresh foreign capital by allowing 100% foreign equity in certain projects under the automatic route.
• India signed many agreements with the WTO affirming its commitment to liberalize trade, such as TRIPs ( Trade Related Intellectual Property Rights), TRIMs ( Trade Related Investment Measures) and AOA (Agreement on Agriculture).

EFFECT OF GLOBALIZATION ON INDIAN ECONOMY

Positive Effects

• Increase in Foreign Trade: India’s share in world trade has gone up significantly post-globalization.
• Increase in Foreign Investment: The government started encouraging the entry of foreign investment, which resulted in an increase in FDI and FPI.
• Increase in Foreign Exchange Reserves: The foreign exchange reserves of India hovered around US$ 480 billion at the end March 2020.
• Increase in foreign collaborations and joint ventures, such as Dassault Aviation and Reliance
• Expansion of Market: Expanded size of market facilitated Indian business units to expand their business in the whole world—Infosys, TCS, Wipro, Tata Steel, etc.
• Technological Development: Technical collaboration of foreign companies enabled the inflow of modern advanced and superior foreign technology in India.
• Brand Development: Globalization has promoted the use of branded goods. Brand development has led to quality improvement.
• Development of Capital Market: helped in Indian capital market development. How many foreign investors invest in the Indian capital market?
• Increase in Employment: foreign companies are establishing their production and trading units in India.
• Reduction in brain Drain: many multinational corporations (MNCs) have set up their business units in India which provide attractive salary packages in India itself.

Negative Effect

• Loss of Domestic Industries: Because of the better quality and low cost of foreign goods, foreign competition has increased in India.
• Problem of Unemployment: companies are using capital-intensive technology, so employment opportunities have reduced.
• Exploitation of Labour: exploitation of unskilled workers by giving lower wages, contractual long working hours, and worse working conditions.
• Increase in Inequalities: small and cottage industries are adversely hit by foreign industries.
• Bad Effect on Culture and Value System: The vulgar advertisements shown by some MNCs pollute the thinking of the young generation in India.

 Globalization: A Perspective on its Advocacy for Indian Economy

• Globalization promotes foreign direct investment, which in turn facilitates national development.
• Globalization helps developing countries make use of and adapt technologies developed by advanced countries without undertaking heavy expenditures in R&D.
• Globalization widens the access of developing countries to export their goods and services to developed countries.
• Globalization enables consumers in developing countries to acquire quality consumer goods, especially consumer durables, at relatively lower prices.
• Globalization facilitates faster diffusion of knowledge.
• It enables developing countries to attain international standards of production and productivity.
• By reducing tariffs and quantitative restrictions, globalization increases the share of foreign trade as a percentage of GDP.

Economic Reforms: Following the Generations Impacting Indian Economy

• During the launch of economic reforms in 1991, there were no such official announcements. In the coming times, many ‘generations’ of reforms were announced by the governments.
• A total of three generations of reforms have been announced till date, while experts have gone on to suggest the fourth generation as well.

First Generation Economic Reforms (1991-2000): Transforming Indian Economy 

• First Generation: Reforms from 1991 to 2000 were called by the government the reforms of the First Generation .
• It was in the year 2000–01 that the government, for the first time, announced the need for the Second Generation of Indian economy reforms, which was launched in the same year.
• The broad contours of the First Generation of reforms may be seen as follows:

1. 1. Promotion to Private Sector: Included various important and liberalizing policy decisions: de-reservation and de-licensing of industries, abolition of the MRTP limit, and simplifying environmental laws.
   2. Public Sector Reforms: The steps taken to make the PSUs profitable and efficient, including more autonomy in decision-making, disinvestment, corporatisation, etc.
   3. External Sector Reforms: Consisted of policies such as abolishing quantitative restrictions on import, switching to the floating exchange rate, full current account convertibility, reforms in the capital account, permission to foreign investment (direct and indirect), liberal Foreign Exchange Management Act, etc.
   4. Financial Sector Reforms: Initiatives were taken up in areas such as banking, capital market, insurance, mutual funds, etc.
   5. Tax Reforms: Consisted of all the policy initiatives directed towards simplifying, broadening, modernizing, checking evasion, DTAAs (Double Taxation Avoidance Agreements), etc.

Second Generation Reforms (2000-01 Onwards): The Evolution of Indian Economy

• The government launched the second generation of reforms in 2000–01.
• The fact is, that the reforms India launched in the early 1990s were not taking place as intended and a need for another set of reforms was felt by the government.
• These reforms were not only deeper and more delicate, but they also required a higher level of political will power from the governments.
• The major components of the reform in Indian Economy are as follows:

1. Factor Market Reforms: Considered as the ‘backbone’ for the success of the reform process in India, it consists of dismantling of the Administered Price Mechanism (APM).
   • Now, only kerosene oil and LPG remain under the APM, while petrol, diesel (by March 2014) lubricants have been phased out.
   • Opening the petroleum sector for private investment, cutting down the burden of levy on sugar, etc.
2. Factor Market Reforms are still going on.
3. Public Sector Reforms: especially emphasize areas like greater functional autonomy, freer leverage to the capital market, international tie-ups and greenfield ventures, disinvestment (strategic), etc.
4. Reforms in Govt. and Public Institutions: Involves conversion of role of the government from the ‘controller’ to the ‘facilitator’ or the administrative reform.
5. Legal Sector Reforms: Although started in the first generation, now it were to be deepened and newer areas were to be included, such as,
   • abolishing outdated and contradictory laws,
   • reforms in the Indian Penal Code (IPC) and
   • Code of Criminal Procedure (CrPC),
   • Labour Laws, Company Laws and enacting suitable legal provisions for new areas like Cyber Law, etc.
6. Reforms in Critical Areas: reforms initiated in the infrastructure sector (power, roads, telecom, and energy sectors, among others), agriculture, agricultural extension, education, healthcare, etc.
7. These areas have been called by the government as ‘critical areas’.

• Some other important areas were also emphasized:

1. State’s Role in the Reform: All new steps of the reforms were now to be started by the state, with the center playing a supportive role.
2. Fiscal Consolidation: The FRBM Act is passed by the Centre and the Fiscal Responsibility Act (FRAs) is followed by the states to ensure fiscal prudence.
3. Greater Tax Devolution to the States: during the second generation of reforms, we see a visible change in the central policies favoring greater fiscal leverage for the states.
4. Focusing on the Social Sector: especially healthcare and education, gets increased attention by the government with manifold increases in the budgetary outlay.

Continued Evolution: Third Generation Reforms Building Indian Economy

• Announcement of the third generation of reforms were made on the launch of the Tenth Plan (2002–07): ‘inclusive growth and development’
• This generation of reforms commits to the cause of a fully functional Panchayati Raj Institution (PRIs) so that the benefits of Indian economy reforms, in general, can trickle down to the grassroots.
• The constitutional arrangements for a decentralized developmental process was already affected by 73rd and 74th Amendments.
• It was agreed in the early 2000s that the government gets convinced of the need for ‘inclusive growth and development’.
• Till then, the development process had lacked the ‘inclusion’ factor.

FOURTH GENERATION REFORMS: The Path Forward for Indian Economy

• Fourth generation is not an official ‘generation’ of reform in India.
• In early 2002, some experts coined this generation of reforms, which entail a fully ‘information technology-enabled’
• They hypothesized a ‘two-way’ connection between the Indian economy reforms and information technology (IT), with each one reinforcing the other.

 Indian Economy: Understanding the Concept of Disinvestment in Simple Terms

• Another variant of privatization is Disinvestment.
• Objectives of Disinvestment: The aim of disinvestment was to raise resources through the sale of PSUs to be directed towards social welfare expenditures,
  • Raising the efficiency of PSUs through increased competition,
  • Increasing consumer satisfaction with better-quality goods and services,
  • Upgrading technology, 
  • Most importantly, removing political interference and increasing autonomy in decision-making in the Indian economy. 
• After the Industrial Policy of 1956, the socialization of the Indian economy was measured by the size of the public sector in the Indian economy.
• The greater the share of the public sector, the greater the degree of socialization of the Indian economy.
• Post-Indian economy reforms in 1991, the private sector is considered the engine of growth.
  • The new environment assigned an increasing role for the private sector.

 Indian Economy: Exploring Reasons for PSU Disinvestment in India

• Indian PSUs had shown a very negative rate of return on capital employed.
• Inefficient PSUs had become and are continuing to be a drag on the government’s fiscal resources, turning out to be more liabilities to the government than assets.
• The national GDP and gross national savings were also getting adversely affected by low returns from PSUs.
• About 10 to 15 % of the total gross domestic savings were getting reduced on account of low savings from PSUs.
• Political interference in decision making
• Lack of standardization and competitiveness of the products
• Inefficiency and Low Productivity: underutilization of resources in Indian Economy 

Advantages & Disadvantages: Understanding the Benefits of Disinvestment Proceeds in Indian Economy 

• For financing and making up the increasing fiscal deficit.
• Resource Mobilization: the proceeds can be used to invest in other growth sectors, which can induce Indian economy activity and generate better returns for the government
• Financing large-scale infrastructure through disinvestment.
• Financing for social sectors (health, education, women and children) creates positive externality as it will facilitate more production and trade.
• Improve the overall efficiency of the PSUs; the inefficient PSUs will now be forced to make better achievable targets.

 THE RANGARAJAN COMMITTEE ON DISINVESTMENT 1993: Impact on Indian Economy

The Rangarajan Committee of 1993 was constituted by the government to make recommendations in context with the disinvestment. The committee said:

• The units to be disinvested should be identified, and disinvestment could be made up to any level, except in defense and atomic energy, where the government should retain the majority holding in equity.
• Disinvestment should be a transparent process, duly protecting the rights of the workers.
• An autonomous body for the smooth functioning and monitoring of the disinvestment programme should be established.
  • The Disinvestment Commission established in 1996 as an advisory body
• It suggested four modes of disinvestment, viz., trade sale, strategic sale, offer of shares, and closure or sale of assets.
• In its budget speech for 2000–01, the government emphasized that more emphasis would now be placed on the strategic sale of public sector enterprises.

POST-REFORM PERIOD: Exploring Changes in Indian Economy

Appraisal

• Rise in Growth Rate: The Indian economy has come out of its “Hindu growth rate” and clocked an average growth rate of 7-8 percent.
• Rise in Exports: India is the global leader in software exports.
• Surge in inflows of foreign investment
• Growth of Private Sector: The private sector entered into new areas and expanded production and employment
• Robust Performance of the Service Sector: with the onset of reforms, the share of the services sector went up to 44 percent in total GDP.
• Built-up of Foreign Exchange Reserves: India has about USD 480 billion as forex reserve as of May 2020

Failure

• Unlocking Agriculture’s Potential: Agriculture has not gained much; agriculture is the backbone of the Indian economy and rural India.
  • It needs greater focus to enhance productivity and make it a more profitable business.
• The problem of poverty still persists in the Indian economy.
  • About 30 percent of the population still lives in poverty.
• Unemployment is on the rise; in rural areas, the problem of unemployment and underemployment is widespread and deeply entrenched.
  • The policies of the new Indian economy were more beneficial to the skilled and trained workforce.
• Rural India is Still Neglected: About 70 percent of India lives in rural areas. People migrate to urban areas due to inadequate employment opportunities.
• The plight of agriculture workers has worsened; agricultural workers and laborers continue to be the most backward and neglected class.

Indian Economy: Understanding the Impact of the Green Revolution in Agriculture

The Green Revolution in the Indian Economy is referred to as the process of increasing agricultural production by incorporating modern tools and techniques in agricultural practices.

Indian Economy: Background of the Green Revolution in Agricultural Transformation

• At the time of its independence, India was predominantly an agricultural economy.
  • And yet, the state of the Indian agricultural sector was dismal.
• A lack of investment, a dearth of technology, low yield per acre and many other problems plagued the industry.
• After 1947, India had to rebuild its economy. Over 75 percent of the population depended on agriculture in some way or another.
• But agriculture in India was faced with several structural and other problems.
  • The productivity of grains was very low, along with fragmentation of landholding.
  • India was still monsoon–dependent because of lack of irrigation and other infrastructure.
• So in 1965, the government, with the help of Indian geneticist M.S. Swaminathan (the Father of the Green Revolution), launched the Green Revolution.
• The movement lasted from 1967 to 1978 and was a great success.

Indian Economy: Features of the Green Revolution in Agricultural Changes 

• Introduced high-yielding variety seeds in traditional agriculture in the Indian Economy.
• The Green Revolution in the Indian Economy at first focused on states with better infrastructure, such as Tamil Nadu and Punjab, due to rich irrigation facilities.
• During the second phase, the high-yielding variety seeds were given to other states and crops other than wheat were also included in the plan.
• The Green Revolution in the Indian Economy has improved the irrigation systems around farms in India.
• Commercial crops and cash crops such as cotton, jute, oilseeds, etc. were not part of the plan.
  • Green revolution in India mainly emphasized on food grains such as wheat and rice.
• To enhance farm productivity, the green revolution increased the availability and use of fertilizers, weedicides, and pesticides to reduce any damage or loss to the crops.
• It also helped in promoting commercial farming in the country
• Introduction of machinery and technology like harvesters, drills, tractors, etc. facilitated mechanization of farming.

Indian Economy: The First Green Revolution in Agricultural Transformation

Indian Economy: Understanding the Components of the Green Revolution in Agriculture

1. INTRODUCTION OF HIGH YIELDING VARIETIES (HYV)

• In the 1960s, the average national yield of wheat was very low as compared to the wheat yields of agriculturally advanced countries.
• MS Swaminathan, (former Director General of ICAR) stressed the need for reorientation of the entire breeding programme of tall varieties.
• Norman E. Borlaug was invited from Mexico in 1963 by the GoI to assess the possibilities of using dwarf varieties in the Indian Economy.
• Borlaug recommended the feasibility of using semi-dwarf wheat of Mexican origin as the Agro-climatic conditions prevailing in India are similar to those in Mexico.
• On his recommendation, two semi-dwarf varieties of wheat, namely Lerma Rajo and Sonora-64 were chosen and were released for cultivation in irrigated fields.
• These varieties gave very high yields and brought about a revolution in wheat production.
• In 1970, Norman E. Borlaug was awarded the Nobel prize for the “Green Revolution” which also helped India.
• The important, high-yielding varieties responded favorably to fertilizer and irrigation.

2. Indian Economy: Exploring the Impact of Chemical Fertilizers and Pesticides in Agriculture

• Pesticides are chemicals which have been developed to kill or control organisms called pests, which are unwanted in agriculture.
• Nitrogenous fertilizers (N): Nitrogen containing fertilizers such as ammonium sulfate, ammonium nitrate and urea
  • Nitrogenous fertilizers promote plant growth and are essential for food production.
• Potassium fertilizers (P): Potassium containing fertilizers such as potassium sulfate and potassium nitrate.
• Phosphate fertilizers (K): Phosphate containing fertilizers like ammonium phosphate, calcium dihydrogen phosphate (superphosphate).

 3. MECHANIZATION OF AGRICULTURE

• Increase in productivity on large areas of land led to the idea of farm mechanization.
• To cope up with the shortage of agricultural labor, farm mechanization was the obvious choice for completing agricultural operations.
• Mechanization improves the efficiency of inputs and ensures the Indian economy of scale.

 4. IRRIGATION

• HYVs usually require abundant water and hence irrigational facilities were a prerequisite for the green revolution in the Indian Economy.
• Wells (Dug and Tube): This kind of irrigation is widely practiced in plain regions of India.
  • Over-exploitation of wells is well observed in Punjab-Haryana region.
• Canals: This is usually an elaborate and extensive irrigation Canal irrigation is well suited for regions with clayey soil because clayey soil prevents water percolation.
  • It is mostly practiced in south India and Ganga-Yamuna region.
• River Lift Systems: Water is directly drawn from the rivers for supplementing irrigation in areas close to rivers. Mostly practiced in South India.
• Tanks: These are small storage reservoirs, which intercept and store the run-off of smaller catchment areas.

Impact of Green Revolution on Indian Economy: Transforming Indian Agriculture in Simple Terms

POSITIVE

• The Green Revolution in The Indian Economy has remarkably increased Agricultural Production. The biggest beneficiary of the revolution was wheat grain.
• Green Revolution in the Indian Economy increased the per hectare yield in case of wheat from 850 kg per hectare to an incredible 2281 kg/hectare in its early stage.
• India reached its way to self-sufficiency and was less dependent on imports. The production in the country was sufficient to meet normal and emergency demand.
• Rather than depending on the import of food grains from other countries, India started exporting its agricultural produce.
• There was a rise in rural employment. The tertiary industries created employment opportunities for the workforce.
• The adoption of new technology has also given boost to agricultural employment because of diverse job opportunities created by multiple cropping and shift towards hired workers – transportation, irrigation, food processing, marketing, etc.
• There has been more consistency with the annual harvest because the fields are worked in a similar way each year.
• New technology and modernization of agriculture have strengthened the linkages between agriculture and industry.
• It has helped to create numerous strains of plants that are resistant to disease and pests. It makes farmers more secure
• The Green Revolution in The Indian Economy majorly benefited the farmers of the country. Farmers not only survived but also prospered during the revolution. Their income saw a significant raise, which enabled them to shift from sustenance farming to commercial farming.

NEGATIVE

• Retardation of agricultural growth due to inadequate irrigation cover, fragmentation of farm size, failure to evolve new technologies, inadequate use of technology, declining plan outlay, unbalanced use of inputs and weaknesses in credit delivery system.
• Regional dispersal of the evolution created regional inequalities. The benefits of the green revolution in The Indian Economy remained concentrated in the areas where the new technology was used.
• The benefits of the green revolution remained largely confined to wheat-growing areas for many years, limiting its impact on other regions and industries.
• Interpersonal inequalities between large and small scale farmers.
• Adverse effects on the distribution of patterns of income in rural areas. It led to widening the inter-regional and intra-regional disparities in income
• The new technologies introduced during the revolution called for substantial investments which were beyond the means of a majority of small farmers.
• Farmers with large farmlands continued to make greater absolute gains in income by reinvesting the earnings in farm and non-farm assets, purchasing land from the smaller cultivators, etc.
• Ecological cost of the green revolution in The Indian Economy  is tremendous and unsustainable.
• The farmers are largely dependent on the market for the supply of inputs and for the demand for their products.
• Demand for agricultural credit has also increased as the new technology has increased the cash requirements of farmers. Poor farmers were not able to get loans easily.
• There has been displacement of agricultural labor by extensive agricultural mechanization, which has left them unemployed.
• The hybrid crops have also created environmental impacts like soil pollution and water pollution due to the excessive use of fertilizers, pesticides, etc. needed by these crops.

CONCLUSION

• There are both positive and negative impacts of the Green Revolution In the Indian Economy on farmers.
• Due to the Green Revolution in the Indian Economy there was a considerable increase in food grains production, which was extremely necessary for farmers to increase production so that agriculture became part of the Indian Economy.
• Due to the Green Revolution in The Indian Economy, the agricultural sector of India is able to meet the increasing demand for food grains. However, now is the high time to bring about a green revolution that is also farmer-friendly.

Other Revolutions related to Agriculture

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