Edited by Nikita Banerjee, a third year international affairs student and Nalin Karthik, a second year law student.
Kartik Kishore is a final year M.A. Public Policy student in Jindal School of Governance and Public Policy with a keen interest in governance and economic-political issues.
Illustration: Manisha Yadav | ThePrint
Abstract:
Recently India overtook Britain to become the world’s fifth largest economy in nominal terms. This has come at a crucial juncture when India is celebrating her Amrut Mahotsav i.e. 75 years of independence. Dividing it into four phases, this article traces the economic journey of India since independence and the various policies undertaken at different junctures. Nehruvian model was built on the foundation of ‘heavy industries’ which were supposed to generate employment and reduce abject poverty by raising income levels. The era of Indira Gandhi was marked by galloping inflation and rise of state control under the garb of socialism. The foundation of liberalization was laid in 1980s under the leadership of Rajiv Gandhi who is known to have sown the seeds of IT Revolution in India. This was followed by the ‘economic liberalization’ which although has made India prosperous, but the distribution of this prosperity has been highly skewed resulting in rising inequalities and jobless growth. The way forward is equal focus on growth, development, and sustainability instead of mindless pursuit of wealth in the garb of only economic growth. Continuity in the policymaking must be a biggest lesson along with focus on education and health.
Introduction
According to Cambridge historian Angus Maddison, the share of India in world income shrank drastically from 22.6% in 1700 to 3.8% in 1952 after the British left India in 1947. The challenges of poverty, hunger, deindustrialization, destroyed agriculture, crippled trade and other socio-economic issues were daunting. The country that was home to one-seventh of the world population, had three-fourths of its populace involved in agricultural sector with primitive tools and techniques and primarily consisted of landless laborers and highly insecure tenants. From that level of being engulfed in abject poverty and surrounded by humongous challenges in all the spheres, today India has gone onto to become world’s fifth largest economy in nominal terms by overtaking United Kingdom (UK). At the crucial juncture of 75 years of independence, this article attempts to reflect upon the post-independence economic journey of India by dividing it into four phases and mull over the challenges, achievements, and failures in terms of broad policies that were undertaken to bring India to the position that we are today.
First Phase: Nehru-Mahalonobis Model (1947 - 1964)
With almost 75 per cent of the population being impoverished, addressing poverty became the policy priority of the government. Inspired by the success of Soviet Union’s economic planning in 1930s and 1940s, Planning Commission was set up by India in 1950, as a body for economic planning in form of five year plans. The first five year plan (1951-56) which was based on Harod-Domar model, focused primarily on agrarian sector to get the nation out of poverty. Investments were made in irrigation projects and large dams like the Bhakra Nangal Dam. The second five year plan was drafted under the leadership of P.C. Mahalanobis, also called ‘Nehru-Mahalanobis Plan’ which laid the foundation of the Indian Economy that defined the Nehru-era. At the heart of this plan was a growth model led by ‘heavy industries (Pulpare, 2007). The idea behind this model was to significantly raise the income level of the populace to address the poverty.
With the focus on heavy industries, machine building complexes were established with large capacities to manufacture steel, chemicals, fertilizers, transport equipment etc. This in-turn would promote other goods industries and also help in infrastructure development. With the vision of long-term higher growth, it was implicitly recognized that the short term growth would be low and a considerable amount has to be first invested in laying the foundation for strong and higher growth in future. The model was criticized for ignoring the agricultural sector which formed the soul of Indian economy and society. However, it is important to understand the linkage between the agriculture and industry. The growth of the Indian Agriculture was severely constrained because of lack of mechanization and other basic industrial inputs like fertilizers etc. The push for heavy industries, was thus envisaged, to support and enhance the agricultural growth. Other bottlenecks like the tenancy reforms were also undertaken during this period as it was understood to be the core reason that plagued agriculture and resulted in abject poverty. Against this backdrop, the growth recorded in agriculture during this period was phenomenal considering the context of colonial past where it had been pushed into a slump. The policy of ‘non-alignment’ and ‘democracy’ was a unique framework model for economic development in India (Pulpare, 2007).
One of the flaws in this model was that it was a supply-side model. This type of model might have worked well in Soviet Union which was a classic example of command economy where the investment can be channelized and directed by the planners themselves, unlike India where private industries had ubiquitous presence (Pulpare, 2007). Consequently, as the supply cannot be channelized in a democratic federal structure, a demand-driven model might have produced better results.
The Second Phase: Move towards Socialism (1964 - 1975)
With Chinese invasion (1962), Nehru’s death and war with Pakistan (1965), this phase marked beginning of a tumultuous time for India, both on the political and economic front. Lal bahadur Shastri became Prime Minister of India after Nehru when on the economic front, there was a slowdown in the industrial growth and a stagnation in the economy. In his very brief period Shastri took important steps like he tried to decentralize governance. However, the problem was that instead of maintaining continuity in policy, this phase marked serious departure from the path of economic development on which India had embarked upon post-independence. Shastri’s hesitant steps towards liberalization without any groundwork, pushed the economy into a state of confusion instead of capitalizing on the gains made from last fifteen years where serious effort was put into laying a strong foundation as highlighted in the first phase.
The Indian Economy was in shambles when Indira Gandhi became the new Prime Minister succeeding Shastri. The after-effect of the two wars in 1962 and 1965 with China and Pakistan proved to be disastrous for the economy which was already struggling with declining industrial growth and exports. A large sum had to be directed towards the defense sector, compromising with much needed economic growth and development of social sector. The trade deficits widened and recorded the highest value in the sixties. This was made worse with monsoon failure in the year 1966 which resulted in food shortages causing galloping inflation. Regions of Bihar and eastern UP were engulfed with famine. All of this pushed the economy into recession and India lowered to a ‘begging-bowl’ situation[1]. The accelerated growth since 1950, thus, came to a halt. The consequence of not maintaining broad continuity in policymaking can be best illustrated here.
During such trying times, USA tried to take advantage of debilitating economic condition of India by forcing it to change its agricultural policy and stance on Vietnam in return of food grains, of which India was in dire need. However, India didn’t cave in to any intimidations (Mukherjee, 2009). On the contrary, under Indira Gandhi, India pushed aggressively for Green Revolution which led to 35 percent increase in food production between the years 1966-67 to 1970-71. Further, the Nehruvian Policy of less dependency on external world by creating indigenous capacity through expansion of public sector units, was taken up vigorously during this phase. From a state of confused economy (during Shastri’s reign), Indira took India towards socialist economy, Nationalization of Banks in 1969 being one such case in point.
The Third Phase: Departure from the Past Policies (1980s – early 1990s)
As India entered the decade of 1980s, after witnessing politically most tumultuous and surcharged times until then, in the backdrop of J.P. Andolan, and unprecedented measures like Emergency being enforced, India gradually started its journey on the path of reforms by the end of Indira Gandhi’s second tenure. However, it was Rajeev Gandhi government who set the foundation of liberalization by bringing substantive change in the political-economy and economic policy that was continuing until then. ‘Economic Growth’ became a priority now which emphasized on ‘creation of demand’ in market through promotion of consumer durables, realizing the importance of middle class in steering nation’s economy (Basu, 2007). Steps like lowering of taxes were taken by government to increase disposable income with the people. This was a big departure from the Mahalonobis model, which focused on production of capital goods mainly through Public sector enterprises[2]. Unlike the previous regimes which were apprehensive of borrowing from foreign to maintain autonomy, this government borrowed heavily to fund the budget deficit which was used to finance public spending in sectors like infrastructure to steer the growth (Kohli, 2006). The hallmark contribution of the government of this phase was introduction of Information Technology, computerization and in the telecommunication sector. The benefits of that move is being reaped by the nation even today as India has emerged has IT hub for top IT companies in the world.
Fourth Phase – The age of Reforms (1990s – till now)
The much-touted economic reforms of 1991-92 came against the backdrop of severe Balance-of-Payment crisis and India was compelled to liberalization rather than opting for it by choice. It is true that the liberalization, privatization and getting more integrated with the global economy has brought millions out of the vicious poverty cycle, the income and living standard of the middle class has also improved and India has gone on to become one of the top five largest economies of the world. However, as a result of this forced reforms, India has seen a skewed development where it has become a service sector dominated economy directly from being agricultural dominated (Ahluwalia, 2016). The manufacturing sector, which generates the maximum employment in any economy, continues to be in a dismal state. The share of manufacturing sector in India is stagnant around 16% while China (which got freedom around the same time as India), has gone onto become a manufacturing hub in the world market with 30% share of manufacturing sector in its GDP. It is because of this reason that despite high ‘growth’ in the first decade of 21st century, we have hardly seen any proportionate increase in employment generation (Kohli, 2006). The decade is famously referred as period of ‘Jobless Growth’.
Another issue is the unprecedented rise in inequality post liberalization. The Oxfam Report points out that top 10% of the Indian population holds 77% of the Indian wealth. Such stark inequalities are a breeding ground for social, economic and political unrest in the country. Thomas Piketty, renowned economist, believes that more equitable and progressive taxation is a way forward to address the concerns of such stark inequalities.
Conclusion:
Public Sector Units (PSUs) were famously referred as ‘Temples of Modern India’ that would lead the nation into prosperity countering the challenges of abject poverty. However, the cost of health and education sector taking a back seat that too right at the inception, in the growth story has been huge in form of unequal and unsustainable distribution of wealth and prosperity over the years. India’s greatest asset of demographic dividend may turn into demographic disaster. Secondly, continuity is a very important characteristic of any policymaking for sustained growth and achievement of larger objectives. This has been unfortunately absent in the Indian policy space as can be seen from the four phases. India has travelled a long way from being a nation under abject poverty at independence, to becoming the fifth largest world economy. However, this journey has been very tumultuous leading to challenges of inequality. As India marches towards finding its place in world’s top 3 economies by laying down vision for next 25 years, it must make sure that there aren’t many slips between the cup and lip.
References
Ahluwalia, M. S. (2016). The 1991 Reforms: How Home-grown Were They?. Economic and Political Weekly, 39-46. https://www.epw.in/journal/2016/29/1991-reforms.html-0
Basu, K., & Maertens, A. (2007). The pattern and causes of economic growth in India. Oxford Review of Economic Policy, 23(2), 143-167. https://www.jstor.org/stable/23606610
Kohli, A. (2006). Politics of economic growth in India, 1980-2005: Part I: The 1980s. Economic and Political Weekly, 1251-1259. https://www.jstor.org/stable/4418028
Kohli, A. (2006). Politics of economic growth in India, 1980-2005: Part II: The 1990s and beyond. Economic and political weekly, 1361-1370. https://www.princeton.edu/~kohli/docs/PEGI_PartI.pdf
Mukherji, R. (2009). The state, economic growth, and development in India. India Review, 8(1), 81-106. https://crawford.anu.edu.au/acde/events/past/tradeandindustry/papers/Paper_9_Mukherji.pdf
Pulpare, B. (2007). The Recovery of India; Economic Growth in the Nehru Era. Economic and Political Weekly, November, 23. https://www.epw.in/journal/2007/45-46/special-articles/recovery-india-economic-growth-nehru-era.html
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