Arshad Shaikh looks at India’s 75-year economic journey. State-owned industries once dominated our economy but now it is mostly in private hands. Similarly, a majority of the people were earlier engaged in agriculture. However, now the services sector generates maximum employment. Our economic policies were influenced by global trends and with the demise of communism, like the rest of the world, we moved towards globalisation, privatisation, and liberalisation. We accelerated our break from socialist and welfare-oriented economic policies. Although the size of our economy is moving towards becoming the third largest economy in the world, we still lag behind many countries in GDP per capita and other critical socio-economic indices that belittle our stature as an economic powerhouse.
On 15 August 2022, India will complete 75 years since it gained Independence. “Bharat ki Azadi Ka Amrit Mahotsav” is an initiative of the Government of India to commemorate this milestone by highlighting its “rich history, diverse population, magnificent culture, and great achievements”. Among its many accomplishments, India can be justifiably proud of its economic growth and status as the world’s fastest-growing major economy.
India’s economic journey has seen both hits and misses. We grew in size but failed to distribute our wealth, leading to great inequality and dismal ratings in many socio-economic indices. We created one of the largest global pools of millionaires and billionaires but also have some of the highest levels of poverty in the world. We became heads of Google, Microsoft, Pepsi, Twitter, and IBM but could not offer gainful employment to 80% of our graduate engineers.
We are the largest producers in the world of fresh fruit, buffalo milk, pulses, and a host of other agricultural products. We are the second largest producers of wheat, rice, fresh vegetables, cow milk, tea, potatoes, onions, cotton, and others and yet we have nearly 195 million undernourished people.
A quarter of the global hunger burden is shared by India. Nearly 47 million or 4 out of 10 children in India do not realise their full human potential because of chronic undernutrition or stunting.
We recently saw the largest and longest farmers’ agitations. The number of suicides committed by Indian farmers is also the highest in the world.
To sum up, India’s economic journey is an amazing transformation from a poor country to a giant economy and yet full of paradoxes and lost opportunities.
THE PLANNED ECONOMY
Despite two hundred years of colonial rule, India still managed to rank as the 10th most industrialised nation in the world in 1947. India embarked on its economic journey through what is known as a ‘mixed economy’ or the ‘Nehruvian’ model. In this model, the private sector was allowed to operate but subject to various governmental controls and regulations.
However, this system led to a ‘licence-permit raj’ in which a few bureaucrats decided who would produce how much. Industrial production was allowed if you obtained a licence, and the government would set quotas and permits on the maximum number of goods to be manufactured. The basic philosophy was to reject laissez-faire economic growth and not leave the markets to the ‘invisible hand’. Instead, it would be a planned economy with the state trying to control the means of production.
In 1944, a group of prominent industrialists and economists came out with a document called “The Bombay Plan” designed to take India on the path of rapid economic growth. This document formed the basis of the first two five-year plans. The second five-year plan laid great emphasis on state-owned heavy industry. The idea was that the public sector would help the nation reach the ‘commanding heights’ of the economy. Although it cannot be denied that this approach gave India a strong manufacturing base, it led to monopolies in both the private and public sectors.
Moreover, agricultural production did not match the needs of the population and food grain had to be imported and ‘rationed’ by way of distribution. Economic growth remained sluggish, unemployment was high, trade unions could easily stall production, and poverty levels were embarrassingly high. The financial sector was nascent, banking was nationalised and entrepreneurship was an uphill task.
FROM LEFT TO RIGHT
Despite remaining an almost closed economy, India could not remain aloof from global developments. The oil shock of the 1970s that saw a steep rise in crude prices made us realise the importance of having foreign exchange reserves to pay your import bills. Then the success of the East Asian economies like South Korea, Malaysia, and Singapore gave impetus to the ‘export-driven’ growth model. India soon realised it could not rely on state-owned enterprises to drive fast economic growth.
1991 was a watershed year for the Indian economy. Things reached a stage where the government drastically altered its economic outlook and took a decisive leap from a planned economy to free-market policies. In 1991, India faced a severe balance of payments problem in which we could finance only 15 days of imports. The fiscal deficit reached 8.4% of the GDP, with inflation reaching 16.7%.
The First Gulf War set the crude prices soaring, and we were in the midst of a full-blown economic crisis. India embarked on an LPG (liberalisation, privatisation, and globalisation) programme designed by the then Finance Minister, Manmohan Singh. Some of the key reforms included the abolition of the ‘licence permit raj’ and a reduction in import tariffs. De-regulation of markets, extensive banking, and financial sector reforms. Other important changes include exchange rate correction to match market reality, liberalising trade policies, and allowing FDI.
NON-INCLUSIVE GROWTH
We can be justifiably proud of many of our achievements in our endeavour to build our economy. Becoming self-sufficient in food grains is indeed a huge accomplishment. Transforming the food production scene wherein we received food aid in the 1950s and 60s to become a net exporter of food grains, fruit, vegetables, and meat has demonstrated the hard work and resilience of our farmers. The total food production, which was 54.92 million tons in 1950 has now steadily risen to 305.44 million tons in 2020-21. Our GDP was `2.7 lakh crore in 1947. We have now reached `147.5 lakh crore.
India is the sixth largest economy in the world and is poised to become the third largest by 2031. Interestingly, India has seen a ten-fold increase in its GDP since 1991. India’s foreign exchange reserves are the world’s fifth largest and stand at `46.17 lakh crore.
The Indian Railways has reached a route length of 67,956 kilometres. India had only 4 lakh kilometres of roadways in 1950. It has now expanded to 64 lakh kilometres in 2021, making it the second largest in the world.
In 1950, only 3,061 villages had access to electricity. By 2018, all of India’s nearly 6 million villages had been electrified. This does not paint a true picture of the scenario as even with just 10% of households in a village receiving electricity, the entire village is deemed to have been electrified.
In 1948, the total FDI was `256 crores. In 2020-21, we possess a massive $ 81.72 billion in FDI. However, when we see our rankings in terms of GDP per capita, life expectancy infant mortality, global hunger index, human development index and health expenditure per capita, we realise that our economic growth has been non-inclusive and exclusionary. Today we are desperate to become a $5 trillion economy. Unfortunately, that urgency is missing to make it the world’s most inclusive and welfare-oriented economy.