India's Financial Growth and Economic Development
Post British Economy
Two hundred years of British rule left the Indian economy in a state of complete distortion. Once an international trade hub, in 1947 it was a nation dying from hunger. The transfer of revenues from India to Britain resulted in India suffering from a severe economic crisis and food shortages. The Bengal Famine of 1943 is a classic example of the extent of food shortage, when an estimated 1.5 million people died.
At the time of Independence, the literacy rate was only 17 % with life expectancy being 32.5 years at birth. India’s GDP in 1947 was a meagre ₹2.7 lakh crore.
The leaders of the National Movement were faced with the challenges of Financial Growth (Overall economic performance) and Economic Development (Development of all sections of society). Let’s analyse the two important policies the GOI introduced to tackle these challenges.
Five Year Plans(FYP’s)
Even before Independence, the leaders of the National Movement were inspired by the Soviet model of a Planned Economy. Thus, in March 1950 the Planning Commission was set up by the Government of India (GOI) as an advisory body. This Commission formulated the Five Year Plans (FYP’s).
a) First Five Year Plan (1951-56)
Since India was facing the problem of large scale food shortages, this plan laid priority on agriculture, irrigation and power projects. About 44.6 % of the outlay went to the Public Sector Undertakings (PSU’s).
b) Second Five Year Plan (1956-61)
This plan emphasised on rapid industrialisation. However, this period saw severe shortages of food grains which led to large amount of imports.
c) Third Five Year Plan (1961-65)
This plan again, laid emphasis on agriculture. However, this period saw India go into war twice (in 1962 and 1965), leading to severe drought-led famine in 1965-66.
These and the following FYP’s thought focused on financial and economic development, received criticism on account of being overly centralised and their over emphasis on PSU’s. This led to slow growth of the Indian Economy. GDP Growth Rate was a meagre 3.5% between 1950-51 and 1979-80. India’s GPD was $0.04 trillion in 1960 and $0.19 trillion in 1980.
Learning from these setbacks, the GOI headed by then Finance Minister Manmohan Singh introduced the New Industrial Policy in 1991. The policy was a drastic shift from GOI’s previous goals and objectives.
New Industrial Policy, 1991
Severe Balance of Payment crisis and pressure from IMF, led to the introduction of the New Industrial Policy on 23rd July, 1991. The following are the major highlights of the New Industrial Policy :-
1. De-reservation of Industries
2. De-licencing of Industries
3. Promotion of Foreign Investment
4. Disinvestment of PSU’s.
The broad aim of this policy was the promotion of Liberalisation, Privatisation and Globalisation (Popularly known as LPG). Reducing the role of public sector, accelerating the flow of Foreign Capital, and easing the process of licensing for industries were the major objectives of this policy.
The real Financial Growth of the Indian Economy was witnessed after the introduction of this Policy. More emphasis was given to private sector with the government playing the part of the regulator. It paved the way for India to compete with the world economies. Following are some numbers showing the Financial Growth and Economic development of India as a result of these policies.
Financial Growth Indicators
India has grown from being a $0.04 trillion Economy in 1960 to a $3.18 trillion Economy in 2021. The Per Capita Income went from ₹265 in 1950-51 to ₹1,50,326 in 2021-22. The Sensex of the Bombay Stock Exchange (BSE) was 100 points on its debut in 1979. It is has climbed to 58,387 points as of 5th August, 2022.
International trade which was 11.3% of the total GDP in 1950 rose to 37.9% in 2020. India being a net exporter of services has generated a large amount of foreign exchange reserves ($575.7 as of 22nd July, 2022). India is the fastest growing major economy in the world, according to GDP Projections of the International Monetary Fund (IMF).
On the day of Independence, India was a net importer of food grains (Net Importer of 4.8 million tonnes - 1951). Today India is a net exporter of food grains (Net exporter of 5.9 million tonnes - 2020). The Service Sector which accounted for 30% of GDP in 1950-51, now accounts for nearly 54% of GDP.
Economic Development Indicators
The Literacy Rate of India was just 18.3% in 1951. Today it is 77.7% with Kerala having the highest Literacy Rate of 96.2%. According to NFHS 5, the Total Fertility Rate has been reduced to 2.0, down from 5.9 in 1950.
Life Expectancy at birth has increased from 37 in 1950 to 69.7 in 2019. However this is lower than the Global average Life Expectancy of 72.6. According to the latest UNDP Report, India ranks 131st out of 189 countries in terms of the Human Development Index (HDI).
Future Prospects
The goal of the GOI is to transform India into a $5 trillion economy by 2024-25. To achieve this target, timely analysis of the economy by the RBI and the GOI is necessary. This would facilitate accurate fiscal and monetary policies which would act as a catalyst for the steady growth of the Economy.
Going forward, the Private sector, especially the services and IT sectors are going to play a crucial role in the Financial Growth of the Indian Economy. Along with this, the GOI should take steps to promote Inclusive Growth which would lead to Economic Development of the masses.
Conclusion
In the past 75 years, India has transformed itself from a nation starving with hunger to becoming a net exporter of food grains. Where foreign investors are keen to invest their money. With whom, world superpowers like the USA are eager to make close ties. Although India has experienced some setbacks from its Economic Policies, it has also developed itself into a nation which strives to achieve its desired goals and become what it was before the Colonial rulers stepped in – a nation rich in culture, diversity and full of Prosperity.
Written by - Yadnyesh Salvi
References
TOI (https://timesofindia.indiatimes.com/)
The Indian Express (https://indianexpress.com/)
NITI Aayog (https://www.niti.gov.in/)
NFHS 5 (http://rchiips.org/nfhs/)
UNDP Report (https://hdr.undp.org/)
Economic Survey (https://www.indiabudget.gov.in/economicsurvey/)
Bloomberg (https://www.bloomberg.com/asia)
Indian Economy (Ramesh Singh)
Indian Economy (Dutt and Sundaram)
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