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History Of Indian Economics

History Of Indian Economics

By Samruddhi Mahapatra

Edited by Liz Maria Kuriakose, Associate Editor, The Indian Economist

The Battle of Plassey in 1757 was a decisive battle that changed the course of the Indian history. This established the foundation to the 200 year long British rule in India. The British rule is a long story of systematic exploitation by an imperialistic government of people whom they had enslaved by their policy of divide and rule. The motive of the policies that the British Raj made and employed were only for the benefit of England. During this period, the economy of the sub-continent remained stagnant, growing as the same rate as the population (1%).

While England went through massive industrialisation, India’s condition worsened by the day. In the 17th century, India went through relative commercialisation to accommodate the export trade. India became the world’s largest producer of cotton but a substantial part of it was exported to Britain. Even as the British cotton industry underwent technological changes, the Indian industry deteriorated.

Thus when the British transferred power back to India, we inherited a crippled economy. According to Jawaharlal Nehru, India had become a passive agent of capitalism, suffering all its ill and having none of its advantages.

The leaders of independent India face grave challenge. The first major problem was deciding the type of economy that India would adopt. A mixed economy was adopted that had features of both socialism and capitalism.

A tremendous task before the Indian leadership was the economic planning. In 1950, the Planning Commission was set up under the chairmanship of Jawaharlal Nehru. It was then that the first five-year plan was implemented. It was a modest plan, essentially designed to repair the damage caused by the war, famine and the partition. Priority was given to the development and agriculture sector. National income increased at a rate of 3.6% per annum.

The annual plans of 1966-69 introduced the radical Green Revolution. It emphasised on the technological reforms in agriculture.

From objectives of this period (1951-90) was to bring growth with welfare. The central theme of all the FYPs was to bring about speedy growth of national income, remove poverty and unemployment, reduce concentration of economic power, etc.

However, the macroeconomic imbalances that developed in the 1980s culminated in the economic crisis of 1991. The main reason for this severe crisis were the huge fiscal imbalances, high levels of borrowing, the rising money supply, resulting in inflation and external indebtedness. This crisis called for drastic economic reforms. The thrust was to get rid of the interest repayment against the loan India borrowed from IMF and World Bank, India was expected to liberalise its economy by removing restrictions, reduce role of government and remove trade restrictions.

In 1991, Prime Minister Narasimha Rao, and his Finance Minister Dr. Manmohan Singh initiated the economic liberalisation, to rid India of the inefficiencies of the economic system. It became known as the ‘New Economic Policy’ or NEP. The reforms removed the Licence Raj system, and ended many public monopolies.

The main objective of the NEP was to bring economic stability. It helped the fiscal deficit and bring price stability. It reduced the area of operation of public sector, and opened up areas for private sectors. This brought foreign retail investment into the country. The inflow of foreign capital was encouraged. It sought to remove inefficiencies in the economic systems.

Liberalisation means to remove all the unnecessary controls and restrictions like permits, licences, etc. that was imposed by the government. It raised internal competitiveness of industrial production and brought foreign technology that aided and increased production.

Privatisation is the transfer of an organisation from the public to the private sector. It reduced the budgetary deficit which was the result of expenditure on loss of PSUs. Privatisation also helped in reviving the sick units that had been a burden on the economy. Consumerism was another concept that got rise due to the onset of privatisation. Since privatisation opened up many new opportunities for the consumers, the sellers looked to better their products. Under the public sector units the consumers had limited options and were often exploited in terms of the price and quality of the product.

Globalisation is a multi-dimensional concept, which is concerned with flows of commodities, services, ideas and people. It means worldwide interconnectedness, which is created and sustained by the constant flows. It is the linkage of money along with culture, faith, convention, lifestyle with the removal of trade barriers.

And thus India has emerged as one of the rising economic powers in the developing world.

Samruddhi is a student, pursuing English Hons. in Kirori Mal College. She is an avid reader and loves learning new things. An aspiring writer, she believes that everything around us has a story to tell. With big dreams, she strives forward to achieve them. She wants her writings to be read by everyone and appreciates constructive criticism.

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