Part 1
After the pandemic Indian economy will settle down to 7.5% by 202324.
-World Bank
India falls under the category of Newly Industrialised Countries (NICs), characterised by rapid economic growth compared to other developing nations. These economies, also known as Newly Industrialised Economies (NIE) or middle-income countries, exhibit substantial economic progress within a relatively short timeframe. Examples of NICs include Turkey, South Africa, Brazil, Malaysia, the Philippines, Thailand, and Mexico.
Over the past two decades, India has sustained an annual GDP growth rate of 6-7%. Projections from the International Monetary Fund (IMF) indicate that the Indian economy is poised to reach $4 trillion USD by 2026.
India’s Economic Blend: A Mixed Economy Model
Similar to modern economies, India operates as a mixed economy, blending elements of both capitalism and socialism. Citizens enjoy the freedom to choose professions and initiate businesses across various sectors. However, certain sectors, such as defence, power, and banking, undergo significant regulation by the Indian government, resulting in the coexistence of government-owned and privately-owned entities. This mixed economic approach has proven beneficial for India, fostering economic freedom, citizen welfare, and effective resource allocation.
Understanding the Indian Economy: Key Insights and Challenges
Economic Worth:
The Indian economy, valued at $2.9 trillion USD as of the provisional estimates for the financial year 202122, relies heavily on its diverse sectors.
Sectoral Contributions
- The majority of the labour force engages in agriculture and industry, while the service sector comprises over 50% of the GDP, with the IT service sector generating $191 billion in revenue.
- India excels in pharmaceutical manufacturing, notably generic medicines and vaccines, with the tourism sector contributing 9.2% to the GDP.
- The rural, agriculture-dependent areas make up almost two-thirds of the population and contribute around 46% to the GDP.
Key Sectors
- Booming telecommunication, automotive, and mining sectors contribute significantly to the economy.
Challenges
1. Primary Sector Dependence
High dependence on the primary sector, with 58% of the population contributing only one-fifth of the GDP, highlights the need for advanced technology and strategic planning in agriculture.
2. Low Per Capita Income
A lower per capita income of $1927 USD (2020) positions India as a developing country, underscoring the need for economic growth.
3. Unemployment
Industries struggle with limited capital for expansion, leading to unemployment challenges in both rural and urban areas.
4. Population Pressure
The exponential population growth poses a challenge, absorbing the benefits of development, and hindering economic stability even if GDP surpasses that of the US.
5. Wealth Inequality
Unequal wealth distribution sees the top 4% of households holding 31% of total assets, contributing to income maldistribution in rural areas.
6. Infrastructure Deficiency
Lack of infrastructure in transport, communication, banking, energy, health, and education impedes efficient resource utilisation and development.
Part 2
The History of Indian Economy
India’s history is deeply marked by direct British colonial rule, leaving a lasting impact on its economy, society, and polity. Even today, the consequences persist, making the study of this colonial phase crucial for understanding contemporary aspects of Indian society. The comprehensive control exerted by the colonisers over every facet of social life in a direct colony, such as India, underscores the profound influence of colonial policies.
The prolonged duration of British rule in India provided ample time to establish robust institutions for governance. The gradual and evolutionary nature of British occupation allowed policy adjustments based on practical experience. Before delving into these nuances, it is essential to explore the nature of the Indian economy before British rule.
Professor Sumit Sarkar observed: Behind a facade of laissez faire, government policies often actively promoted European enterprise (railways under the guarantee system, and the allotment of vast tracts of land to Assam tea planters at nominal prices, would be two obvious examples) while discriminating against Indians. The railway network and freight-rates encouraged traffic with ports as against that between inland centres. The organised money-market was largely under white control . Most significant of all perhaps was the fact that nineteenth century Indian economic growth was largely geared to export needs, and the British controlled the bulk of the external trade of the country through Exchange Banks, export-import firms and shipping concerns.
Characteristics of Pre-Colonial Economy
1.1 Agriculture
In the pre-colonial period, India’s stable economy revolved around self-sufficient agriculture within small village communities. Villages operated as self-contained economic units, engaging in limited trade and primarily producing for local consumption. However, by the late 18th century, external forces, including changes in land tenure and the development of export trade, began reshaping the traditional agricultural patterns.
1.2 Trade
Despite the self-sufficiency of Indian villages and primitive means of communication, India engaged in extensive trade within the country and with other Asian and European nations. India maintained a favorable balance of trade, exporting items it specialized in and importing necessary goods. However, the shift from a surplus exporter of cotton textiles to an importer during colonial times had profound implications for India’s traditional handicrafts.
1.3 Handicraft Industries
India boasted extensive manufacturing, with skilled artisans renowned worldwide. Traditional handicraft industries flourished in various regions, specialising in textiles, shipbuilding, and other products. However, the advent of machine-made goods from England, a consequence of the Industrial Revolution, led to the decline of India’s economic centres and the displacement of artisans.
Aspects of Colonial Rule
The gradual expansion of British occupation in India involved learning through practice, with experiences in one region influencing policies in others. British colonial policies evolved based on changes in British society, transitioning from mercantile capitalism to industrial capitalism. The shift in British interestsfrom trade with India to market-oriented industrial capitalismdirectly shaped colonial policies in India, emphasising the complex interplay between British societal dynamics and colonial governance.
Impact of the British Rule: Indian Viewpoint
2.1 Nationalist Scholars’ Perspective
Contrasting the prevailing narrative, Indian nationalist scholars, including Dadabhai Naoroji, Romesh Chandra Dutt in the 19th century, and Rajni Palme Dutt in the 20th century, presented an alternative viewpoint. They questioned the East India Company’s gradual involvement in local conquests and the British Queen’s assumption of direct rule in 1858 until 1947. The nationalists sought answers to how a trading company, initially armed with a capital of 68,000, accumulated fortunes and sustained itself in the supposedly stagnant Indian economy.
2.2 The Drain Theory
The nationalists emphasised two crucial aspects of British colonial rule: the ‘drain theory’ and the theory of ‘deindustrialization.’ The ‘drain theory’ posited that a significant portion of India’s national wealth was exported to England without corresponding economic returns. This indirect tribute to England, involving salaries to British officers, home-charges, and profits from British capital, diminished India’s investment sources. The external drain, estimated to be 3 to 4 percent of the gross domestic material product in Bengal, contributed to the underdevelopment of the colony.
Moreover, the drain was interconnected with other forms of exploitation, such as heavy taxation and unfavourable trade conditions, benefiting the British immensely. Lord Curzon acknowledged India’s pivotal role in the British Empire, emphasising the economic importance of the colony to sustain the empire. The Company’s acquisition of Dewani rights in Bengal, Bihar, and Orissa in 1765 further facilitated plunder and exploitation, persisting until the end of the 18th century. The shift from mercantile capitalism to industrial revolution in Britain marked the beginning of demands from emerging industrial capitalists for the end of Company rule in India.