The Indian Economy: the Main Changes in the Last 55 Years

On 14 August 1947, Nehru had declared: “Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge. The achievement we celebrate today is but a step, an opening of opportunity, to the great triumph and achievements that await us.” He reminded the country that the tasks ahead included “the ending of poverty and ignorance and disease and inequality of opportunity”. These were the basic foundations on which India embarked upon its path of development since gaining independence in 1947. The purpose of this talk is to analyse how much has India achieved in the last 55 years in fulfilling the aspirations on which it was founded.

India’s growth process over the past four decades has also witnessed a shift away from the farm to non-farm jobs, but the process has been lopsided and the transformation remains incomplete.

The farm sector remains the biggest employer in the country, though the share of farm jobs has shrunk over time. Unlike in other fast-growing Asian economies, the new non-farm jobs have mostly been in construction and services, rather than in factories.

GDP has four parts: consumption, investment, government spending, and net export.

1. Consumption: Every time goods are purchased; it comes under the consumption category.
2. Investment: Every time a business in the West it opens a new factory it comes the under-investing category
3. Government Spending: When the government spends money like construction new roads it comes under the government spending category.
4. Net Export: When India exports or imports something. It comes under the net export category.

India saw an unprecedented growth surge for more than three decades since that historic contraction. The growth surge survived a balance-of-payments crisis, stock market scams, and multiple phases of political instability. It pulled millions out of poverty and transformed lives. At 4.2% GDP growth in 2019 2020 hits 11 year low.

• India's GDP growth rate for 2019 was 5.02%, a 1.1% decline from 2018.
• India's GDP growth rate for 2018 was 6.12%, a 0.92% decline from 2017.
• India's GDP growth rate for 2017 was 7.04%, a 1.21% decline from 2016.
• India's GDP growth rate for 2016 was 8.26%, a 0.26% increase from 2015.

The GDP growth of India has fluctuated year on year though has improved a lot after independence. The journey after independence since 1951, India has grown as a planned economy. The first few plans focused on growth with the strengthening of the manufacturing sector emphasizing heavy industries to form the backbone of the economy. Other principal areas of planning were agriculture and social development i.e. housing and poverty alleviation. Over the years India saw a changing composition of its economic structure: agriculture which initially comprised 60% of the GDP now comprises around 26% and services comprise a massive 75% of the GDP growing from 30% in the 50s. Landmark changes in 1991 were brought about under pressure from the IMF and World Bank when India was left with foreign exchanges to barely support two weeks imports. The new era saw delicensing, massive tariff reductions, FDI cap relaxations, and gradual convertibility of the current account followed by the capital account. The liberalization process started in the early nineties has seen massive growth especially in the services sector. India has consistently grown at more than 6% over the last five years and in terms of sheer GDP PPP currently stands at rank 4 in the world according to the latest World Bank estimates.

The objective of India’s development strategy has been to establish a socialistic pattern of society through economic growth with self-reliance, social justice, and alleviation of poverty. These objectives were to be achieved within a democratic political framework using the mechanism of a mixed economy where both the public and private sectors co-exist.

Causes of the Slow Growth Of Private Enterprise

Indians were reluctant to enter the industrial field because of the comparatively easier and secure scope for profit which existed in trading and moneylending. The Britishers who pioneered industrial change in India were not interested in industriali¬zation of the country as such. But then Indian industri¬alists too were so short-sighted, they rarely bothered about the future and cared very little for replacement and renovation of machinery. They were influenced by nepotism rather than ability in their choice of personnel. They were also influenced by their trading background viz., high price, and high-profit margin rather than low prices and larger sales.

Problem of capital and private enterprise. In the 19th and 20th centuries, Indian industrialists had suffered from a lack of adequate capital. Just as the British enterprise was prominent, so also British Capital was significant in India's industrialization. There were no Government loans or company stocks and debentures. Accordingly, people held their wealth in the form of gold and silver. There was a complete absence of financial institutions to help the transfer of savings to industrial investment. In the beginning funds for investment came from surpluses earned in rural moneylending and trading. But in course of time, new resources were also tapped.

One of the important reasons and according to some authorities, the most important reason for the slow growth of Indian industries was the lack of support from the Government. Indian enterprise was operating under a foreign government which was extremely unsympathetic to native private enterprises. The tariff policy in India reflected the needs of business interests in Great Britain. The British interests advocated free access to the Indian market. Till 1924 the Government refused to impose customs duties on the import of foreign goods. Even when they imposed low duties on some goods for purposes of collecting revenue, they sought to neutralize their effects by imposing equivalent excise duties on goods of local origin. When the Government ultimately adopted a policy of protection, it did not give protection to all industries but only to a few selected industries which fulfilled certain specified conditions.

India set up the Planning Commission in 1950 to oversee the entire range of planning, including resource allocation, implementation, and appraisal of five-year plans. The five-year plans were centralized economic and social growth programs modelled after those prevalent in the USSR. India’s first five-year plan, launched in 1951, focused on agriculture and irrigation to boost farm output as India was losing precious foreign reserves on food grain imports.

The second five-year plan (1956-61) laid the foundation for economic modernization to better serve India’s long-term growth imperatives. Launched in 1956, it was based on the Mahala Nobis model that advocated rapid industrialization with a focus on heavy industries and capital goods. The Mahala Nobis plan was, in a way, an invocation of the spirit of swadeshi or self-reliance.

Gandhi nationalized 14 private banks on 20 July 1969. The main aim of the move was to accelerate bank lending to agriculture at a time when big businesses cornered large chunks of the credit flow.

In terms of rate of growth, India has done better in the latter half of the 20th century than during the first half, and far better in the final two decades. Over the period, fluctuations in the growth of output have been reduced. The resilience to withstand shocks has progressively increased. The external sector has become comfortable in the sense that there is no foreign currency constraint on growth now. Yet, India has pervading poverty, high illiteracy, and poor condition of health and sanitation. There are islands of excellence like information technology experts amidst a sea of deprivation and misery. Economic policy, especially of ’nineties has removed several constraints on economic growth, which is in itself an achievement and a necessary condition for the rest of the goals of civil society. But there are lurking doubts on whether India was systematically building a system that would ensure a continued high level of growth and, the achievement of minimum social objectives associated with such growth. Perhaps, India’s rank in the indicators that have been scanned will give a clue as to what we should do to dispel the doubts about the future.

On November 8, 2016, demonetization lowered the growth rate of economic activity by at least 2 percentage points in the quarter of demonetization,' said the working paper entitled ‘Cash and the Economy: Evidence from India’s Demonetisation.’ It compared the move’s effect to a monetary tightening equivalent to about two percentage points.

The growth estimate is contingent on the prediction of a normal monsoon this year, along with the expectation of a boost in consumer demand, increased private sector, and government spending, especially on infrastructure. The nationwide roll-out of the goods and services tax in the second quarter of FY18 is also expected to spur growth, albeit marginally an increment of 0.25 percent to 0.5 percent to GDP growth.

In the current pandemic situation COVID, the GDP of India has decreased because two of the variables that are consumption and investment have crashed. A large number of workers lost their jobs. According to the source Ministry of statistics and program implementation, only agriculture, forestry, and fishing have seen a positive impact on the rest financial electricity public administration, and mining manufacturing construction has seen a negative impact.

Net exports have seen a positive change. The value of net exports has not increased due to an increase in the quantity of export, instead, the quality of imports has decreased so much. The demand for oil in India has decreased much, due to less global demand, the price of oil had decreased much. Government spending has also seen a positive change. When the private sector is reducing investment and firing workers, the government will have to play a major role to support the Indian economy. IMF had predicted that India’s GDP will grow from 4-4.5% in 2022 positive 6% in 2021 comparing the situation of India to the situation that occurred in 1918, Spanish flu that paused the entire world economy just like COVID. In 1918 India’s GDP reduced by nearly 30% within one year, increased by almost 20%. GDP plunges by record 23.9% in quarter one as India enters recession contraction worst among G20 nations.

The data released by the NSO National statistical office and not just one sector the entire economy presently lies in shambles. The industrial sector slumped 38.1% in April, May, and June is the deplorable condition of the economy that we are witnessing today. India has become one of the world's worst-performing economies and has witnessed a massive contraction of around 24% in the economy. COVID an 'Act of God' may result in contraction of economy says Nirmala Sitharaman. Since COVID has ravaged many countries, the performance of the economy remains pathetic. Early warning signals were given to India regarding the condition of GST, deteriorating government policies, profitable PSUs selling off, profit shrinking, and unemployment rising.

The GDP was already tumbling down since the last 8 quarters and now it has been dealt a blow by corona as well and fallen to the level of -24%. In comparison with other G 20 nations, UK's GDP rate has fallen to -20.4%, France contracted by about 13.8%, Italy by about 12.4%, Germany by 10%, Canada by -12%, and the US had shrunk by 9.5%.

The reasons predicted behind the maximum contraction of India were shutting everything down indiscriminately and indefinitely. Experts believe that India should have taken the example of mini Europe. The states should have been allowed to decide what area should be on lockdown in consonance with a federal spirit.

During the time of budget 2020, India was already witnessing the biggest shortage in tax in a decade. In July September 2019 India had already slept to a six-year low. In 2019 when NSSO data revealed that unemployment was at a 45-year high. The report had already shown that the employment was falling along with that manufacturing was falling in turn the signal that the Indian economy was floundering. Further, the figure of 2018 2019 India’s unemployment rate doubled the figure for last year. Farming income growth of slums to a 14 year low in October December 2018. PM Modi promised to double farmer's income by 2022. A deflation was already visible in a ruler economy 2016 onwards, top of that India lost 11 million jobs in the 2018 ruler area worst hit. GDP growth as it had crashed by more than 2% within the one-year Index of industrial production was growing at -4.3%. Consumer confidence had already fallen two and eight-year low even before the corona pandemic, business sentiments of taking a loan, setting up factories, advertising had dipped to the 2008 level.

Conclusions and Recommendations

India might not be getting back to the double-digit growth rate as there is no investment. Campaigns such as Made in India, Take in India, Build in India, and Atma Nirbhar Bharat have taken place for the betterment. Since the earlier investments have stopped, now the debts of the people are rising. When this Moratorium of EMI ends and banks begin to ask for their money back the economic crisis will aggravate in the next few years. NPAs are estimated to rise to 20 trillion from 10 trillion. The banking system will have a lot of pressure. There is the problem of shrewd politics. The world is aware that it is difficult to conduct business in India and another major reason is taxed terrorism. When a company invests billions of dollars in India, it would want to know what kind of country it is investing in and how the atmosphere there is not the air-quality the religious atmosphere is the reason why international investment is low in India. The prime reason why Make in India failed was that India never admits that the world is not investing. India is officially in the face of recession; the country is floundering and concentrate only on economic rebuilt until the nation will not improve.

RBI former Governor, Raghuram Rajan gave some solutions. Prioritizing government spending government should help by direct cash transfer by MGNREGA and gift the companies time to continue business and recovers. According to Mr. Rajan, this time can be used to develop the infrastructure it will have two benefits. Since construction is badly affected this can help people get a job there, cement and steel will be used and infra boost will help business in the future.

The government needs money, and it could be brought either by taking loans or by increasing revenue. To increase the funds India needs to import or export and take the help of the private sector to save small businesses. The government should urge cash-rich platforms like Amazon, Reliance, and Walmart to reduce receivables and pay small suppliers on time because they can afford it.