Durairaj Kumarasamy

The socialist and democratic India pursued a mixed economy model with rapid industrialization and self-reliance to reduce India’s dependence on imports and encourage domestic production through key industries controlled by the public sector and the private sector was regulated by the state. With trade barriers and rigid license raj, India restricts trade and discourages private firm expansion, and also lured inefficient and loss-making public enterprises. 

Besides, India’s planning commission which was established in 1950 has introduced a five-year plan to allocate resources and the implementation of centralized economic and social growth programs. The post-independent India was predominantly dominated by the agricultural sector, which supported the livelihood of more than half the population. The green revolution during the 1960s significantly contributed to the growth of the agricultural sector in terms of increasing productivity and a multi-fold rise in food grain production leading to be largest producers of rice, wheat, and various agricultural products to date. Adding to that, the white revolution has made the nation the world’s largest producer of milk and milk-based products as well.

In terms of industrialization, it was a moderate success. The initial strategy of economic development focused on consolidating and reallocating the resources to public enterprises such as heavy industries, steel, chemicals, and capital goods leading to cost overruns, besides, nationalized several sectors, including banking, life insurance, general insurance, and mining. The series of five-year plans for the first four decades have mixed responses to economic development due to inward-looking and protectionist policies. In addition, India has experienced several economic crises, such as the balance of payments crisis (1958), the oil shocks (1973 and 1979), droughts (1965–1966 and 1979–1980), and the fiscal deficit crisis (1991), all of which contributed to an average annual economic growth of 3.5 percent (also popularly known as the "Hind rate of growth").

Further, the collapse of the Soviet Union and the surge in oil prices triggered by the Gulf Warin 1990 resulted in a major balance of payments crisis for India, with barely holding US$ 1.32billion of foreign exchange reserves sufficient to support two weeks of oil imports, which found itself facing the prospect of defaulting on its loans.

India had asked for a US$ 1.8 billion bailout loan from the International Monetary Fund (IMF), which demanded de-regulation in return. Early 1990s India needed to correct its faulty development process with the introduction of a New Economic policy in 1991 to liberalize the economy from unnecessary control and restrictions, to improve the efficiency of public sector enterprises through privatization. The policy also opened up the world through globalization, which together attained remarkable growth in the post-liberalization era.

The Industrial Policy of 1991 constituted a major economic reform and was introduced to reinvigorate the industrial sector.  The policy dismantled the system of industrial licensing and opened the sector for greater private-sector participation. The reforms included devaluing the rupee, reducing tariffs and subsidies, opening up sectors to foreign investment and competition, privatizing public enterprises, deregulating markets, and simplifying taxes. India’s peak import duties which were among the highest in the world before 1991 were gradually brought down by opening the economy and made remarkable progress in a change in export composition from primary goods to more sophisticated goods including manufacturing goods such as engineering goods, petroleum products, chemicals and allied products, gems and jewellery, textiles, electronic goods, etc.

The reforms brought a period of rapid economic growth for India, with average economic growth of about 6.5 percent from 1992 to 2020. India has gained significantly in the automotive sector, pharmaceuticals, engineering, and electrical machinery goods.  In terms of the service sector, new sectors such as information technology and telecommunications have transformed the landscape and created new avenues of employment, e-commerce, BPOs, start-ups, and economic growth opportunities.

India’s welfare policy has been aimed at providing social security and protection to its vulnerable and marginalized sections of society. To offer its poor and needy population access to food security, health care, education, housing, employment guarantees, pensions, insurance, and subsidies, India has created several programs and initiatives. For instance, the National Food Security Act (NFSA), provides subsidized food grains to about two-thirds of India’s population. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) provides 100 days of guaranteed wage employment in a year to every rural household willing to do unskilled manual work. The Pradhan Mantri Jan Dhan Yojana (PMJDY) provides universal access to banking services for all households. The Pradhan Mantri Ujjwala Yojana (PMUY), provides free LPG connections to poor women. The Pradhan Mantri Awas Yojana (PMAY), aims to provide affordable housing for all by 2022. The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) provides health insurance coverage of up to Rs. 5 lakh per family per year for secondary and tertiary care hospitalization for over 10 crore poor and vulnerable families among others.

India has adopted various measures to promote employment generation and skill development in its economy. The Make in India project seeks to make India a hub for global manufacturing by luring in capital, new ideas, and best practices. By 2022, the Skill India project trained over 40 crore individuals in various disciplines. The Startup India project sought to promote innovation and entrepreneurship by offering tax benefits, financial assistance, and ease of doing business.

The Atmanirbhar Bharat Abhiyan (Self-reliant India Campaign), aims to boost domestic production and consumption by providing stimulus packages, policy reforms, and infrastructure development. Besides, to enhance the global value chain integration, Production Linked Incentives (PLI)were introduced to foster building domestic capabilities with its investment incentives, make it a pertinent part of the global supply chain, and promote India’s export by incentivizing domestic and foreign manufacturers in the 14 key sectors.

India’s economic policy has had both successes and failures over the years. Achieving political stability and democracy despite being a diverse and complex country, India has significantly uplifted the people from below the poverty line, increased life expectancy, raise in gross enrolment ratio, and developed a strong scientific and technological base with achievements such as launching satellites, sending missions to the Moon and Mars, developing nuclear weapons, and producing generic drugs, enhanced its cultural diversity and soft power with its rich heritage of art, literature, music, cinema, cuisine, and spirituality.

However, India still has a long way to go to achieve inclusive and sustainable growth to address its persistent social problems. Indicators of human development like health, education, gender equality, sanitization, and environmental quality still place India poorly. Increasing inequality, controlling fiscal deficit, inflation, unemployment, rapid expansion in urban and rural developmental divide, bottlenecks in infrastructure and usage of financial services, lack of raising concerns in energy security, and climate change are some of the challenges India is contended with in the present world.

India is continuing the reform process through the landmark Goods and Services Tax, the Insolvency and Bankruptcy Code, the Ease of Doing Business reforms, the Make in India initiative, and the Atmanirbhar Bharat Abhiyan to make India a manufacturing hub. All these policy reforms are expected to contribute to sustainable and inclusive economic growth.

India holds several opportunities that have the potential to become a global economic power in the coming future. For instance, in terms of demographic dividend, India has a large and young population (1.3 billion people with a median age of 28 years), and their entrepreneurial spirit and innovation potential (the third largest startup ecosystem in the world), cultural diversity and strong base in soft power (the world’s largest film industry and a vibrant civil society), growing geopolitical influence (diplomatic presence), and long historical and civilizational values (a rich heritage of democracy, pluralism, and tolerance).

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With the completion of 77 years of independence and having the wisdom of managing international relations through its soft-power diplomacy, India can be the global power center and lead the integration process to promote peace and prosperity across the region. Independent India has brought dreams of economic, social, and political freedom for the Individual.  Our aims and aspirations have raised several folds in the last 77 years, as India is soon to reach the vision of a US$ 5 trillion club.

The author is Associate Professor and HOD, Economics, School of Behavioural and Social Sciences, Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad