Growth and Development of Indian Economy
The post Independence development experience of India has always excited much interest, not least because, while India is one of the poorest countries in the world in terms of per capita income, it is also the world’s largest liberal democracy. Furthermore, it has managed to retain this political system, however inadequate and flawed, while many democratic experiments in other countries have foundered and occasionally collapsed. This raises the obvious question: to what extent has this influenced the nature of social policy in India? Have the pressures on the state that result from democratic functioning meant greater attention to particular types of social policy, and which social groups or classes have they benefited? Why has democracy itself not resulted in greater attention to the provision of basic goods and minimally acceptable levels of public services for all citizens? These issues are further complicated by the fact that India has not only a system of liberal democracy but also a federal polity, in which a substantial number of the concerns which are particularly important from the perspective of social policy (land reforms, education, health, rural infrastructure) are either specifically “state government subjects” or are concurrently under both state and central governments. This in turn means that the different political groupings in different state governments can have significant implications for both social policy and its effects. This partly explains why there is so much regional variation in terms of major demographic, economic and social variables across states. There is a further dynamic as well, in that certain types of social policy, as discussed above, have ripple and process effects which affect the various classes in society directly, but also determined their desire and appetite for further public intervention. This point is elaborated below, when the specific experience of some states is considered. But first it is necessary to provide a brief review of the development experience in general. At the time of Independence from colonial rule in the mid twentieth century, there was broad social consensus in India on the role of the state as a crucial player in the development process. State led capitalism and state intervention in various ways were seen as essential instruments for the development of a relatively autonomous Indian capitalism, displacing metropolitan capital from the pre-eminent position it had occupied in the colonial economy. The economic policy regime that was erected in the 1950s had its roots in the nationalist freedom struggle, which emphasised that freedom meant freedom not only from political control, but also from external economic domination. It was felt that this could not be ensured without giving the state in independent India a major role in building up infrastructure, expanding and strengthening the productive base of the economy, setting up new financial institutions and regulating and coordinating economic activity. This was recognised to be necessary for building capitalism itself, though some no doubt entertained the fond hope that all this would add up to an eventual transition to socialism.
For the first two decades after Independence, this strategy did pay dividends in terms of economic growth. Rates of industrial growth were creditable by international standards, the country built up a diversified industrial base, and the public sector expanded rapidly. As a consequence, public economic activity was able to continue to provide crucial infrastructure services, industrial raw materials and capital goods to sustain industrial growth even when the foreign exchange available to import these commodities was limited. However, because this strategy did not involve a widening of the mass market in any significant way, it proved to be unsustainable beyond a point. By the mid-1960s, the once-for-all stimulus offered by import substitution was exhausted. Further, the ability of the state to continue to serve as the engine of growth through its own expenditure was undermined by its inability to raise adequate resources through taxation and other means. This reflected not only the state.s inability to discipline the domestic elites in a manner necessary for rapid industrialisation, but also the fact that this lack of discipline involved explicit and implicit subsidisation of private investor.s activities. The consequence of this was that by the late 1960s, aggregate growth decelerated. The growth revival of the 1980s was once again based on increasing state expenditure, this time relying on the rapid (and ultimately unviable) accumulation of public external debt and on an import boom, which allowed the consumerist aspirations of the growing middle class to be at least partially satisfied. This process, in turn, was halted by the balance payments crisis of 1990 91, which heralded the onset of a more systematic programme of neoliberal economic programme, involving wide-ranging deregulation, liberalisation of many activities and reduction of overt state involvement in a number of crucial economic areas. Over the 1990s, the Indian economy experienced rates of growth averaging between 5 and 6 per cent, and very substantial increases in income accruing to a small minority of the population, which have fuelled the increases in market demand. Essentially the last two decades of the 20th century marked the emergence of a slightly different macroeconomic strategy, which was openly based on the demand stimulus emanating from certain sections of capital and what could be called a “labour aristocracy” comprising middle class professional groups and more skilled workers. While this demand was necessarily highly import intensive, the very fact that it could be fulfilled because of the combination of deregulation and import liberalisation meant a short-lived boom in certain consumer goods sectors. However, by the turn of the decade (and the century) it was already evident that the limits to this type of expansion also had been exhausted, and the growth process decelerated once again. The economies of South Asia – and especially India – are often portrayed in comparative discussion as among the “success stories” of the developing world in the period since the early 1990s. The sense that the Indian economy performed relatively well during this period may simply reflect the much more depressing or chaotic experiences in the rest of the developing world, with the spectacular financial crises in several of the most important and hitherto dynamic late industrialisers in East Asia and Latin America, and the continuing stagnation or even decline in much of the rest of the South. Compared to this, the Indian economy was largely stable and was also spared the type of extreme crisis that became almost a typical feature of emerging markets elsewhere. But the picture of improved performance is a misleading one at many levels, since in fact the Indian economy experienced economic growth that was actually less impressive what was achieved in the preceding decade. Further, the growth process was characterised by low employment generation, greater income inequality and the persistence of poverty. In other words, despite some very apparent successes in certain sectors or pockets, on the whole the process of global economic integration did little to cause a dramatic improvement in the material conditions of most of the population, and added to the greater vulnerability and insecurity of the economies in the region. Thus, the rate of growth of aggregate GDP in constant prices was between 5.5 per cent and 5.8 per cent in each five-year period since 1980, and the process of accelerated liberalisation of trade and capital markets did not lead to any change from this overall pattern. Further, while investment ratios increased slightly (as share of GDP) this reflected the long-term secular trend, and in fact the rate of increase decelerated compared to earlier periods. More significantly, the period since 1990 was marked by very low rates of employment generation. Rural employment in the period 1993-94 to 1999-2000 grew at the very low annual rate of less than 0.6 per cent per annum, lower than any previous period in post-Independence history, and well below (only one-third) the rate of growth of rural population. Urban employment growth, at 2.3 per cent per annum, was also well below that of earlier periods, and employment in the formal sector stagnated. Other indicators point to disturbing changes in patterns of consumption. Thus, per capita food grain consumption declined from 476 grams per day in 1990 to only 418 grams per day in 2001. The National Sample Survey data also suggest that even aggregate calorific consumption per capita declined from just over 2200 calories per day in 1987-88 to around 2150 in 1999-2000. Given the aggregate growth rates and the evidence of improved lifestyles among a minority, this points to substantially worsening income distribution, which is also confirmed by the survey data. While the evidence on poverty has been muddied by changes in the procedure of data collection, which have made the recent survey data non-comparable with earlier estimates, overall indicators suggest that while the incidence of head-count poverty had been declining from the mid –1970s to 1990, subsequently that decline has been slowed or halted. Meanwhile, declining capital expenditure by the government has been associated with more infrastructure bottlenecks and worsening provision of basic public services. The major positive feature which is frequently cited, that of the overall stability of the growth process compared to the boom-and-bust cycles in other emerging markets, reflects the relatively limited extent of capital account liberalisation over much of the period, and the fact that the Indian economy was never really chosen as a favourite of international financial markets over this period. In other words, because it did not receive large inflows of speculative capital, it did not suffer from large outflows either. Meanwhile, stability to the balance of payments was imparted by the substantial inflows of workers’ remittances from temporary migrant workers in the Gulf and other regions. The less than satisfactory performance during the decade of economic liberalisation was not just the result of the nature of integration with the global economy. It also reflected the continuing contradictions in Indian political economy that have been so crucial in inhibiting economic growth and reducing the wider spread of its benefits across all the citizenry, over most of the second half of the 20th century. There were at least four such mutually reinforcing and interrelated political economy contradictions.
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