INDIA 'S FIFTY YEARS OF ECONOMIC DEVELOPMENT
By Abid Hussain - Extract from "India Perspectives" August 1997, with Kind Permission
When India gained its independence after a long period of subjugation, its land and people were a picture of distress, removed from great events of its past glory and splendour. A whole creative side of Indian civilisation had shrunk under the foreign rule. Common man, burdened by poverty, hunger and ignorance, had lost the will to exercise its productive might. Out of the dust, they had to be raised by men of great vision, like Gandhi and Nehru. In his memorable speech, delivered to the Constituent Assembly on 14th. August, 1947, Nehru said : "The future is not all of ease and resting, but of incessant striving…"
India was a stagnant economy at the time of independence. The economy was predominantly agrarian with little industrial development. Most people lived in villages, in hunger and despair. Bullock carts, wooden ploughs, spinning wheels and thatched huts - life made of small things, unimaginatively hard, dull and cruel. Agricultural growth was around 0.3% per annum in the first half of this century. The colonial government took little interest in the improvement of cultivation practices, except in the case of export crops like cotton, jute and tea. The railway system was built only for connecting the ports with the export production centres and the import markets; all other infrastructural facilities were lacking. Local enterprise was confined largely to trade and commerce, mainly in and around port cities like Bombay, Calcutta and Madras. A few industrial centres grew around these cities through private entrepreneurship. There had been an adverse impact on the artisan sector under British rule. The old crafts were left to languish and decay - ill prepared to modernise. Large factories, few in number, produced mainly consumer goods, like textiles and sugar. Intermediates like steel, cement and jute machinery were mostly imported. The extremely narrow base of industrialisation remained confined to a very few cities and states and was the monopoly of a few privileged families. The export strategy was not conducive to the country's interests. Exports were seen as a mechanism to transfer raw materials cheaply to the metropolitan cities in the United Kingdom, which, in turn, processed them into final goods for exporting back to the colonies.
Social indicators were equally poor; illiteracy was as high as 84%; public health services were inadequate to face even epidemics such as influenza, malaria and cholera. Some efforts were made by the state to prevent epidemics like malaria which continued to revisit again and again. The mortality rate remained high at around 27 per thousand in 1947. Children cried for milk but mothers could not feed them. Famines devastated human lives, adding to the interminable misery in a barren wasteland.
The first task of the Indian Government, in the immediate post-independence period, was to improve the material and human conditions of life by motivating rapid growth in a stagnant economy and to set the country on a path for higher growth with social justice. 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 public and private sectors co-exist.
India initiated planning for national economic development with the establishment of the Planning Commission, in 1950. The aim of the First Five Year Plan (1950-56) was to raise domestic savings for growth and help the economy resurrect itself from the twisted wreckage cause by colonial exploitation and the aftermath of Partition. The real break with the past in planning came with the Second Five Year Plan, celebrated as the Nehru-Mahalanobis Plan). The industrialisation strategy, articulated by Professor Mahalanobis, placed emphasis on the development of heavy industries and envisaged a dominant role for the public sector in the economy. The entrepreneurial role of the state was evoked to develop the industrial sector. Commanding heights of economy were entrusted to the public sector. In brief, the emphasis of the first three Five Year Plans, was on economic growth with marginal stress on institutional changes like land reforms. The objectives of industrial policy were :- a high growth rate, national self-reliance, reduction of foreign dominance, building up of indigenous capacity, encouraging small-scale industry, bringing about balanced regional development, prevention of concentration of economic power, reduction of income inequalities and control of the economy by the state.
During the Second Plan period, the emphasis was to build heavy industries which would lay down the basis of rapid industrialisation ("machines to build machines"). The planners and policy makers suggested the need for using a wide variety of instruments, licensing and other regulatory controls to steer Indian industrial development on a closed economic basis. The strategy underlying the first three Plans assumed that, once the growth process gets established, the institutional changes would ensure that benefits of growth would trickle down to the poor. But doubts were raised in the early 70's about the effectiveness of the "trickle down" approach and its ability to banish poverty. Further, the growth itself generated by the planned approach, remained too weak to create adequate surpluses - a prerequisite for the "trickle down" mechanism to work. Public sector did not live up to the expectations of generating surpluses to accelerate the pace of capital accumulation and help reduce inequality. Agricultural growth remained constrained by perverse institutional conditions. Unchecked population explosion made the twin historic tasks of industry more difficult. Though the growth achieved in the three Five Year Plans was not insignificant, yet, it was not sufficient to meet the aims and objectives of development. A diversified industrial structure was established. Professional, managerial and technical manpower and skills were created. Similarly, in the field of agriculture, land under cultivation and irrigation increased, but their impact on economic growth and human development remained marginal. These brought into view the weakness of economic strategy. A shift of policy was called for. The country had also witnessed calamities of nature, war and oil-shocks.
Continuing the Fourth Plan's targeted programmes, the Fifth Plan ( 1974-79) corrected its course by initiating a programme emphasising growth and distribution. To accelerate the process of production and to align it with contemporary realities, a mild version of economic liberalization was started in the mid-1980's. Three important committees were set up in the early 1980's… - (1) Narimham Committee on the shift from physical to fiscal controls… (2) Sen Gupta Committee on the public sector and the… (3) Hussain Committee on trade policy. The Committees recommended a shift from physical controls to fiscal controls, promotion of greater public sector autonomy and more freedom to business and financial institutions. The result of such thinking was to reorient our economic policies. As a result, there was some progress in the process of deregulation during the 1980's. Two kinds of delicensing activity took place. First, 32 groups of industries were delicensed without any investment limit. Second, in 1988, all industries were exempted from licensing except for a specific negative list of 26 industries. Entry into the industrial sector was made easier but exit still remained closed and sealed.
The Eighth Five Year Plan (1992-97), was launched against the backdrop of a balance of payments crisis, leading to the debt trap experienced in 1991. The crisis led to a second rethinking about our economic strategies and far reaching changes were effected. India launched a major programme of economic liberalization (stabilization and structural adjustment) in July 1991, under the able stewardship of Dr. Manmohan Singh, the Finance Minister in Narasimha Rao's Government. Trade and exchange controls were further liberalized and structural adjustments were carried out in the industrial sector through delicensing and accompanying measures. The reforms, as they emerged, gave primacy to employment-related growth as a means of providing credible solutions to the problem of mass poverty, an expanded role to the private sector, both domestic and foreign, import liberalization, disinvestment in public enterprises, increased public investment in agriculture, physical infrastructure and social sector These reforms also led to reduction in fiscal deficits, control of inflation, and reform of the tax system to encourage efficiency and productivity through constant technological upgrading and determined improvements in capital output ration. During the Eighth Plan, efforts were also made toward towards decentralisation through the 73rd and 74th Amendments of the Constitution, identifying "human development" as its focus.
The Ninth Five Year Plan (1997-2002) is now being launched in the 50th. year of India's independence with an ambition to achieve 7% - 8% rate of economic growth. The Ninth Plan, without minimising the value of industrialisation, gives priority to agriculture and rural development, provision of basic minimum services, creation of productive employment, empowerment of women and other weaker sections, promotion of Panchayati Raj Institutions etc.. The performance of India's economic plans speak of both our success and certain setbacks and reveals the extent to which we plug the gaps in our development. The long term growth rate of Gross Domestic Product (GDP) during the period 1950-51 to 1994-95 was around 3.8% per annum while population increased at the rate of 2%.
The turn around in growth rates for macro aggregates started in the 1980's and continues in the 1990's. During the period 1980-95, GDP growth was more than 5% per annum. Regarding the period of economic reforms, after showing negative growth in the first year of the reform period (1991-92), GDP growth recovered in 1992-93. The GDP growth has been around 7% since 1994-95. Thus, the Eighth Plan is likely to end with an average growth rate of 6.5% per annum. More important for the future is the fact that the average growth during the last three years is 7 %, probably placing India among the top ten performers in the world during this period. The economy seems to be on a new path of higher growth.
India's 50 years of Economic Development - CONTINUED:- The importance of agriculture in the Indian economy is well known. There appears to be a general consensus that agricultural policies have an economic-wide impact and that there is a direct correlation between Indian Agricultural Performance and the standards of living of a majority of our population. In terms of growth, the performance of agriculture has been quite impressive in the post-independence period (a long-term growth on 2.7 % growth per annum) as compared with the pre-independence period (0.3% per annum) An important feature of the 1980's and the 1990's, however, is that there has been much more equitable spread of agricultural growth. Not having done well during the early years of the Green Revolution, many of the states like Assam, Bihar, Orissa, Madhya Pradesh and West Bengal, showed significant growth in the 1980's. Oilseeds have also gained in the dry belt of Rajasthan, Madhya Pradesh, Karnataka and Maharashtra. Thus, there seems to be a reduction in regional disparities in output growth during the 1980's and 1990's. The Ninth Five Year Plan projects to achieve 4.5 % growth in agriculture.
India is considered as the tenth industrially developed nation in the world. The share of industry in overall GDP, has increased substantially since independence, from 15% to 28% in recent years. The long-term growth rate of the GDP in the secondary sector, and GDP in the manufacturing sector during the period 1950 -51 to 1994-95, has been around 5% per annum . In the first 15 year period after independence - 1950-65 - the growth-rate of manufacturing was around 6.5 %, after which it became somewhat sluggish. The "turn-around" in industrial growth seems to have started in the 1980's. In the Seventh Plan, the growth-rate was around 8.5 %. Since 1993-94, the industrial growth seems to have recovered. In 1993-94, 94-95, and 95-96, the industrial growth has been 6, 9.4 and 12% respectively.
The composition of industry since independence has undergone significant transformation. A very diversified industrial base has been created , At the time of independence, the consumer goods industry accounted for almost half of all industrial production. Now, consumer goods industry accounts for only about 20%. On the other hand, capital goods, which constituted less than 4%, now account for around 24% of the industrial production. Similarly, the share of basic goods industries, increased from around 20% in 1950-51, to almost 40%now. From hardware to software; from potato chips to microchips, is the spread of production. A national consensus exists that we should raise our rate of industrial growth and quality of industrial products through intense technological upgrading and competition between firms within and outside.
The small-scale sector is an important component of the industrial sector. The government has given protection to the small scale industry and a number of advantages were given to this sector, including reservation of a large number of products. The small sector now contributes over 40% of the gross turnover in the manufacturing sector, 45% of manufacturing exports and 34% of total exports and provides employment for 15. 3 million workers. However, it is now felt that reservations for a small scale sector should be abolished completely, so as to encourage other sectors of industry. (With Thanks to "India Perspectives" August. 1997)
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