IIM TRICHY PGP 2013-15

INDIAS GROWTH
HISTORY
ESSAY SUBMISSION -2
Sandeep Bodanapu
ROLL NO: 1301090,
SECTION-B

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INDIAS GROWTH STORY

Considering the trend between 1900 and 1950, % annual GDP growth was 1.18
% a year. Population in the country also grew at the same rate of 1.2 % nullifying
the GDP growth. The net growth in income percapita was nil and we rightly called
our colonial economy stagnant. However, after Independence, the economy
picked up to 3.5 % between 1950 and 1980 with the population rising to 2.2
percent. The resulting percapita income was 1.3 % which was called as the
Hindu rate of growth
Things began to change in the early
1980s when annual economic growth
rose to 5.6 percent. The trend
continued in the 2000s when it
touched the 6 percent mark. The
population of the country slowed
down to 1.6 percent and thus the
percapita income rose by 4.4 percent
a year. If Indias pre-1980s GDP level
continued, India would have reached
the America percapita income levels
by 2250. If the post-1980 level
continues it may reach earlier than
2065: a gain of 184 years.

Pre-Independence era
India was a leading manufacturing
country in the early 18th century with
22% of worlds
GDP which came to 16% by 1820. Even with enormous financial surplus, a skilled
artisan class, large exports, plenty of arable land and reasonable productivity,
Indias growth did not continue. The main reason behind this failure was that
India was significantly behind Western Europe in technology, institutions and
ideas. Neither an agricultural revolution, nor a scientific revolution had occurred,
and in the long run the manual skill of the Indian artisan was no substitute for
technological progress.
The blame of first fifty years stagnation of the economy is on the British
colonialism. However, there are other reasons which attribute to the same. The
world economy was stagnant in the first half of the 20th century (especially after
World War I) when world per capita GDP grew annually at just under one percent.
Disgraceful protectionism by most governments between the Wars slowed both
the world and the Indian economy. Indian businessmen made large profits during
the First World War, which they reinvested in after the war. Thus, India's
manufacturing output grew 5.6 percent per year between 1913-38, well above

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the world average of 3.3 percent. The British government finally provided tariff
protection from the 1920s, which helped industrialists to expand and diversify.
By Independence in 1947, Indian entrepreneurs were strong and in a position to
buy out the businesses of the departing British. Industry's share in India's GNP
had doubled from 3.8 percent (in 1913) to 7.5 percent (in 1947), and the share of
manufactures in her exports rose from 22.4 percent (in 1913) to 30 percent (in
1947).

Industrys share in Indias GNP

Year
1913

Indias GNP/world
GNP
3.8 %

1947

7.5 %

Post-Independence era
Right after independence, Indias confidence grew with the birth of a new
country especially as democracy took root. Although the Indian economy picked
after 1950s, it performed below the world economy. It did not benefit from global
trade expansion because it had closed its economy and pursued 'import
substitution'. Moreover, Nehru's socialism had shackled the economy with fierce
controls on the private sector, widely called 'Licence Raj'; hence its annual GDP
growth was 1.5 percentage points below even the Third World average between
1950 and 1980. Industrial growth plunged from 7.7 per cent a year between
1951-1965 to 4.0 per cent between 1966 and 1980. Productivity of Indian
manufacturing declined half a percent a year from 1960 to 1985. This period was
the dark period for the Indian economy.

Indias economic reform

Indias economic performance post 1991, just after the balance of payment crisis
has many positive features. The average growth rate in the ten year period from
1992-93 to 2001-02 was around 6 percent. Though this was only slightly better
than 5.7 percent which is the annual average growth rate in the 1980s, this was
sustainable unlike the growth rate in 1980s. India remained among the fastest
growing developing countries as other developing countries slowed down due to
the East Asian crisis.

Contribution to GDP post 1991 by industry

Year

Industry

contribution

1990-91

Agriculture

32 %

Services

41

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2005-06

2007-08

Manufacturing

27

Agriculture

20

Services

54

Manufacturing

26

Agriculture

17

Services

54

Manufacturing

29

As seen from the above table, the share of agriculture has significantly dropped
from 32 % in 1990-91 to 17 % in 2007-08. Rapid industrialisation and
urbanisation, IT boom, lacking of incentives for farmers were among the main
reasons. Nevertheless, Information Technology has soared rapidly in the country
with IBM being the first MNC to enter Indian market. Other IT service companies
like TCS, Wipro, and Infosys had contributed largely to the development of
services industry in the country. N.R.Narayana Murthy, co-founder of Infosys is
considered to be the father of Indian IT services.
Many Indian companies like Reliance, Jet Airways, Ranbaxy, Bharat Forge,
Tata Motors, ICICI, HDFC etc emerged earning global recognition. 125 fortune 500
companies made R&D bases in India. 80% of the credit was give, n to the private
sector making it highly employed and highly relied industry.
The key reforms by the government post 1991 are

Opened economy to trade and investment

Dismantled controls
Lowered tariffs
Dropped tax rates
Broke public sector monopolies

With the current pace, Indias GDP growth rate is expected to record an average
of 9.2 % during financial years 2011-2020 (9247 billion USD)

References

Indian Economic liberalisation story- An audit from a Liberal

Perspective presented by Adult Education Institute- May,2012
India: How it became rich and poor and will be rich again
presented by Gurcharan Das, March, 2007
http://en.wikipedia.org/wiki/Economic_liberalisation_in_India

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