Indian Economy
Indian Economy

Indian Economy on the Eve of Independence

Features of Indian Economy on the Eve of Independence and Challenges:

Table for Indian Economy Features

ECONOMIC POLICY: (BEFORE 1990) FEATURESECONOMIC POLICY: (1990-TODAY) FEATURES
Indicative Planning Indicative Planning
Import Substitution Export Promotion
Heavy Industry Strategy Balanced Growth
Supply side model Demand based growth
Financial Markets Resource Mobilization

1) Low per capita income and vicious cycle of poverty

2) Lack of incentives for investments

3) Rural nature of Indian Economy/Agrarian

  • High illiteracy
  • High Mortality
  • High MMR/MR OMR etc.
  • Lack of Public Health & nutrition available
  • High disguised unemployment

4) Poor agriculture productivity

  • India’s per capita income food availability declined(1900-1950)

5) Incompetent and small industrial sector

6) Lack of Infrastructure

7) Dependence on import for industrial products

CHALLENGES:

  • Attain high growth in per capita income despite poor human capital.
  • Reduced dependence upon imports
  • Increase agricultural infrastructure and productivity
  • Provide healthcare facilities.
  • Grow industrial sector and generate employment etc.

POLICY CHOICE DILEMMAS

1) Bombay Plan (Pvt Sector & Academicians)

2) People’s Plan (MN Roy & CPN)

3) National Planning Committee (Nehru)

These bodies debated whether opt for communism or capitalism.

  • Communism was successful recently in USSR in achieving high growth, however it was a product of revolution whereas India’s independence movement based on evolution.
  • For a democracy communist economic model was not suitable.
  • Capitalism was great choice for understanding. But recent experience of great depression meant that capitalism was prone to crisis.
  • India opted for mixed economy with state dominance success of Keynesian showed that presence of government i.e. goods.

IMPORT SUBSTITUTION VS EXPORT PROMOTION:

To reduce dependence on Imports

  1. Depression Experience
  2. Imperialism through Trade
  3. Self-reliance
  4. Terms of trade not in favour of India

Import Substitution emerged.

AGRICULTURAL GROWTH ON INDUSTRIALIZATION:

  1. Agriculture has Decreasing Returns to scale whereas industry may have Increasing Returns to scale.
  2. Need for self-sufficiency in Industrial Products.
  3. Experience of USSR & industrial revolution in Western World
  4. Agricultural Land reforms were done but didn’t spend enough money.
RETURNS TO SCALE/FACTORS:  
Decreasing Returns to scale(DRS) – Output increases less w.r.t. inputIncreasing Returns to scale (IRS) – Output increases more w.r.t. inputConstant Returns to Scale (CRS) – Output=Input.

           DEMAND SIDE VS SUPPLY SIDE:

  1. Savings was low
  2. Resource mobilization through Budgetary Process.

These phenomena and challenges lead to various strategies and plans that lead to the New India. It is divided into various phases of Indian Economy as follows:

PHASES OF ECONOMIC GROWTH IN INDIA:

  • Central Planning with Mixed Economy.
  • Import Substitution/Close Economy
  • Supply side Economy
  • Rapid Industrialization (Big Push Theory)

PHASE -I (1950-1965) – Nehruvian Era

PHASE-II (1968-1980) – Command Economy

PHASE-III (1980-1990) – Phase of gradual Reforms

PHASE-IV (1990-1998) – 1st Generation reforms

PHASE-V (1998-2008) – 2nd Generation reforms

PHASE-VI (2008-Present) – 3rd Generation reforms

We will discuss these phases further in details in coming article. Indian Economy | Development Phases

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