Indian economy’s tryst with destiny has been nothing short of awe-inspiring. Abject poverty, severe food shortage, a lack of industries and a flood of other socio-economic problems were too much for the young nation to tackle. But India prevailed, and from a basket case, it has transformed rather dramatically to become the sixth-largest and fastest-growing economy of the world.   

Like most other countries at that time, India too adopted a mixed economy – an economic system combining the State and private enterprise – with the USSR model of economic planning. The State assumed a greater role by entering many sectors, such as heavy industries, mining, civil aviation, transport and communication and so on.

The first Five-Year Plan, launched in 1951, aptly focused on agriculture and irrigation to boost farm output. The second Five-Year Plan and the Industrial Policy Resolution, 1956 laid the foundation for the mixed economy and led to formation of public sector undertakings (PSUs) or State-owned companies. This industrial policy heralded the infamous Licence-Quota Raj, where the government would issue a licence to the private sector to run particular industries and dictate the amount of production through the quotas.

The second Plan provided huge impetus to the industrialisation of India. Steel Authority of India (SAIL), a vital PSU, set up large steel plants in Rourkela, Bhilai and Durgapur in technical collaboration with Germany, Russia (then the USSR) and the UK respectively. Large, multipurpose dams in Bhakra (Himachal Pradesh) and Nangal (Punjab), among others, were constructed to irrigate farms and produce electricity. A new India was born, and India’s first Prime Minister Jawaharlal Nehru called these dams and industries “the temples of modern India”.

A Giant Leap

Parameter                   1947                                       FY22

GDP                              Rs 2,70,000 crore                  Rs 147,36,000 crore

Per capita income        Rs 249.60                               Rs 91,481 

Forex reserves              $2.161 billion                        $580.252 billion

Roads                            0.4 million km                       6.5 million km

Railway                         5,493 km                                99,235 km

Installed power            1,362 mw                               3,95,000 mw

Food production          54.92 mt                                 314.51 mt

Deepening socialism

The young nation was soon engulfed in several crises. India’s borders were threatened, and the country had to engage in wars with China in 1962 and with Pakistan in 1947-48, 1965 and 1971. These wars further aggravated the country’s food shortage crisis. The country was literally living from ship to mouth with wheat imports from the US.

Lal Bahadur Shastri, who had succeeded Mr Nehru as prime minister, turned his focus on agriculture. The government worked with M S Swaminathan and other agricultural scientists, and along with American agronomist Norman Borlaug, developed high-yield variety of wheat seeds in the mid-1960s. This set off the Green Revolution, and India soon became self-sufficient in foodgrains. The Green Revolution was followed by the White Revolution or the Operation Flood, helmed by Verghese Kurien, making India the largest milk producer in the world.

In the late 1960s, the Indian economy took a definitive left turn with Prime Minister Indira Gandhi nationalising banking and insurance sectors. Initially, the nationalisation did serve the purpose of accelerating bank lending to agriculture and small enterprises. But gradually, a substantial part of lending began to be influenced by political considerations, leading to large-scale growth of crony capitalism.

It is a matter of debate whether India’s choice of adopting mixed economy soon after independence led to decades of lost growth. However, Mr Nehru and his government cannot be blamed for leading the country on the path of mixed economy. Most countries of the world – except, of course, the US – had opted for mixed economy during that period. A major drawback with the Indian economy was that it stuck on to the mixed-economy model for a very long time even as most of the world – including the Communist China – around it changed rather rapidly.

A paradigm shift

The economic liberalisation of 1991 set India on a new path of rapid growth. But a lesser-known fact is that the country had gradually begun gravitating towards economic reforms from the 1980s. Rajiv Gandhi, who became the prime minister after Mrs Gandhi’s assassination in 1984, brought hopes and reforms to a nation creaking under the burden of socialism. He roped in technocrat Sam Pitroda and unleashed a telecom revolution with setting up of public call offices (PCOs) across the country. Besides, he gave a big push to automation and computerisation and set the stage for India’s foray into information technology.

In 1990, India was passing through one of its darkest phases. Mr Gandhi had been killed in a suicide bomb attack, and the Congress Party returned to power short of majority. The country was going through one of the worst economic crises with severe shortage of foreign exchange reserves, leading to a balance of payment crisis. The country had to pledge gold with other central banks several times to secure loan to pay for exports. Finally, India had to bite the bullet and unveil a set of reforms to receive a bailout package from the International Monetary Fund (IMF).   

In 1991, then Prime Minister P V Narasimha Rao and Finance Minister Manmohan Singh launched a raft of economic reforms, including dismantling the Licence Raj and drastically slashing Customs Duty on a number of goods. These measures, termed economic liberalisation, unshackled India from its socialist fetters and set the country on a new path of amazing economic growth. Many sectors, some of which were under government monopoly, were thrown open to private and foreign investors. Breathtaking changes across automobile, telecom, banking and finance, civil aviation, retail and other sectors – brought about by competition – spurred job creation and multiplied economic growth.

A heartening feature of Indian reforms is the unflinching support that it has got from across the political spectrum. Governments headed by various political and ideological hues have each contributed immensely in reforming and transforming India. The current dispensation under Prime Minister Narendra Modi has vigorously brought about some structural changes in the economy with the Insolvency and Bankruptcy Code, 2016 – which aims to restructure and resolve bankrupt companies and tackle mounting non-performing assets – and the Goods and Services Tax – which has eliminated multiple, cascading taxes and unified the country under a single levy.

India and the world face new challenges as they emerge from the shadows of COVID-19. India is now witnessing a worrying, unequal growth, with the organised sector thriving. However, the unorganised sector, which accounts for almost half of the economy, is facing severe distress. Moreover, rising inflation, inequality and unemployment threaten to push the economy into turmoil. A new set of reforms – especially aimed at the informal sector, agriculture, small enterprises and deprived sections of society – can help bring the India story back to the centrestage.