This study of economic development in India is an attempt to assess its prospects in the future and an analysis of its past trajectory since 1950. It is rich in statistical analysis, structural modeling, theoretically sound approach, and thorough descriptive detail. Economic growth in India has been an unprecedented historical performance that has generated remarkable social and political changes that have affected generations of Indians. Economic growth was a crucial ingredient in building the post-war Indian society and the enormous contribution made by ordinary citizens in realizing economic growth.
Economic growth was an outcome of state policies that were implemented during the early years of independent India. Growth occurred with diffusion of economic policies in different regions of India, resulting in the establishment of market-oriented and price-based regulation in different sectors. The policy makers deliberately attempted to promote economic growth by restructuring the economy, reducing farm liabilities, liberalizing licensing laws, privatizing state owned enterprises, and opening up financial institutions. The policy makers also hoped to create more jobs by introducing fiscal policy stimulus package, liberalizing import and export controls, reducing the presence of trade barriers, liberalizing licensing regimes, and promoting infrastructure development and construction projects.
The history of economic development in India can be divided into two sections, pre-Independence period and post-Independence period. The period of pre-Independence economic growth witnessed major changes in industrial production and capital stock, but the scale of implementation was limited. Industrialization spanned the entire length of British rule in India, but the post-Independence period witnessed the introduction of a number of important policies to accelerate economic growth. Major changes were observed in various economic policies including creation of a national stock exchange, central planning for retail price level fixations, opening up of banks, liberalization of real estate policies, liberalization of pharmaceuticals, and liberalization of education. Other significant policies such as monetizing the internal trade data, establishment of the Indian Bank, increase in value of the currency, the creation of an IT sector, and the introduction of a unified rural currency were also implemented.
The post-Independence period witnessed further enhancements in the macro-economic policy framework, which were aimed at the gradual improvement of living standards, liberalization of foreign trade, liberalization of internal trade, and accelerated growth of the economy. There was rapid growth in all sectors, but some sectors saw greater boost in economic activity than others, as per the policy frameworks formulated by the government. For instance, the manufacturing sector experienced an unprecedented boom in the decades following the formation of the Republic. Several important policy measures were introduced to upgrade the industrial conditions in the manufacturing sector such as increase in value of exportable goods, rationalization of over-valuation of assets, and encouragement of industrial expansion.
Economic growth was further enhanced through liberalization policies. The major policy initiatives such as liberalization of the internal trade and liberalization of foreign trade were accompanied by subsidies and protectionist measures. Simultaneously, import and export duties were minimized to facilitate economic growth. Realization of the policy initiatives and the resulting liberalization policies resulted in widening the base of the Indian economy. Reforms and additions to the legislation and policies resulted in better utilization of the external assistance from abroad, encouraging higher investment, and liberalizing the system of micro-enterprise.
Tariffs and subsidies were liberalized in different sectors of the economy. The most significant liberalization policy introduced was the liberalization of agriculture. This policy resulted in an increase in agricultural production . . . . . . and encouraged growth at a faster pace. The impact of the liberalization policies on the Indian economy can be gauged from the fact that within a period of four years after the implementation of the policy, almost seventy percent of the import bills were cleared, while seventy percent of the domestic import bill was solved. Thus, liberalization policies were instrumental in pushing the economy to the next level of development.
Reforms also provided jobs for millions of people who were laid off due to the outbreak of inflation. Free trade and cheap prices for manufactured goods encouraged investment in infrastructure, further contributing to economic growth. Inflation eased as the price of petroleum and other commodity products eased. A rapid inflow of capital goods and services as a result of the liberalization policy also contributed to the economic growth. Reinstating the import of petroleum products was another step taken to boost the economy.
Growth in India history can be gauged from the fact that after the First World War, the economy managed to grow at a much faster pace, besides being able to overcome the challenges posed by the Second World War. Growth was again stimulated by the introduction of fiscal and monetary policies. The inflow of capital goods and services along with a free and open economy as a result of the aforementioned policies made possible the economic revival. The aforementioned polices and reforms made possible the inflow of funds and credits that facilitated a comprehensive economic growth.