This is a presentation summarizing and analysing the economic growth in India pre and post-independence from a sectoral growth standpoint.

1. Economic growth in India since
independence: Sectoral growth
Hazir Ali M
2016imsec006
Int MSc Economics (Sem X)

2. Economic growth
• Economic growth is an increase in the production of economic
goods and services, compared from one period of time to another.
• Traditionally, aggregate economic growth is measured in terms of
gross national product (GNP) or gross domestic product (GDP),
although alternative metrics are sometimes used.
• Here as we’ll be looking into economic growth in ad around the
independence era and in recent years with a focus on sectoral
growth.

3. Gross value added
• In 2015, India reviewed its approach to GDP measurement and opted to
make major changes to its growth calculation methods and make the process
conform with the United Nations System of National Accounts (SNA) of 2008.
• As per the SNA, gross value added, is defined as the value of output minus
the value of intermediate consumption and is a measure of the contribution
to GDP made by an individual producer, industry or sector.
• While India had been measuring GVA earlier, it had done so using ‘factor
cost’ and GDP at ‘factor cost’ was the main parameter for measuring the
country’s overall economic output till the new methodology was adopted.

4. Sectors of Indian Economy
There are 3 sectors in the Indian economy:
• Agricultural sector
• Industry sector
• Services sector

6. Review of the Indian economy: pre and post
independence
Figure 1 Figure 2

7. • The trends in national income and per capita income, at
constant prices, during the early half of the 20th century
(that is pre independence) are outlined in Figure 1.
• We see that during that period, there was a near stagnation
in per capita income while the growth in national income
was minimal.
• Conversely, The trends in GDP and GDP per capita, at
constant prices, during the period 1950-51 to 2004-05 are
outlined in Figure 2.
• There is a clear contrast here. There was a steady growth in
both GDP and GDP per capita during the second half of
the 20th century.

8. • These graphs outline the trends in GDP and GDP
per capita, at constant prices, in India during
the period from 1950-51 to 2004-05.
• From the graph, we see a clear distinction
between two sub-periods 1950-51 to 1979-80
and 1980-81 to 2004-05.
• The break in this trend is clearly visible in 1980-
81 with a steep acceleration in economic growth
thereafter.
• The evidence for this is shown next

9. Sectoral growth rates
The data presented in the table
shows the on average annual
rates of growth in GDP and GDP
per capita, for each of these
sub-periods.
During the period from 1950-51
to 1979-80, growth in GDP was
3.5% per annum while growth in
GDP per capita was 1.4% per
annum.
During the period from 1980-81
to 2004-05, growth in GDP was
5.6% per annum while growth in
GDP per capita was 3.6% per
annum.

10. • When we compare the growth rates, aggregate and sectoral, during the sub-periods 1980-
81 to 1990-91 and 1991-92 to 2004-05. The growth rates were almost the same.
• Growth in GDP was 5.9% per annum as compared with 5.4% per annum, while growth in
GDP per capita was 4.1% per annum as compared with 3.2% per annum.
• There was some acceleration in the rate of growth of GDP per capita.
• There are two conclusions that emerge from the available evidence and the preceding
discussion:
• -> If we consider the 20th century in its entirety, the turning point in economic
performance, or the structural break in economic growth, is 1951-52.
• -> If we consider India since independence, during the second half of the 20th
century, the turning point in economic performance, or structural break in economic
growth, is 1980-81.
• In either case, 1991-92 is not a turning point. Therefore, it is simply not possible to
attribute India’s growth performance to economic liberalization. It is also clear that the
turning point in the early 1950s was much more significant than the structural break
during the early 1980s.

11. The 2 phases
• There are two easily visible phases of economic growth in India
since independence: 1950 to 1980 and 1980 to 2005.
• It is worth providing an assessment of economic performance
during these periods.
• By assessment of performance, in terms of economic growth, we
should be able to address two questions:
1. First, how does this performance compare with performance in
the past?
2. Second, how does this performance compare with the
performance of other countries?

12. • The pace of economic growth during the period from
1950 to 1980 was a radical departure from the colonial
past.
• For the period 1900 to 1947, there are two sets of growth
rates based on alternative estimates of national income.

13. • When compared with the preceding 30 years, there was a distinct step-up
in rates of growth for GDP and GDP per capita from 1980-2005. The growth
rates achieved on an average, during the meant that GDP doubled in 12.5
years and GDP per capita doubled in 20 years. In fact, between 1980-81 and
2004-05, GDP multiplied by 3.81 while GDP per capita multiplied by 2.37.
• This growth was impressive, not only in comparison with the past in India
but also in comparison with the performance of most countries in the
world. Indeed, in terms of growth, India performed much better than the
industrialized countries which experienced a slow down in growth, the
transition economies which did badly, and much of the developing world.
And it was only east Asia, particularly China, which performed better.
• Let’s analyze this rapid economic growth in India that had been sustained
for 25 years.

14. There are 3 assumptions as to why this spurt in growth may
have taken place:
1. The expansion of aggregate demand, mostly through a
rapid increase in public expenditure on investment and
consumption, was the major factor underlying rapid
economic growth during the 1980s. This is widely accepted.
2. The most fashionable explanation, is that the rapid
economic growth in India is largely attributable to
economic reforms. The turning point in growth was 1980,
whereas economic liberalization began in 1991.
3. There is yet another explanation. It argues that there was
an attitudinal change on the part of government in the
early 1980s, which signalled a shift in favour of the private
sector although this was not quite reflected in actual policy

15. So we see that no single explanation works perfectly.
A convincing explanation must recognize that the acceleration in economic growth,
from 1980, was attributable to several factors:
1. First, expansionary macroeconomic policies which led to an increase in aggregate
demand did stimulate an increase in the rate of growth of output.
2. Second, beginning in the late 1970s, there was a significant increase in the
investment-GDP ratio which was sustained through the 1980s.
3. Third, starting in the late 1970s, there was also a significant increase in public
investment which was sustained through the 1980s.
4. Fourth, trade liberalization beginning in the late 1970s, combined with some
deregulation in industrial policies introduced in the early 1980s, also probably
contributed to productivity increase and economic growth.
In all honesty, the story about economic growth in India is not quite a straightforward
one. Both phases of economic growth had something in common.
It is essential to recognize that economic growth in independent India, respectable in
the first phase and impressive in the second phase, was not transformed into
development, for it did not bring about an improvement in the well-being of people.

16. Sectoral growth trends in recent years

17. Sector/year Sectoral Growth Rates/ Gross value added (per cent per annum)
2012-13 2013-14 2014-
15
2015-
16
2016-17 2017-18 2018-19 2019-20 2020-21
Agriculture
sector
1.49 5.57 -0.22 0.65 6.80 6.61 2.56 4.31 3.63
Industry
sector
3.27 3.79 7.00 9.58 7.72 5.86 5.31 -1.23 -6.96
Services
sector
8.33 7.66 9.81 9.44 8.46 6.34 7.20 7.19 -8.36
At 2011-12 prices, GVA growth rates of
Agriculture, Industry, and Services sector are
3.63%, -6.96%, and -8.36%, respectively in
the year 2020-21. At current prices, growth
rates are Agriculture (6.56%), Industry
(-5.61%), and Services (-4.86%).
At 2011-12 prices, India has registered the
highest growth of 3.63% in the 'Agriculture,
forestry & fishing' sub-sector and the lowest
-18.2% in 'Trade, hotels, transport,
communication, and services related to
broadcasting' sub-sector.

18. India’s Agriculture sector
• In FY20, agriculture's share of the country's Gross Domestic Product (GDP)
(national income) was just 14.65% - down from 22.6% in FY05. The sector grew
at an average annual rate of 3.6 per cent.
• Agriculture statistics revealed that India has more farm laborers than farmers.
• Several government-appointed bodies, like the National Commission on Farmers
(NCF) of 2007 and the Ashok Dalwai Committee of 2017, have recommended
that they be treated as farmers and all benefits be extended to them but to no
avail.
• Another reason maybe that agricultural landholding is shrinking rapidly in the
nation.

19. • Investment in agriculture going down.
Investment is the key to growth. Given the
limited fiscal space, Indian governments have
been promoting private investment
• But over and above all that, The share of
agriculture in gross domestic product (GDP)
has reached almost 20 per cent for the first
time in the last 17 years, making it the sole
bright spot in GDP performance during 2020-
21, according to the Economic Survey 2020-
21.
• The resilience of the farming community in
the face of adversities made agriculture the
only sector to have clocked a positive growth
of 3.4 per cent at constant prices in 2020-21,
when other sectors slid.

20. India’s industrial sector
• Last year, the swift spread of the coronavirus pandemic came as a
heavy blow to the world economy. As the world’s largest
manufacturer became the epicentre for the worst pandemic in
modern times, stock markets panicked and supply chains from
China were severed.
• India’s GDP for the first quarter (Q1) of 2020-21 contracted by
23.9% and the share of the manufacturing sector in total gross
value added (GVA) which was 17.5% in Q1 of 2019-20 shrunk to
13.8% in this quarter. Growth rate in the manufacturing sector has
plunged to -39.3% in Q1 of 2020-21.

21. • According to a survey conducted by United Nations Industrial Development Organization
(UNIDO), after lockdown was imposed last year, manufacturing in India had stopped, except
for the rice milling sector where production reportedly dropped by half.
• The automobile sector, which was grappling with the new Bharat Stage (BS) VI regulations,
was faced with the shortage of spare parts from China where factories were shut following
the coronavirus outbreak. Add to this the anti-China bandwagon in India. As per a
parliamentary panel report, the Indian automotive industry suffered Rs 2,300 crore loss per
day and an estimated job loss in the sector was about 3.45 lakh, as a direct result of the
pandemic

22. India’s Services sector
• The growth of the Services Sector in India is a unique example of
leap-frogging traditional models of economic growth. Within a short
span of 50 years since independence, the contribution of the service
sector in India to the country’s GDP is a lion’s share of over 60% in
2019.
• As of 2021, The services sector contributes to almost 55% of the
country’s GDP and this is still no minor feat given the extreme
effects that the pandemic had on the sector as a whole.
• Local lockdowns to contain the second Covid-19 wave in India has
led to a contraction in services activity in May for the first time in
eight months.

23. • Even though PMI (purchasing managers index) data released
at the start of the month showed that the manufacturing
industry managed to keep its head above water in May, the
service sector struggled as the pandemic escalated.
• Even though India’s economy grew in the final quarter of
FY21, the gains have been overshadowed by the resurgence
of a second Covid wave.
• Many firms from the services sector have been forced to
intensify their job cutting spree in May, laying off workers
at the fastest pace since October.
• The trade, hotel and restaurant sector showed a
contraction of 9.2% during 2020-21 as against 4.6% growth
in 2019-20.

24. Conclusion
• I’d like to conclude this presentation by providing some future
projections.
• We can be cautiously optimistic and expect growth to touch 11.7% in FY
2022.
• After a contraction in FY 2021 of 7.7%, we expect the economy to grow
at a modest pace in the first half of FY 2022. Growth is projected to
reach 11.7% in FY 2022.
• The Agriculture sector cushioned the shock of the COVID-19 pandemic on
the Indian economy in 2020-21 with a growth of 3.4 per cent in both Q1
and Q2 while the other sectors only saw losses.