The Hindu rate of growth is a controversial and derogatory expressionused to refer to the low annual growth rate of the socialist economy of India before 1991, which stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged 1.3%
Policy ignored the sphere of consumer goods and focused on building industrial equipment. As a result, the Indian consumers had few goods to buy and had no choice.The Licence Raj was a result of India's decision to have a planned economy where all aspects of the economy are controlled by the state and licences are given to a select few. Up to 80 government agencies had to be satisfied before private companies could produce something and, if granted, the government would regulate production
Before the 1990s most of theindustrial sector was dominated by a select band of family-based conglomerates that had been dominant historically. Post 1991, a major restructuring has taken place with the emergence of more technologically advanced segments among industrial companies. Nowadays, more small and medium scale enterprises contribute significantly to the economy
Pre 1990 Indian Economy
India : The BeginningPre Colonial : Refers to the economic history ofIndia since Indus Valley Civilization to 1700 AD.During Indus Valley Civilization Indian economywas very well developed.India had very good trade relations with other partsof world, which is evident from the coins of variouscivilizations found at the site of Indus valley.Before the advent of East India Company, eachvillage in India was a self sufficient entity. Eachvillage was economically independent.
British InvasionThe arrival of East India Company in Indiaruined the Indian economy.During this phase Indias share of worldincome declined from 22.3% in 1700 AD to3.8% in 1952.Two-way depletion of resources. British bought raw materials from India at cheaper rates. Then, the finished goods were sold at high price in Indian markets.
Indian economy after independenceIndian economy was influenced by the colonialexperience, which was seen by Indian leaders asexploitative.Domestic policy tended towards protectionism, witha strong emphasis on importsubstitution, industrialization, economicinterventionism, a large public sector, businessregulation and central planning, while trade andforeign investment policies were relatively liberal.
Jawaharlal Nehru, the first prime minister ofIndia, along with the statistician PrasantaChandra Mahalanobis, formulated andoversaw economic policy during the initialyears of the countrys existence. First five year plan for the development ofIndian economy came into implementation in1952.The rate of growth of the Indian economy inthe first three decades after independencewas derisively referred to as the Hindu rate ofgrowth by communists.
Since 1965, the use of high-yielding varietiesof seeds, increased fertilisers and improvedirrigation facilities collectively contributed to theGreen Revolution in India, which improved thecondition of agriculture by increasing cropproductivity, improving crop patterns andstrengthening forward and backward linkagesbetween agriculture and industry.
Economic PolicySocialist PolicyConcentration and emphasis on heavy industriesand subsidizing manual, low-skill cottageindustriesTough Controls for private sector License RajRefusal to change policy with changing time India followed the same policy over the years and this degraded India’s situation in the world even more
India first felt Globalization in the 1990s when DrManmohan Singh, then finance minister underthe government of P V Narsimha Rao, initiatedthe economic liberalization plan.Before the 1990s, India’s economy focused onequity over growth.In 1991, India began liberalizing its economy bydecreasing government control over manydomestic industries and increasing its opennessto the rest of the world. Combined, these actionssought to increase competitiveness andencourage innovation.
Major ReformsTrade liberalizationFinancial LiberalizationOpening up to PrivatizationTax reformsInflation control measuresOpening up to foreign investmentsReinforced focus on AgriculturalDevelopment
Need for ReformsGovt not being able to repay debtsThe biggest reason : Unsustainable govt expenditureForeign exchange reserves had hit the bottom.Uncontrolled InflationContinual expenditure on development programmes ofthe government did not generate additionalrevenue, thus government had to overshoot its revenueto meet problems like unemployment, poverty andpopulation explosion.Tax revenues insufficientExports not enough to pay for growing imports
Reasons for GlobalizationTo resolve revenue crisis, India took a loan of $7billion from the World Bank and the InternationalMonetary Fund.In leau of the loan, they expected India toliberalise and open up the economy by Removing restrictions on the private sector Reduce the role of the government in many areas Remove trade restrictions.India agreed to the conditions and announcedthe New Economic Policy (NEP).
India’s major steps towards GlobalizationDevaluation: Announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market.Disinvestment : Under the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector
THANK YOU! Any Questions??Group Members : Seencha Bhutia, Shivani Sharma, Srimoyee Dasgupta & Yasmin Hussain