history of economic development

Topics: Macroeconomics, Economics, Investment Pages: 5 (1431 words) Published: September 20, 2014
History of Economic Growth in India

Last month, Morgan Stanly and HSBC lowered India’s economic growth forecast for fiscal years 2013 and 2014 from 5.2 to 5 percent and from 6.2 to 6 percent respectively.

Manmohan Singh, the prime minister of India during the World Economic Forum’s India Economic Summit 2009 held in New Delhi. Photo: Eric Miller These numbers do not sound encouraging, but compared to a GDP growth of 4.5 percent for October-December quarter of FY2013, this news provides some encouragement for India’s economy. According to Finance Minister Chidambaram Palaniappan, India’s economy would grow 6.2-6.7 percent during FY 2014. If accurate, it would be a good economic recovery. Although it is nowhere near the double digit GDP growth India was enjoying a few years ago, the recent news of an economic turnaround is a cause for celebration, especially when U.S. and European economies are still struggling to get back to pre-recession levels. India’s economic journey from an impoverished country to an emerging global economy is an inspiring example for many developing nations. In order to understand India’s economic voyage, it is essential to shed some light on India’s political and economic history. After 200 years of British rule, India became an independent sovereign nation in 1947. This newly born nation faced a number of issues including a shattered economy, a minimal rate of literacy and horrific poverty. It was a mission impossible for Indian leaders, but Sardar Patel, Nehru and others transformed India into a secular and democratic nation. Early Economic Growth

To better understand India’s economic growth, its economic history should divided into two phases, the first 45 years after the independence and the last twenty years as a free market economy. During the first 45 years after independence, India’s economy was divided into two distinct segments, private and public. The private sector owned and operated small to medium size businesses and industries protected by the government and the government took care of everything else. The government was in charge of most of the consumer services including transportation such as airlines, railroads and local transportation, communication services such as postal, telephone and telegraph, radio and television broadcasting, and social services such as education and health care. The intention of the government was to provide these services, at a reasonable cost, as well as employment. India adopted a five-year development plan from its closest ally, the Soviet Union, in order to improve infrastructure, agricultural production, health care, and education, but the progress was extremely slow due to India’s democratic system. Absence of Economic Policies

India’s economy and political system encountered a severe crisis during the time of Indira Gandhi and her Congress Party rule. During her administration, there was no economic progress because of a lack of attention to economic improvement. Gandhi and her Congress Party paid more attention to how to remain in power rather than solving India’s economic and social problems. In 1975, Gandhi arrested opposition leaders, imposed censorship on the press and suspended elections. During this time, economic growth stagnated and widespread corruption became the norm. Finally, bowing down to tremendous internal and external pressure, she declared a general election in 1977. Gandhi and her Congress party lost that election. In a few years, she came back into power again and her son Rajiv Gandhi took over after her assassination, as prime minister. He remained in power until he was also killed in a bomb blast and India’s economy was completely ignored. Collapse of the Soviet Union and the Gulf War

During the early 1990s, India’s economy began to worsen and was faced with growing inflation, unemployment and poverty and historically low foreign exchange reserve. The collapse of the...
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