Essay on the Developing Economy of India

During the British period the government followed a laissez-faire policy in the economic sphere but after independence that negative philosophy was discarded and the government entered in the economic world in a big way.

Traditional capitalist path for development was given up and the country adopted a planned capitalist development and set up a mixed economy.

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The public sector was created as a means towards socialising the instruments of production for mass welfare. The adoption of the socialistic pattern of society as the national objective calls for the expansion of the public sector.

To assess the development process in India we shall take note of the quantitative and structural changes in the economy during the four decades of economic planning.

Income Trends:

In 1950-51 India’s national income was Rs. 16,731 crore (at 1970-71 prices). Since then it has risen to Rs. 257,813 crore (at current prices) in 1987-88.

The trend of growth of national income at about 3.6 per cent per year over a period of nearly 40 years is by no means spectacular, yet it has to be judged in the context of a prolonged period of economic stagnation prior to Independence.

The first Five-Year Plan which began in 1951 had fixed a modest target of 11 per cent increase in net national income. The economy actually recorded 18.4 per cent increase. During the Second Plan period (1956-61) the rise in net national income was 21.4 per cent.

The third Plan (1961-66) contemplated a 30 per cent increase in the national income but the target was not achieved and national income rose only by 11.7 per cent.

During the fourth Plan period (1969-74) the net national income rose by 18.0 per cent. The fifth Plan (1974-79) recorded an increase of 5.4 per cent per annum in the national income.

The national income increased at rate of 5.2 per cent per annum during the sixth Plan period (1980-85). The seventh Plan (1985-90) achieved the target of 5 per cent in the net national income per annum. Eighth Plan proposes a growth rate of 5.6 per cent per annum during this period.

Rise in per capita income is considered a better index of growth. In 1950-51, India’s per capita income was only

Rs. 466.00 (at 1970-71 prices). Since then over a period of 40 years it increased to Rs. 6248 in 1992-93. Even though the economic growth in India has not been very satisfactory since the attainment of Independence, the per capita money income has shown a continuous uptrend. The rates of savings and investment have also been continuously increasing.

Structural Changes:

The structural changes in the Indian economy since independence indicate that the process of development which started in the early fifties is still continuing, ft is a fact that the speed of change is not very fast.

With economic development, the importance of agriculture will decline in terms of its contribution to the net national income.

But the importance of agriculture in Indian economy has declined marginally. In 1950-51 the share of agriculture in net national income was roughly one-half. There has been a significant decline in the share of agriculture and in 1994 it was only 29 per cent of net national product.

A large segment of the Indian agriculture no longer practices subsistence type of farming. A subsistence system of farming is one which does not respond to the market incentives and trends.

The response of Indian agriculture to the new policies of growth initiated by the government has been encouraging. Pattern of cultivation has completely changed and agricultural breakthrough has taken place over large areas.

There has been little change in the occupational distribution of population. Over the last 90 years, the proportion of working population engaged in agriculture has been steady and not fallen below 65 per cent.

Another important feature of occupational pattern is that the proportion of working force in the secondary and tertiary sectors has also been constant since Independence.

On the industrial front, efforts were made by planners to industrialise the economy, more especially in the capital goods sector with imported machinery and technical know-how.

During the British rule there were very few basic industries in India. After Independence, the country has emerged as a leading industrialised nation.

The share of basic and capital goods industries in the total industrial production was roughly one-fourth in 1947. Now these industries account for more than 50 per cent of the industrial production.

Progress of industrialisation over the last 40 years has been a striking feature of Indian economic development. Process of industrialisation was launched as a conscious and deliberate policy in the early fifties.

In pursuance of this policy, large investment has been made in building up capacity over a wide spectrum of industries. Industrial production has made rapid strides in terms of variety, quality and quantity.

There has been a substantial diversification of industrial base during this period with the consequent ability to produce a very broad range of industrial goods. Self-reliance has been achieved in basic and capital goods.

Indigenous capabilities have now been established to the point of virtual self-sufficiency so that further expansion in various sectors such as mining, irrigation, power, chemicals, transport and communication can be based primarily on indigenous equipment.

The process of industrialisation has also fostered entrepreneurship and development of a wide variety of technical, managerial and operative skills. Today the country is in a position to provide consultancy services as well as managers, technicians and skilled workers for setting up industrial projects abroad.

A significant aspect of industrial development during the plan period has been the predominant role assigned to public sector in establishment of basic industries.

Public sector has taken initiative for development of various industries such as steel, non-ferrous metals, petroleum, coal, fertilisers and heavy engineering.

It has also made investments in consumer goods industries like textiles, drugs and pharmaceuticals, cement and sugar. Number of public sector enterprises which was only 5 in 1951 rose to 245 in 1993.

In 1985-86 the government initiated a number of measures aimed at removing constraints on industrial growth and providing a more congenial environment for development.

These include a scheme of re-endorsement of capacities, de- licensing of industries and broad-banding 65 selected industries and also schemes for specific industries like textiles, sugar, electronics etc.

A technology up gradation scheme had been introduced in August 1987 by Industrial Development Bank of India in five selected capital goods industries.

Fundamental objective of these policies is to upgrade efficiency and competitiveness of Indian industry so that while the Indian consumer is benefited on the one hand and our industry acquires strength to compete in external markets on the other.

As a result of these measures, industrial production recorded an average growth of over 8 per cent in the seventh Plan period. Investment climate in the country is one of buoyancy and confidence.

Improvement in Social Capital:

By social overhead capital we mean fundamental social and economic services such as educational and health facilities, communication systems, electricity generation plants etc. Their development creates favourable conditions for growth and also for better human living.

When these facilities expand, it is assumed that a change for the better is taking place. In most of the underdeveloped countries there is a lack of schools, hospitals, roads, research facilities and public utilities in general.

Due to the absence of these facilities, agricultural improvements are hampered and the industrialisation process is delayed.

Investments in transport, irrigation and electricity are usually not undertaken by entrepreneurs in underdeveloped countries because they do not satisfy the motive of the private investor who would like to have the maximum amount of immediate profit.

During the British regime, social capital requirements were never met for initiating a process of rapid economic development.

In the era of economic planning, adequate steps are being taken not only for the extension of education, health and transport facilities but also for the rapid development of electric power and irrigation projects.

It is a fact that even after Independence, education has not expanded at a desired rate with the result that only 52 per cent people are literate. However, there has been a steady increase in the number of literate among both males and females. In 1901 literacy rate for 1000 was 54, in 1995 it was 515.

Changing Dualism:

Although the pattern of economic development in India during the post-Independence period essentially resembles a dual economy model, there are some dissimilarity between typical dual economy model of development and the Indian experience.

Like many other developing countries India has faced acute food and foreign exchange scarcities in the initial phase of development but in the second phase these problems have eased to some extent. Dissimilarity is with respect to foreign capital.

A typical dual economy depends heavily on foreign capital for financing domestic investment. However in the case of India, foreign capital has contributed only a minor proportion of domestic investment. Lastly, unlike in many other dual economies, the rate of inflation in India in the post-Independence period has been very moderate—about 6 per cent per annum.

Changing Pattern of Foreign Trade:

Since independence the nature and quantum of India’s foreign trade have diversified and increased significantly. Total turnover of foreign trade has been steadily rising since the beginning of the planning era in India.

Value of trade increased considerably from 1950-51 to 1992-93. Till the end of the third Plan, India’s export trade was mostly in traditional commodities like tea, jute, cotton etc. Since then India has been able to increase its non-traditional exports. In other words, exports have not only grown appreciably but have also witnessed an increasing diversification over the years.

The increase has been well spread over a number of commodities such as capital goods and other engineering items, chemicals, chemical products, leather garments, cotton fabrics, rayon, gems and jewellery, handicrafts, processed foods and marine products.

Improvement in Institutional Framework:

Since Independence significant changes have taken place in the banking and financial structure of the country. The growth of commercial banks has been spectacular and, as a result, the role of traditional money lenders has declined.

During the British era the entire banking development had taken place in the private sector. With a view to bringing commercial banks into the mainstream of economic development with definite social obligations and objectives, the government nationalised 14 major banks in 1969 and six more commercial banks were nationalised in 1980.

In several ways the government has played a key role in the development process. Public sector performed the role of modern industrial entrepreneur in an economy which did not have an industrial class at the beginning of planned development.

To sum up, Indian economy, though economically backward, is a developing one, with output and income showing uptrend.

She is no longer caught in a low-level equilibrium trap where it stagnated for a long period under the British rule. It has undergone both quantitative and structural changes and even though the development is not spectacular, it is not insignificant.

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