Unit : 6
What Are Development Experience And Economic Reforms ?
Indian Economy Before British Period
- Before the advent of British Empire, the Indian economy was self-sufficient and was very well known for its handicraft industries in the field of cotton, textiles, metals and precious stone works etc.
- Prior to independence the British Empire converted India into a source of raw material for its own rapidly expanding modern industrial base and also transformed it into the consumer of finished industrial products produced in Britain.
Indian Economy During British Period
- Before the advent of British Empire, India was very important nation as far as exports of handicraft items were concerned but the Britishers changed the structure, position and volume of India's exports and imports to its disfavor.
- This resulted in India becoming net exporter of raw materials like wool, cotton, raw silk, sugar, Indigo etc. and the net importer of finished consumer goods like cotton, silk, woolen clothes and machinery from Britain.
- Indian economy remained primarily agrarian during the British period. Approximately 85% of its population used to live in the rural areas and derived its livelihood from agriculture.
- During the British period the Indian agriculture continued to face stagnation and agricultural productivity became very low.
- The stagnation in agriculture took place due to the various systems of land settlement like zamindari, ryotwari and mahalwari systems adopted by the British government which were against the interests of the Indian agriculturist.
- The cruelest amongst these systems was the zamindari system in which the zamindars were concerned only with collecting the land revenue from the farmers and agriculturist regardless of their economic conditions.
- The British colonial system also did not allow Indians to develop a sound industrial base.
- The decline in the indigeneous handicraft industry resulted into the mass unemployment in India which also increased the pressure on agriculture.
- In the second half of 19th century, some of the Indians tried to establish some industries which were confined to setting up of cotton and jute textile mills. In the beginning of 20th century the Tata Iron and Steel company was incorporated in 1907.
India And Demographic Transition
- In 1921, India was in the first stage of the demographic transition, i.e., the stage of high death rate and high birth rate.
- Various social development indicators were also not very encouraging in that duration. The overall literacy level was less than 16%. Public health facilities were inadequate. Overall mortality rate, maternal mortality rate, and infant mortality rates were very high. Life expectancy was very low, i.e., just 32 years. The poverty was wide spread and deep rooted.
State Of Occupational Structure
Almost 70% to 75% of the workforce was involved in agriculture, only 10% were employed in manufacturing and 15% to 20% were employed in service sector.
State Of Infrastructure
Under the colonial rule the infrastructure facilities which were developed to some extent were railways, ports, water transport, post and telegraph. But these facilities were developed not for Indians but for facilitating the colonial rule on the country.
In 1950 Indian government established the planning commission with Prime Minister as its chairperson.
Goals of Five Year Plan
It refers to rise in the gross domestic product. The contributions made by different sectors in the gross domestic product is known as the structural composition of the economy.
It refers to the adoption of new technology and the change in the social outlook.
It refers to the avoidance of the imports of those goods which could be produced at home itself.
It refers to the privileges that every Indian should be able to attain in meeting his or her basic needs such as food, house, education and health care etc. and reduction in the inequality in the distribution of wealth.
State Of Agriculture
- The very first reform in the agriculture sector came with the land reforms which refer to the transfer of the ownership of land holdings from zamindars to the tillers and agricultural labourers. Land ceiling was another policy to promote equality in the agriculture sector.
- With a view to increase productivity in the agriculture, the government adopted the green revolution which refers to the large increase in production of food grain with use of high yielding variety seeds, fertilizers and pesticides with the regular supply of water.
- The green revolution has resulted into rise in farmers’ income, fall in the prices of wheat and government to procure sufficient food-stock for the times of crisis.
State Of Industrial Sector
- In order to achieve the rapid industrial growth, the industrial policy resolution of 1956 was adopted by the government.
- The resolution classified industries into three categories, i.e., (i) the first category comprised industries which would be exclusively owned by the government, (ii) the second category consisted of industries in which the private sector could supplement the efforts of the public sector with the government taking the sole responsibility for starting new units and (iii) the third category consisted of the remaining industries which were to be in the private sector to be controlled through the system of licences and approvals.
- In order to promote the contribution from the small-scale sector because these industries were labour intensive and to protect them from the competition from the big industries, many products were reserved for the small scale industry.
- In the first seven plans, the trade policy focused on the import substitution, i.e., replacing or substituting imports with domestic production.
The domestic industries were protected from the foreign competition with the help of tools of tariffs and quotas.
- Later on such protection and the industrial licensing system resulted into the development of inefficiencies in the economic system of the country. These inefficiencies prove to be harmful to the competency of Indian economy.
Economic Reforms Since 1991
- In 1991, Indian economy embroiled into a crisis in which along with rampant inflation and budget deficits, its foreign exchange reserve fell so much that they were not able to meet the import bill of 15 days.
- All this led India to embark upon economic reforms known as " New Economic Policy" which mainly consisted the stabilisation measures and the structural reform measures.
- Stabilisation measures were short-term measures which were intended to correct the problems of balance of payment and inflation.
- Structural reform policies were the long term measures which were aimed at improving the efficiency of economy and increasing its international competitiveness.
Policy Initiated by Government
In order to remove the problems created by restrictions in the form of licenses and approvals and the inefficiency generated in the public sector, the policy of liberalisation was adopted which brought reforms in the industrial sector, Financial sector, taxation, foreign exchange markets and international trade and investment.
It included the reduction of government ownership and management of public sector companies through the process of disinvestment. The purpose of privatization was to inculcate the sense of financial discipline and facilitate modernization in the public sector.
It refers to the integration of Indian economy with the world economy through the process of liberalised trade, i.e., export and import of goods as well as
services and the investments, i.e., foreign direct investment (FDI) and foreign institutional investment (FII).
WTO (World Trade Organisation)
- Process of globalisation has been greatly facilitated by World Trade Organisation which was founded in 1995 as the successor organisation to the General Agreement on Trade And Tariffs (GAAT).
- During reforms, the growth of service sector has been very encouraging but the growth of industry and agriculture has not been very encouraging.
It is the process of withdrawing legal tender status from the currency. Very recently in 2016, Indian government withdrew the legal tender status of ₹500 and ₹1000 notes.
GST stands for Goods and Services Tax which is an indirect tax in India. Goods and Services Tax in India has replaced plethora of other indirect taxes such as sales tax and excise tax etc. on the principle of One Nation, One Tax.