RESEARCH ASSIGNMENT

INTERNATIONAL ECONOMICS

NAME: TUBA AHMAD

ID: 19030133
Abstract:
This paper analyses the comparative growth of India’s economy right from the time of
independence to recent trends, and the highs and lows it came with. The period of economic
development can be expressed through a continuous structural change; India currently is a
nation that has evolved from what it was half a century ago. The monopoly of low growth has
been weakened, the population below the poverty line has fallen sharply, and India has joined
the legion of major players worldwide. To sum it up of how India has progressed as a whole,
it is necessary to look at other key indices of progress: education, unemployment, deprivation
and health.

Keywords: India, growth history, economy, new economic policy, technological change.
Introduction:
The nature of India's current economic climate isn't only recent; its origins are steeped in
history, especially in the time when India was still under British rule, that persisted for almost
two centuries before India eventually gained its independence on August 15, 1997. The
economic policies followed by the British government in India were more aligned with the
security and advancement of the economic interests of their country of origin than with the
growth of the Indian market. The challenge which the elected leaders of the reunified India
set upon in the early 1950s was a cause of concern. It was to improve the quality of life for
individuals working for one-seventh of the global population that generated an average
revenue of one-fifth of America's national income at the time. The graphs in this report, using
statistics from the World Bank, demonstrate how most of the country's growth metrics have
improved within the last half-century. The community has seen a rise in per capita income —
particularly after1980s — and a whole lot of reduction in unemployment and infant mortality.

Background:

Before the beginning of British rule, India had a free economy. While agriculture was the
greatest source of subsistence for most inhabitants, the economy of the nation was dominated
by different types of industrial activities. India became renowned for its crafts industry in the
spheres of cotton and silk textiles, metal and valuable stone manufacture, etc. Such goods
often enjoyed an international market that focused on the popularity of the exceptional
quality of the materials as well as the excellence of workmanship seen across all imports
from India.

 Agricultural Sector: India's economy remained essentially agrarian under the British
colonial rule — about 85 per cent of the country's people mainly lived in villages and
 had their livelihoods directly or indirectly from farming. Agricultural production had
decreased but, in monetary terms, the sector had undergone some development as a
result of the expansion of the total area under cultivation. This decline in the farming
sector was largely due to the different methods of land acquisition implemented by
the British government. A huge section comprising of the tenants, small farmers and
sharecroppers did not have the resources, technology or the money to invest in their
land.

 Industrial Sector: Just like in the category of agriculture, and in the case of industry,
India also couldn't establish a strong manufacturing base under the British rule. Even
though the world-famous crafts industries of the country deteriorated, no subsequent
modern technological sector was encouraged to come up to take centre stage so often
cherished by the artisans. Furthermore, there was little or no capital goods industry to
help improve more economic development in India. The creation of several
production units here and there was no solution for the absolute bulk loss of the
country's conventional crafts industry. Nevertheless, the rate of growth of the new
industrial market and its allocation to the Gross Domestic Product (GDP) persisted
relatively low.

 Foreign Trade: Since time immemorial, India has always been a major trading
country. However, the stringent regulations of commodity production, export and tax
followed by the British government severely affected India's international trade
system, structure and size. India had become an supplier of basic commodities such as
raw silk, cotton, wool, sugar, indigo, jute, etc. as well as an importer of manufactured
consumables such as linen, silk and wool fabrics and capital goods such as small
equipment produced in British factories. Across all intents and purposes, Britain held
a significant control on Indian trade in services. The first and most essential feature of
India's international trade throughout the colonial era was the development of a
significant export surplus. However, this surplus had emerged at a tremendous cost to
the public. Some important goods— food grains, clothes, kerosene, etc.— were barely
present in the national market. Therefore, this export surplus didn't result in an influx
of precious metals to India. Instead, it was being utilized to pay for the costs made by
 the British Colonial Government's department, the costs of war, once again waged by
the colonial Government, and the purchase of intangible commodities, all of which
contributed to the depletion of Indian resources.

The First Approach:

In the 1950s, the government implemented a rather specific economic development model:
accelerated industrialization by adopting inefficiently planned five-year projects that included
collecting a vast number of resources and making investments in the establishment of large
industrial government-owned enterprises. The industries chosen were the basic and heavy
industrial goods such as iron, oil, etc. Industrialization was sought as politicians assumed,
based largely on the theories of several economists, that the manufacturing sector promises
the highest gain in productivity. Investments throughout the development of public
organizations were selected as one of the government's goals was to create a "socialist model
of economy," i.e. to use political processes to attract large quantities of the country's
economic resources within public ownership. Basic and heavy goods industries were
preferred for investment in commodities since the government tried to reduce the nation's
dependency on imports of simple and large industrial goods in accordance with its faith in the
value of perceived self-reliance. The unique essence of the preferred development strategy
can be appreciated when comparing it with the alternative solutions which could have been
implemented. Another possible policy might have been to promote public investment not in
manufacturing but rather in agriculture, a means of subsistence for nearly three-fourths of its
population. The policymakers opposed this policy, as holding off industrialization implied
that the nation would also have to rely solely on imports for the manufactured goods it
needed whereas the leaders were keen to see success in industrialization.
 Source: World Bank data for India

Perhaps the second option might have been to depend on private industry for industrial
development, whereas the government concentrated its assets on infrastructure, public health,
and education — areas which are not well supported by the private market.

Turmoil and Transition (1991-1992):

The strong ties of the 1991 turmoil of fiscal laxity, the increasing dependency on foreign
lending, the weakness of the financial market as well as the increased regulation of trade and
commerce are well established. The next cause of the 1991 crisis was the Gulf War
throughout the second quarter of 1990–1991, which raised international oil prices (and India's
oil import bill) and decreased transactions inflows from the Gulf region. Unbalanced
coalition dynamics between 1990 and 1991 worsened economic issues and accelerated a
heavy balance of payment crisis. Currency reserves dropped under US$ 1 billion at the start
of 1991, foreign debt rose sharply, and exports decreased. Notwithstanding the
implementation of heavy restrictions on exports, deficits on transactions appeared imminent
until mid-1991, just as the new Congress Party government came to power. The
administration, with Manmohan Singh as finance minister, moved swiftly to balance the
economic and financial condition and to implement long-overdue economic reforms.
 Source: National Accounts Statistics

The structural essence of the 1991 measures may be evaluated by the observation that, within
a few months, the basic steps were taken: electronic elimination of industrial licensing;
rupee devaluation by 20%; comprehensive import licensing supplemented by a scheme of
commercially available import welfare programs received by exports (later replaced by a
parallel and then market-determined exchange rate); etc.

Liberalization Policies and Exports:

In 1991, India officially initiated the liberalization policy with the restructuring of the foreign
market in the wake of the balance of payment crisis. The measures that were initiated -the
drop in the value of the national currency, the significant decrease of tariff rates, the abolition
of restrictions on import quotas, capital inflows and FDI, and the elimination of the import
licensing system. For starters, Indian currency was depreciated by about 22.8% in July 1991
comparable to a major currency, while customs duties were limited by even more than 40%, a
liberal FDI approach was introduced with the Foreign Investment Promotion Board (FIPB)
system to endorse the FDI proposition, and it was practically opened up in 2001. The
privatization of the public sector had also made the reduction of the protection and
intervention of the private sector, the private sector and the financial sector were made more
efficient by eliminating the variation of protections and restrictions Export policy started to
abolish quota restrictions and the duty rate had been drastically reduced, and the license raj
framework had been phased out in the various stages of the liberalization program.
 Source: Central Statistical Organization, Government of India

Given the significant decrease in tariff rate thresholds and customs tariff system during the
reform period, Indian exports accounted for only 1% of the global export share in 2008,
correspondingly equal to the scale of 1965, which discusses another salient fact that Indian
export efficiency was very poor given the consideration given to export promotion at the end
of the 1960s. India had been able to expand export volumes faster than other least developed
countries (LDCs), but its overall performance had persisted very small, and export price
had improved since 1990 as a result of reform initiatives, but its export share of the global
market continues unrecognized for less than the rate of the 1950s.

Structure of India’s Custom Tariff Rates (%) 1991-2008:

Source: Handbook of Industrial Policy and Statistics, India

New Economic Policy (1991):

New Economic Policy translates to economic liberalization and reduction of import tariffs,
the privatization of markets or the opening up of markets to private and international players,
and the lowering of taxes to increase the economy of the country. Former Prime Minister
Manmohan Singh is regarded as being the father of India's New Economic Policy (NEP).
Manmohan Singh launched the NEP on 24 July 1991.
Agendas of the NEP:
 The primary goal was to push the Indian economy into the field of ' Globalization '
and to spark new momentum for market alignment.
 The aim of the NEP was to reduce the rate of inflation.
 It was designed to move forward into a faster rate of economic growth and to build up
ample foreign exchange reserves.
 It set out to achieve fiscal stability and turn the country into a market economy by
eliminating all sorts of arbitrary restrictions.
 It decided to allow the global flow of goods, products, money, human resources and
innovation to run smoothly.
 It aimed to expand the involvement of private enterprises in all areas of the economy.

The goal of the New Economic Policy was to create a much more challenging environment in
the market as a way to improve the system's productivity and efficiency. This was to be done
by removing barriers to entry and restricting the growth of companies.

Systematic Measures:

These are long-term initiatives intended to improve the productivity of the market and
increasing its global competitiveness by reducing the inflexibility of the different sectors of
the Indian economy. The reforms are: Liberalization, Privatization and Globalization.

 Liberalization:
a) Abolition of Industrial Licensing and Registration: Originally, the private sector
had to apply for a license from the State to start a new project. In this scheme,
the private sector has been excluded from licenses and other limitations.
 Privatization:
a) To put it in another words, privatization means allowing the private sector to set
up markets that were created specifically for the public sector. Many PSUs have
been sold to the private sector under this policy. The primary reason for
privatization was the setback of PSU currency due to political intervention.
Managers cannot operate independently. The production capacity was
undervalued. Increased competition and the dissolution of PSUs were
unavoidable.
 Globalization:
a) Globalization means the engagement of the domestic economy with the rest of
the western world in foreign investment, trade, production and financial matters.
b) Countries which comply with the rules and regulations laid down by the WTO
(World Trade Organization) are part of globalisation. Such methods shall
provide the supervision of trade conditions between countries. In contrast, other
agencies such as the United Nations and numerous mediation bodies are eligible
for oversight. This also requires non-discriminatory trade policies.

Source: World Integrated Solutions

Impact of Liberalization on the Economy:

The Indian economy has undergone radical change since the introduction of a new economic
policy in 1991. This has had a significant impact across all spheres of life in India. Once a
country is liberalized, the economic effects can be drastic for the nation and for investors.
Liberalization is characterized as laws or regulations that are liberalized or modified by the
government. Economic liberalization is usually described as relaxation government
regulations in a country that allow private-sector industries to conduct business operations
with fewer restrictions.

Trends in the chart above illustrate the racial inequality of the Indian growth trajectory.
According to the economics principle, when a specific sector performs predominantly higher
than the average growth rate, economic wealth begins to be concentrated in that sector. In the
above case, this field is the service sector. In this market, the highest growth is characterized
by industries like financial services, real estate services, etc., as those are the least
employment-elastic. As a result, expansion of the last decade has been restricted to upscale
parts of the countries as the entire service sector functions from these regions. Most of India
has had a blowback or trickle-down development from here. It has increased movement of
people to urban areas.

Undeniably the greatest development of the new century was that of information technology,
that began in the last years of the last century. This transition is unique as it made capitalism
even more visible and sharper. It has enabled people for human labor to be transported in real
time through continents, without moving individuals themselves. Therefore, it abolished all
barriers that prevented the flow of information. This has resulted from the communication,
cultivation and advancement of knowledge in communities that historically had only access
to under-standard and on-updated information. Nonetheless, the product is also combined
with some harsh realities.

Governments worldwide have lost their ability to control and counter deceptive, fraudulent,
sensitive data and content. The emergence of the Islamic State shows that the IT movement
has contributed more than anything to the growth of global terrorist ties. In contrast, explicit
material is readily freely available online to which children have full access.

GDP Growth Rate: India's overall annual growth from 1990 to 2010 was 6.6 per cent, almost
twice that of the pre-reform period. GDP growth in the early 1980's reached the 5% limit. It
reached the levels of the 1990 legislation on growth, uncertain. Many assume that the reforms
of the 1980s were precursors to the reforms of the LPG. Nonetheless, this is evident that the
1980 reforms caused the collapse of the 1991 economy, that was rectified by far more
comprehensive LPG reforms. That was the IMF loan that gave the government the incentive
to change the economy. That was the biggest loan ever issued by the IMF. Originally, there
were international concerns about India's lending credibility, but India has been mostly a
responsible borrower.

Source: WTO

Small Scale in India: Upon independence the government tried to revive the small-scale
market by reserving goods strictly for manufacturing. Nevertheless, the small-scale sector
still survives and is the backbone of the Indian economy. It makes up to a substantial portion
of exports and employment in the private sector. The results are interesting, and many small-
scale industries have become larger and better. Yet total added value, consumer development
and software growth remain low and thrive only on the basis of government support. Their
goods are being challenged by cheaper imports from China.

Agriculture: Agriculture is survival in the developing world which benefits a vast number of
poor people. There has been a high variance in resource prices as a result of globalisation,
that has placed them at significant risk. This may be especially true among cash crops such as
cotton and sugarcane. Current outbreaks in both crops have shown this to be definitive. What
is good is that, India's entirely self-sufficient and high-value differentiated goods, such as
Basmati Rice, are largely in high demand. Broadly speaking, India is better positioned to
tackle the problem of globalization in this situation. If achieved in a fair and holistic way, it
will have a significant multiplier impact on the economy as a whole. Globally tacit
commitment to the growth of the food processing industry is another hallmark consequence
of globalisation.

Information Technology: The increase in mobile phone use has been remarkable, rising from
less than 37 million users in 2001 to even more than 846 million in 2011 to more than 1
billion. Mobile-phone frequency has an effect on economic expansion. A research by the
Indian Council for Research on International Economic Relations gave that states with 10%
higher stimulation of mobile phones produced 1.2 per cent higher economic growth than
those who have lower telephone density.

Current Patterns and Perspectives:

There has been revived optimism regarding the current future growth of the Indian economy
since 2003. The Tenth Plan released at the start of 2003, predicted an overall growth of 8%
for the span from 2002 to 2007. The surge in technology sales and remittances (together with
the diminished import requirements of a rather stagnant industrial sector) has continued to
grow the country's foreign-exchange assets to unusually high levels (exceeding US$ 100
billion), countering old fears of a "foreign exchange limit."

Nonetheless, India's medium-term growth forecast is less optimistic. Growth of 8.5 per cent
in 2003–2004 preceded a weak economic growth of 4 per cent in the previous year. Most of
the economic creativity of 2003–2004 represented an unprecedented turnaround in agriculture
from a drought-affected downturn of 7% in 2002–2003 to a solid 9.6% growth, thanks to the
strongest monsoon in more than 20 years. Development calls for investment. India's
investment-GDP ratio has gotten stuck in the 23 to 24 per cent band in past years, not quite
enough to produce sustainable growth of 7 to 8 per cent.

High levels of negative savings (revenue deficits) in government budgets have been a major
limitation on India's investment efficiency, offsetting a good private savings record. Even
though the reforms of the 1990s led to a major widening of the Indian market to international
trade and investment, the country's engagement with the world economy appears minimal,
with commodity exports accounts for only 0.8% of world exports and foreign direct
investment inflows making for barely 0.5% of the global total. In spite of the recent
interventions, infrastructure constraints remain severe, particularly with regard to electricity,
bridges, ports, airports and municipal services.

Conclusion:

To sum up, in 1991, economic liberalization in India began to revive economic policies with
the intent of creating a more market-oriented economy and boosting the function of private
and foreign investment. With respect to industrial policies, it is evident from the history of
industrial policy that perhaps the role of the government in production has been extensive.
The trajectory to be taken toward more industrial development has evolved over time. At an
early stage, the government pursued an inward-looking growth agenda that pushed the Indian
economy to have low and cheaper innovation and spurred the rise of the private sector. It has
prohibited domestic industries from extreme rivalry, and therefore resulted in low
productivity and limited its ability to expand employment prospects.

The insistence on self-reliance and lack of investment in R&D served as barriers to

technological innovation and thus contributed to the production of cheaper goods. There is
indeed a strong view that foreign goods are superior to Indian goods is still prevalent in
Indian society. It is very well created that, after two centuries of oppression and shocking
disconnection, the state of the nation must be taken into account before assessing the progress
of continuous industrial policy. Several causes, such as lack of tactical skills low literacy
rates, unskilled labour, and lack of infrastructure, are major facets of the Indian economy
prior to independence.
References:

(Nagaraj, 2000), (Pal, n.d.), (India, n.d.), (Today, n.d.), (Goyal, 2019), (Das), (Singh, 2019),

(Mehra, 2014), (Saikia, n.d.), (Mint, 2019), (unknown), (DeLong, 2001), (Civil Services
India, n.d.), (International Policy Digest, 2013), (Chandrasekhar, 2017), (Kapila, 1988),
(Dandekar), (Roberts, 2018).