Economics

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The Indian Economy Since Independence

India Wins Freedom On 14 August 1947, Nehru had declared: “Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge. The achievement we celebrate today is but a step, an opening of opportunity, to the great triumph and achievments that await us.” He reminded the country that the tasks ahead included “the ending of poverty and ignorance and disease and inequality of opportunity”. These were the basic foundations on which India embarked upon its path of development since gaining independence in 1947. The purpose of this talk is to analyze how much has India really achieved in the last 55 years in fulfilling the aspirations on which it was founded.

Indian Planning process The objective of India’s development strategy has been to establish a socialistic pattern of society through economic growth with self-reliance, social justice and alleviation of poverty. These objectives were to be achieved within a democratic political framework using the mechanism of a mixed economy where both public and private sectors co-exist. India initiated planning for national economic development with the establishment of the Planning Commission. The aim of the First Five Year Plan (1951-56) was to raise domestic savings for growth and to help the economy resurrect itself from colonial rule. The real break with the past in planning came with the Second Five Year Plan (Nehru-Mahalanobis Plan). The industrialization strategy articulated by Professor Mahalanobis placed emphasis on the development of heavy industries and envisaged a dominant role for the public sector in the economy. The entrepreneurial role of the state was evoked to develop the industrial sector. Commanding heights of the economy were entrusted to the public sector. The objectives of industrial policy were: a high growth rate, national self-reliance, reduction of foreign dominance, building up of indigenous capacity, encouraging small scale industry, bringing about balanced regional development, prevention of concentration of economic power, reduction of income inequalities and control of economy by the State. The planners

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and policy makers suggested the need for using a wide variety of instruments like state allocation of investment, licensing and other regulatory controls to steer Indian industrial development on a closed economy basis. The strategy underlying the first three plans assumed that once the growth process gets established, the institutional changes would ensure that benefits of growth trickle down to the poor. But doubts were raised in the early seventies about the effectiveness of the ‘trickle down’ approach and its ability to banish poverty. Further, the growth itself generated by the planned approach remained too weak to create adequate surpluses- a prerequisite for the ‘trickle down’ mechanism to work. Public sector did not live upto the expectations of generating surpluses to accelerate the pace of capital accumulation and help reduce inequality. Agricultural growth remained constrained by perverse institutional conditions. There was unchecked population growth in this period. Though the growth achieved in the first three Five Year Plans was not insignificant, yet it was not sufficient to meet the aims and objectives of development. These brought into view the weakness of economic strategy. We discuss the failure of the planning process in more detail in the next section. A shift in policy was called for. The Fifth Plan (1974-79) corrected its course by initiating a program emphasizing growth with redistribution. To accelerate the process of production and to align it with contemporary realities, a mild version of economic liberalization was started in the mid 1980s. Three important committees were set up in the early 1980s. Narsimhan Committee on the shift from physical controls to fiscal controls, Sengupta Committee on the public sector and the Hussain Committee on...
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