At the time of independence, the Indian
economy was largely dependent on agriculture, and with two exceptions – the railways, and the postal system – there was hardly any infrastructure to speak of. Industries, where they existed, were confined only to a few traditional sectors such as textiles, jute and paper. Though India had many natural resources, it was deficient in the energy
sector.
After independence, undue emphasis (inspired by the five-year plans in Soviet Russia) was placed on self-reliance, to the detriment of overall economic
growth. Priority was given to the public sector, in the form of state enterprises. Many sectors of the economy were reserved for the public sector. The private sector had to operate in a highly regulated environment. India became a highly protected market, unable to compete with the rest of the
world. Insufficient development of its hydro-electricity potential and coal deposits meant that India had to import more and more oil and gas to meet its energy requirements, in an era of constantly rising oil prices.
In the 1980s, growth picked up as the Indian economy began to open, though this lead to a balance of payments problem. Since 1991, many bureaucratic controls have been dismantled, and the economy has fully integrated with the world economy. The growth in domestic savings (mostly from the household sector) has been accompanied by a parallel growth in investments. Inflows from abroad hav e also helped, as foreign exchange reserves have crossed one hundred and fifty billion dollars.
The structural changes in the economy have meant that agriculture has been replaced by manufacturing and services as the drivers of the Indian economy.
Following liberalisation, India’s exports have also been
growing at a rapid pace, though its share of world
trade is just around one per cent. The share of manufactured goods (including engineered goods, textiles, gems and leather
products) is much larger than the share of primary products (such as tea, coffee, rice and ores and minerals). This is a healthy sign for India’s exports. China has emerged as a major trading partner, and trade with other developing nations (south-south trade) is also growing.
Though India is the largest producer of milk, it needs to set up a rural network for the storage, processing and marketingof agricultural products. A massive road construction program is underway, and the government remains committed to increased social sector spending to reduce the disparities extant in society.
Over the past decades, India has developed a vast pool of trained manpower. By improving capacity utilisation, productivity, and by restructuring, India’s industry is also showing that it can compete with the best in the world.
India is a rapidly growing economic power, next only to China which has an headstart of about a dozen years. Both India and China have become powerful engines for economic growth in Asia. Both have the advantage of big domestic markets, low labour costs and a skilled and numerous work-force. Where they differ is that India is a democracy (requiring concensus building) whereas China is a one-party state where decisions, once adopted, can be enforced.
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