Reading 2: Vijay Joshi India’s long road ahead 1947 to 201

India’s future career has been the subject of many extravagant predictions and hopes. In this
book, Vijay Joshi argues that the foundations of rapid and high-quality economic growth in
India are distinctly shaky. He analyses the political economy of the country’s recent faltering
performance, and charts the course that should be followed to achieve widely-shared
prosperity

Introductio

In this chapter the author talks about how the political structure of a country affects the
economic well-being and health of nation. If there is unrest politically the Socio economic
structure of the country will also suffer. We will examine the timelines of the various political
aspects of our country since 1950 to 2016 and analyse how the economy has progressed till
now

1950-198

Note
1950-1964 - Nehruvian era
1964-1980- Political unrest. LBS,IG, JANTA COALITION, I

Observation

1. Two major acceleration of national income and output stand out in India’s economic trajectory in
the 20th century. The rst one is that from around 1950 the growth rate of national income
went up from a mere 1% a year that prevailed in the rst half of the century to3.5% a
year
2. From 1950 to 1980 the economy was dubbed as having the “Hindu rate of growth which was a
major disappointment it was slower than the world average and the average for developing countries
at the time and it was too slow to make any dent in the poverty ratio. (3.5% all these years
3. A major achievement was that from 1980 to 2015 the growth rate was more than 6% per year
for the next 35 years. This was a major achievement that made India one of the fastest
growing countries in the world and resulted in a considerable improvement in human welfare
relative to the Past. Towards the end of the period however there were worrying signs that
long-term growth was faltering and the conditions were not yet in place for a rapid ascent to
the rst world levels of prosperity
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 Growth rate from 1900 to 195

1900–1951 1% Na Na

1950-1961 3.5% 11.5 3.2

1961-1970 4% 14.6 3.7

1970-1980 3% 17.5 5.8

1980-1990 5.6% 20.4 3.6

1990-1999 5.8 24.3 4.2

1951-1980 3.5 14.7 4.2

1980-2009 6.2 25.3 4.1

1980-2015 6.2 26.5 4.3

The last column explains the relationship between the level of investment made in the economy and the
consequent increase in GDP
Lower the ratio better it is because it re ects how ef ciently capital is being used to generate
additional output

This chapter sketches with a broad brush the highlights of economic development and political narrative
in the period of 1950–1980 and 1980–2015
The focus is primarily on growth and poverty policies and outcomes.
In the rst phase 1950-1980 economic strategy largely followed a “command and control model”.
In the second phase 1980 to 2015 economic strategy moved towards greater marketisation

The ancient regime: a political and economic narrativ

1947-198
-during this period the national political scene had mainly been dominated by two prime ministers rst
Jawaharlal Nehru and then his daughter Indira Gandhi
-The rst few years were taken by Jawaharlal Nehru to stabilise the country and to balance the effects
both positive and negative of the end of British rule and partition
-Detailed and INDICATIVE PLANNING started only in the 1950s with the rst ve year plan (FYP)
which was loosely based on Harrod Domar model
- After the rst ve year plan a detailed, inter-sectoral, comprehensive planning came with the second
ve year plan based on the Mahalanobis model that began in 1956-1957

Note : for political turmoil refer class notes for timeline discussed in lecture.
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The Ancien Regime : economic policy and performanc

Q. Why did India failed to achieve rapid growth for three decades after Independence that is
from 1950–1980

The basic answer is that Indian policymakers acted with a mistake in conception of the role of the state
Excessive regulation of economic activity created large inef ciencies and sti ed the business stress.
Entrepreneurship and existing businesses suffered
At the same time the state neglected to attend to areas where it should have been active. In particular
it failed to ensure that poor people could gain access to primary healthcare and education

To sum up since the beginning of the planning era targeted policy approach was not adopted instead it
was believed that trickle down effect would eventually lead to gains for the entire socio-economic
structure of our country. Unfortunately it did not happen or it took a long time for the bene ts to reach
the poor and in between they got lost

There was unreasonable importance given to “heavy industry strategy” based on the Soviet
lobby and the pieces were ignored. It was taken for granted that extensive government
intervention and controls were necessary to subdue what is the plan the market and make
private sectors activities consonance with the plan

Controls permeated every facet of business decision making including investment, output mix,
pricing, credit, employment, entry, exit. Especially harmful were the controls on foreign trade
and investment that stemmed from the belief in “self-reliance”

Another aspect of the command and control strategy was the dominant role accorded to the public
sector. The domain of the public sector extended well beyond the traditional utilities and included large
weights of manufacturing industry, consumer goods, hotels. Public sector enterprises were expected to
be highly pro table and to serve the spearhead of investment. The reality however was quite different.
Returns in most public sector rms were abysmally low. Many of them not only made losses but became
sick that is bankrupt. Keeping them alive imposed a large scal burden.

Neglect of the social sectors was the third feature of the economic policy that led to so slow growth. It
also contributed to making the growth non-inclusive. It is a known fact that the East Asian economies
achieved phenomenal success based on solid achievements in education and healthcare. India’s
performance in these areas was dismal and in consequence many people were denied the opportunity to
enhance their principal income earning assets namely themselves. Part of the reason for this failure was
of course low growth itself and the consequent shortage of revenues that could nance social
expenditures. Another reason for India’s poor comparative performance was arguably that it started from
a somewhat lower base than East Asian economies
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 Slow growth and neglect of human development lead to a comprehensive failure in poverty alleviation.

Partial reforms since 1980 the political backdrop

Congress regained its position and Mrs Gandhi returned to becoming the prime minister in January 1980
in the middle of a drought, and oil price shock, and a macroeconomic crisis
- public investment rules as intended but the scal position deteriorate
- Politically there was increasing tension mainly because of a separatist movement in Punja
- After Indira Gandhi‘s assassination her son Rajiv Gandhi born for the national election and became
the next prime minister of Indi
- He had a modern, managerial style and wanted to shut the ideological baggage of the past. He took a
number of liberalising measures in rst two years of his of c
- Reformist face came to an end in 1987 when his reputation was brought into question with the
allegations of corruption
- In 1989 new elections were held and VP Singh formed a minority government with Parliamentary
support from the BJP and the communists but its position was rickety
- In August 1990 oil prices doubled following the Iraqi invasion of Kuwait. Acute dif culties began to be
experienced in new commercial commercial borrowings
- Communal and caste con icts also grew, specially over the pieces and tempt to implement the
recommendations of the mandal commission which had recommended in 1980 that 27% of the
government post should be reserved for the other backward classes in addition to the 22.5%
constitutionally reserved posts for Schedule castes and schedule Tribes
- A new election was again called in 1991 the day after it began Rajiv Gandhi was assassinated
- PV Narasimha Rao was the next prime minister and Manmohan Singh and economist civil servant of
wide domestic and international experience became the nance Ministe

The status of the economy in 1990

-The government’s inheritance was gri

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 -The external debt to export ratio was to50% well up from 150% in 1980
-The new government therefore moved swiftly to announce a programme of stabilisation and liberalisatio
- 1991/92 physical retrenchment was undertaken combined with the devaluation of rupee and supported
by a standby credit from the IMF
- Growth crashed to negative levels for a year because of the combined effects of erratic weather and
a scal contractio
- But this is session proved to be temporary
- There was a smart recovery in the following year along with the reduction in scal and current
account de ci
- The Narasimha government began the process of liberalising reform as soon as it took over in 1991
even before stabilisation had been achieved. The overdue this was a bold move that aroused oppositio
- After a shakeout liberalisation led to a sizeable increase in the economic ef ciency
- In 1990 9BJP came to power and the country was under the Prime Minister ship of Shri Atal Bihari
Bajpai. The BJP government carried forward the process of economic reform. There was some further
liberalisation of trade, nance and foreign investment and a beginning was made with privatisation of
loss-making public sector enterprises.
- There were also some advances in infrastructure provision, particularly roads, electricity and
telecommunication
- In 2004 BJP lost the elections to Congress and UPA1 was formed under the Prime Minister ship of Dr
Manmohan Singh. The mean achievement of this regime was to negotiate a nuclear agreement with the
United States
- From 2003/422010/11 the growth was “super fast”. ( around 8.5% a year)
- During this term the global economic environment was highly supportive and enabled India to reap the
bene ts of the reforms of the previous 12 years. After the global credit crisis broke in 2008 India’s
growth slipped to 6.7% during 2008 nine but rebounded to more than 8% for the next three years
driven by the pre-existing momentum of domestic consumption and investment
- But there was a sharp slowdown thereafter from 2011/12 to 2013/14 growth fell to around 5% a
yea
- By the time of 2014 elections it looked highly likely that BJP would come to power not because the
country was enamoured of the party’s advocacy of Hindu nationalism but simply because it was craving
for clean strong and coherent leadership and many people thought that BJP‘s prime ministerial
candidate Shri Narendra Modi would provide it

The partial reform model: growth since 1980

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