The Indian Economy: 70 years after Independence Indian US

The Indian Economy: 70 years after Independence

The defining feature of the economic programme of independent India’s first government was to accelerate the transition to a modern economy dominated by industry. Agriculture and related 

activities at that time accounted for around half of GDP and modern industry in the form of factory establishments for just above 6 per cent. Thus, colonial rule had made India the victim of the barriers to productivity increase typical of predominantly agrarian economies.

These circumstances influenced the Nehruvian vision that made rapid diversification in favour of manufacturing the principal economic objective. The ‘big planners’ of that time did recognize that this will not deliver the jobs needed to

 absorb the country’s large underemployed and unemployed labour force and address the extreme poverty and deprivation that colonialism had left behind. But those challenges it was argued could be addressed separately, so long as growth got going.

At first it appeared that success was at hand. The years after 1951, and especially after 1956, did see large and rapidly rising investments in industry and infrastructure. But, it is clear, with hindsight, that the process lost momentum rather early. The share of manufacturing in GDP did rise 

from around 9 per cent in 1950-51 to 16 per cent in 1961. But it did not cross the 18 per cent mark for a little more than a decade after that, and touched 20 per cent at its peak in 1996. This was well short of what had been achieved in many other comparable economies. In 1971, manufacturing’s share in GDP stood at 29 per cent in Brazil and 35 per cent in China. In 1996, the figure was 27 per cent in Korea, 28 per cent in Malaysia and 26 per cent in Thailand. The contribution of manufacturing to employment in India was, as expected, was even more dismal. 

There were two principal and proximate factors responsible for this shortfall relative to targets in a country that showed much promise as a candidate for successful industrialisation. One was the failure to grow the mass market for manufactures, through appropriate measures, and

 especially through the implementation of land reforms that helped raise the incomes of the majority among the agriculture-dependent population. The other was the inability of the state to mobilise the resources to finance the expenditures needed to drive and facilitate the process of industrialization.

Agrarian reform was needed to break down land monopoly, which by facilitating rack-renting by absentee landlords, who also earned surpluses from usury and control over poorly-paid, bonded labour, dis-incentivised productive investment in land on the part of semi-feudal and feudal land owners. It also, on the other hand, deprived the

 tenants who cultivated the land of the means and the incentive to invest. Productivity enhancing investments were thus limited. Further, land concentration meant that whatever increases in agricultural income did accrue, were not distributed in a manner that encouraged the expansion of demand for manufactured mass consumption goods.