ECONOMICS: CHAPTER – 3: EVALUATION OF THE INDIAN ECONOMY

1. The Background

• The economic profile of India was in complete distress at the time of Independence.
• Being a typical case of colonial economy, India was serving a purpose of development not for herself but for a foreign land-the United Kingdom.
• During the half century before India became independent, the world was having accelerated development and expansion in its agriculture and industry on the shoulders of the active role being played by the states, with the same happening in the UK itself.
• Indian capitalists who did emerge were highly dependent on British commercial capital and many sectors of the industry were dominated by British firms, e.g., shipping, banking, insurance, coal, plantation crops and jute.
• Before the independence, Indian face many major strategic issues:
• State/governments should be given a direct responsibility for development.
• An ambitious and vital role to be assigned to the public sector.
• Necessity for the development of heavy industries.
• Discouragement to foreign investment.
• The need for economic planning.
• Once India became independent, it was a real challenge for the government of the time to go for a systematic organization of the economy.

2. Prime Moving Force: Agriculture Vs. Industry

• A topical issue of the debate regarding India has been the choice for the sector which will lead the process of development.
• The government of the time opted for industry to be India’s prime moving force of the economy.
• Whether India should have gone for agriculture as its prime moving force for better prospects of development, is a highly debatable issue even today among experts.
• Every economy has to go for its development through exploitation of its natural and human resources.
• Given the available resources base it seems an illogical decision as India lacked all those pre-requisites which could suggest the declaration of industry as its prime mover:
• Almost no presence of infrastructure sector, i.e., power, transportation and communication.
• Negligible presence of the infrastructure industries, i.e., iron and steel, cement, coal, crude oil, oil refining and electricity.
• Lack of investible capital – either by the government or the private sector.
• Lack of skilled manpower
• Absence of entrepreneurship among the people.
• Absence of market for industrial goods.
• Absence of required technology.
• A major shift took place in the Indian economic thinking when the government announced in 2002 that from now onwards, in place of industry, agriculture will be the prime moving force of the economy.

3. Planned And Mixed Economy

• Independent India was declared to be a planned and a mixed economy.
• India needed national planning, which was decided by the political leadership almost a decade before Independence.
• Mass poverty could only be remedied once the government started the process of economic planning. Economic planning was thus considered an established tool of doing away with such disparities.
• The dominant force behind planning in India, at least after Independence, was Nehru himself who had strong socialist learning. He thought it important to define the role of the state in the economy.
• Planning under recent conditions thus means, in practice, an economy guided and directed by the state and operated partly through direct state action and partly through private initiative and effort.
• By early 2015, we saw some major changes taking place in the area of planning in India. The Government replaced the existing body, Planning Commission, with the NITI Aayog.

4. Emphasis On The Public Sector

• The state was to be given an active and dominant role in the economy, it was very much decided by the time India became independent.
• Naturally, there was going to be a giant structure of the government –controlled enterprises to be known as the Public Sector Undertakings (PSUs).
• We may understand the reasons behind the ambitious expansion of the PSUs in the face of the following major requirements.

a. Infrastructural Needs-

• Every economy whether it is agrarian, industrial or post-industrial, needs suitable levels of infrastructure such as power, transportation and communication.
• These sectors require too much capital investment as well as heavy engineering and technological support for their development.
• Expansion of Infrastructure sector was considered not possible by the private sector of the time as they could possibly not manage the following components:
• Heavy investment (in domestic as well as foreign currencies)
• Technology
• Skilled manpower
• Entrepreneurship

b. Industrial Needs-

• India had opted for the industrial sector as its prime moving force.
• Now there were some areas of industries which the government had to invest in, due to several compulsive reasons.
• The new series of Index of Industrial Production include eight industries. These industries are as follows:
• Refinery products
• Electricity
• Steel
• Coal
• Crude oil
• Natural gas
• Cement
• Fertilisers
• These basic industries also require high level of capital, technology, skilled manpower and entrepreneurship.

c. Employment Generation-

• The Public sector undertakings (PSUs) were also seen as an important part of the employment generation strategy.
• Giving employment to poor people is a time-tested tool of poverty alleviation. The PSUs were thought to create enough jobs for the employable workforce of the economy.
• Government decide to provide reservation to the weaker section of the society in government jobs.

d. Profit and Development of the Social Sector-

• The investment to be made by the government in PSUs was in the nature of asset creation and these entities were to be involved in production activities.
• It was natural for the government to gain control over the profits and dividends accruing from them.
• The goods and services the PSUs produced and sold provided disposable income to the government.

e. Rise of Private sector-

• As the Public Sector Undertakings took the responsibility of supplying the infrastructure and the basic industries to the economy, a base for the rise of private sector industries was slowly established.
• With the rise of private sector industries in the country, the process of industrialisation was thought to be completed.