Evolution of India’s economic policies and their impact

Source: The post evolution of India’s economic policies and their impact has been created, based on the article “Revamping corporate governance” published in “Business standard” on 20th August 2024

UPSC Syllabus Topic: GS Paper3- Indian Economy and issues relating to planning, mobilisation of resources, growth, development

Context: The article discusses the evolution of India’s economic policies, emphasizing shifts from planned development in 1951 to liberalization in 1991. It highlights the need for government neutrality in corporate relations and stronger competition policies to achieve developed nation status by 2047.

For detailed information on India’s Economic Growth and challenges read this article here

What Were the Major Economic Transformations in Independent India?

1. 1951 Planned Development: India launched its First Five-Year Plan in 1951, marking the start of planned economic development. This period focused on public sector growth, especially in heavy industries, with private investment also increasing.
2. 1991 Economic Liberalization: In July 1991, India liberalized its economy, reducing government control over investment and foreign trade, leading to a significant increase in private sector participation.

How Did the India’s Economic Policies Impacted Its Growth?

1. The 1951 shift led to public-sector-focused growth, particularly in heavy industries, with private investment also increasing.
2. The average annual growth rate rose from 0.5% before independence to much higher levels post-1951, marking a substantial improvement.
3. In 1951, India’s share in global merchandise exports was 1.9%, but it fell to 0.4% by 1980 during the first transformation phase. Despite this decline, India’s share in world manufacturing exports doubled during the high-growth phase from 2003 onwards, reaching 1.8%, still slightly below the 1951 level.
4. The 1991 liberalization reduced government control, opened banking to private players, and led to a massive increase in capital issues, from 2600 crore in 1981-82 to 21.5 trillion in 2021-22.
5. India’s share in global commercial service exports increased from 0.6% in 1990 to 4.3% in 2023, showing the positive impact of these policies on global trade participation.

What Is the Role of the Public Sector in India’s Growth?

1. Public sector corporations in India have historically been pioneers in technology development, contributing significantly to the country’s growth.
2. These corporations have produced a large pool of technologically skilled professionals, many of whom have been recruited by the private sector.
3. While the government currently views public sector corporations as liabilities and aims to privatize them, this approach overlooks their potential.
4. Public sector entities are crucial in managing monopoly infrastructure, preventing private corporations from exploiting market power.

What Changes Are Needed for India to Become a Developed State by 2047?

1. Market-Friendly Government: Shift from promoting selected corporations to a neutral, market-friendly approach. Avoid cronyism and allow the market to guide growth.
2. Strengthen Competition Policy: Enhance the role of the Competition Commission to drive management dynamism. Reduce barriers on takeovers to encourage professional management over family-run businesses.
3. Reevaluate Public Sector Corporations: Recognize public sector corporations as assets. Support them in managing monopoly infrastructure to prevent private sector exploitation.
4. Focus on Technology and Exports: Encourage corporations to focus on product and process technologies.

Question for practice:

Examine the major economic transformations in India since independence and how these have impacted the country’s growth trajectory.