The post reform economy continued to bloom even though there were still many structural factors that created a bottleneck. The country achieved a far greater growth rate than during the pre-reform period and more than the so called “Hindu Rate” of 3-3.5%. It was able to sustain growth levels during the East Asian crisis and events that threatened World economy like the oil shocks, 9/11 attacks. The macro-economic fundamentals too strengthen. However on the flip side India also saw out going FDI as Indian companies bought businesses abroad. It also increasing volatility from external factors as foreign investment in its capital markets increased. However some critics have argued that opening up the economy has made India victim of “Neo-colonialism”. This means giving up of the principles of self reliance and equity which were the basis for the Nehruvian era and pursuing neoliberal policies dictated by Western countries which would lead to indigenous industrial stagnation if not De-industrialization. However such apprehensions haven’t been supported by facts. Indian economy saw foreign investment but this never acquired a dominant stake in the economy. The role of indigenous industry has been high and unlike China Indian industry produces more domestically branded products with high domestic content and domestic ownership.
One of the important factors on which the economy was challenged was poverty. It was estimated that the poverty levels had fallen consistently during 1990-2005. However different methodologies were used with each yielding different results. Rising inequality led to lesser number of people benefiting from growing economy. The absolute number of people who are poor is still high in India. Despite the high growth nearly a third of the population remained illiterate and even those who go to schools find the quality poor. The main tool of social mobility for the poor which is education thus remained deprived. The other indicators like immunization, health and education too didn’t rise as fast as the GDP growth. This made India among the middle level countries in terms of Human Development Index. Agriculture growth remained sluggish and even employment in agriculture suffered. One reason could be lack of funds for infrastructure and training as sizeable went in agriculture subsidies. Indian economy also went from Agriculture dominant to service dominant without Manufacturing dominant phase. This meant that unlike other economies manufacturing remained stagnant and so Indian growth story is sometimes called “Jobless growth story”.
The challenge for the government was not having high levels of growth but making this inclusive and sustainable. The growth in the first two decades of independence was less than that during the next two decades of independence. However in terms of inclusiveness of growth the first decades prevailed. This was due to strong leftward tendency of the country. The grass-root mobilization and urgency in bringing growth to the poor made it possible. The tremendous number of people who have been without education are ensuring that the demographic dividend isn’t reaped by India. Thus high population shall become a bottleneck instead of a boon as India has the youngest population of working age. Already the industry is facing a crunch in skilled manpower and this is affecting their growth. Thus, Today India has achieved high growth but inclusiveness and sustainability go hand in hand and both are needed to continue this story.
Colonialism came into India from the 1700’s and prior to this India was a dominant force on World economy. It accounted for 30% of World’s GDP at a time and this was halted by colonization. Indian exports of spices, metals, cotton were what attracted the World to it. Thus agriculture was the dominant force of the Indian economy and its backbone. Colonization changed the structure of this economy and it became subjugated to the economy of the mother country. Overall the proportion of India to World trade and GDP was now measly. The forces of colonialism introduced new elements to the agriculture system in India. It shattered the basis of traditional agriculture and brought in new forces like commercialization and differentiation between peasantry. Unlike in capitalist countries where a capitalist or rich farmer emerged India saw emergence of Landlord – Rentier structure. Thus agriculture transformation had a weakening effect on it.
The system of revenue collection under British system was of Three types: Ryotwari where direct settlement was made with Farmers. This system was seen in 51% of India consisting states like Madras, Bombay and Assam. Here the revenue system was inflexible and high leading to enormous indebtness of the farmer. The landlord – moneylenders took advantage of this system. Since no capital was invested in land nor farmer the agriculture productivity remained dormant. The rural households having unprofitably small land holdings increased. The second system of land revenue was the Zamindari system prevalent in Bengal and Bihar which covered 19% of India. Here rent was collected by zamindar’s and his intermediaries. The land revenue was high and the collection system was rigid. Both peasants and zamindar’s suffered in this system. The British too suffered as the value of the produce increased but it didn’t bring any added benefits to them. The peasant remained oppressed, indebted with no capital to invest. The zamindar’s controlled holdings and many tiers of intermediaries were present. Absentee landlords were a result of this system. Remaining 30% states of India had Mahalwari system where revenue was obtained from entire village.
All these systems would oppress the tenants. Nearly 60-70% of the land holdings belonged to the landlords. The pressure on agriculture also had increased since British destroyed the handicraft industry and made no alternative available to the artisans. The fragmented landholdings also made it difficult to have profitable agriculture. Around 50% of the revenues collected by Britain came from land revenue and it was an important part of the drain of wealth from India. The British never invested a fraction of what they extracted from agriculture. The agriculture production continued to degrade. The landholdings became too fragmented. Even the credit needs of the farmer were met mostly from private sources rather than government and commercial banks. Famines and droughts too affected millions during pre-colonial times. Thus during independence these problems had to be dealt with and this affected the planning process. A large amount went in food imports rather than being invested into agriculture development.