Challenges of Indian Economy Post-1991

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.

Indian Agriculture after independence: Land reforms the beginning

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.

The challenges before the leadership were to reverse the distortions of agriculture under colonialism and change its direction to a high growth path. The technological and integrated development was needed like cheap credit, agriculture research, farmer training, land consolidation, removal of intermediaries, tenancy reforms , cooperative farming. The main parameters of the reforms were a legacy of the national movement.

Land Revenue demand

High land revenue due to British policy ensured no capital was left for investment or even subsistence. The rigid system forced farmer to go through illegal levies and become indebted. The Congress right from its inception demanded that there should be a permanently fixed low land revenue in order for the farmer to have capital for investment. Some economists criticized the exploitative relationship between Landlord-Tenant for the farmers misery. Thus mostly the demand was for a permanent tenure and low rent. Justice Ranade argued for a radical structural transformation of subsistence farming into Capitalist farming where the upper strata of farmers would become businessmen and small and marginal farmers would be independent of landlords and subject to a fixed low tax. This system was the most economical one given and widely accepted by the Congress and the Government of India at the time of independence. The demand of the peasantry would find expression in the form of riots but these were directed at the landlords or middlemen and not the colonial state. The turn of the 20th century saw integration of peasant and national movement with each deriving benefit from the other. The national movement focusing on including agrarian issues on its agenda and the peasants too forming National organizations to address their class issues.

No rent, No tax campaigns were a part of the Civil disobedience movements. Even the Karachi session of the Congress saw many fundamental rights being drawn and included peasant rights as well. The Faizpur session of the congress too saw many peasant resolutions being passed. The Kisan congress, socialists and communist parties like peasants and workers party too saw a increasing focus on class rights. Thus even peasant rights were now a national issue. Gandhiji too had said that there could be no freedom without the support of the millions of poor made congress and the national movement a pro-farmer movement. The 1937 elections saw congress rise to power and it tried to alleviate many problems of the agriculture sector. However they had to face problems as their powers were limited. They also had to balance the interest of zamindars and landlords too. Otherwise these sections would side with the British. Agrarian crisis saw increasing radicalization of Mahatma Gandhi who would say that soon the peasants would seize the lands of the landlords. He firmly believed in land for the tiller. He was also of the view that the State after independence would take the zamindar’s land and distribute it to the cultivators.

Aim of Land Reforms
  1. Abolition of intermediaries
  2. Cooperative farming
  3. Consolidation of land holdings
  4. Tenancy reforms
  5. Ceiling on land holdings

Land Reforms implementation

Process of land reforms occurred in two phases: Phase of institutional reforms which included abolition of intermediaries, tenancy reforms, ceilings on land holdings, co-operativization and community development programs. Phase of technological reforms which saw the implementation of the Green Revolution. These two phases weren’t separated from each other but overlapping.

Zamindari abolition

The states after independence moved bills to transfer land to the tiller and abolish zamindari system. However they knew that such actions were to be challenged in courts by the zamindar’s. Hence even at the national level the constitutional provision was written in such a way that state legislatures shall decide the compensation and this would be in favor of the tenant. The zamindar’s however moved the high courts and the Supreme court and were able to invalidate the reforms. The constitution makers now agreed to amend this part of the constitution making compensation a non justifiable right and thus boosted the efforts of the state. The zamindar’s however continued their efforts of stalling implementation of the reforms by using legal means.

The other hurdle in zamindari abolition was lack of land records. But inspite of this the zamindari abolition proceeded in a non violent manner with no coercion. The reforms could be implemented due to the social isolation of the zamindars by the others who considered them to be agents of imperialism. However reforms against the rich peasantry which was very much a part of society and freedom struggle turned out to be difficult and almost impossible.

The tenants now became landowners in many parts and tenancy declined. However one other reason for this was eviction of tenants and assumption of land tilling by the landowners themselves directly. The compensation paid by the tenants to the zamindars depended on the composition of the congress leadership, class distinction between thelandowners and the peasants or the strength of the peasant movements. UP model stated that the relationship between land holdings and compensation be inverse.


The movement suffered from serious weakness due to land being a state subject. Each state had its own strategy. UP allowed landowners to retain land for personal cultivation. Also personal cultivation was defined in a loose manner to allow even supervision over cultivators. The ceiling on land holdings too was absent which meant that land owners would evict tenants.

State legislatures too were used by the landlords to stall implementation. Lengthy discussions, repeated amendments, adjournments and reference to select committees was done and so actual introduction to passage was divided by many years. The legal means too were used and court cases were fought till the Supreme court. Even after the unfavorable verdict the landlords would refuse to handover the land records forcing governments to reconstruct land records which was time consuming. The lower level bureaucracy which earlier was rent collection agent for the zamindars too sided with them. 

However the land reforms were completed within a decade of independence. The main beneficiaries of these were the upper tenants who had written records of tenancy. They now became landowners. The share-croppers or tenants at will who were given oral leases to cultivate by the landlords were not benefited.

Tenancy Reforms

The abolition of zamindari had failed to remove all problems of the tenants. There still existed tenants at will who were leased land on basis of oral agreements and who worked either for superior tenants or the landlords who still controlled claiming it was under personal cultivation. Also tenants that were in the erst while Ryotwari or Mahalwari India which was around 70% of the country had got no benefits from the Zamindari abolition.

States now took initiative by legislative measures for solving the problems of such tenants. Here too the solutions differed from state to state but the essential goals were: Fixed tenure for the tenants and thus protection from arbitrary removal; Ownership of land by paying suitable amount; Reduction in lease amount payable.

However actual implementation wasn’t so easy. In all states the rights of both the small landowners as well as the tenants were to be protected using a system of floors and ceilings. The landowner if has a small holding could keep it entirely for cultivation. The landowners now transferred lands to relatives to become small landowners and evicted their tenants. The tenants too were protected and not their entire land holding could be recovered after their tenancy period. The land lords too were protected by preventing the tenants from purchasing the entire lands of the landlord. Most of the landlords used the delay in passage of bills to evict potential beneficiaries. 

The other effect of tenancy reforms were increase in share-croppers. These didn’t pay cash rent but instead gave a share of the produce as rent. No legislation provided protection to the share croppers and so many of the tenants at will were forced to convert into sharecropper by the landlords.


Despite being successful in converting tenants into landowners in substantial numbers the tenancy reforms too had many disadvantages. Primarily the implementation agencies were states and they had their own rules and techniques. Some allowed loopholes like high land ceilings and personal cultivation to the landlords. This meant that tenants could be evicted at will. Share-cropping also meant no legal protection.

Large number of tenants on limited land meant that giving all tenants land parcels would violate the minimum floor for the landlord. This measure too was exploited by the landlords. The tenancy reforms couldn’t be enforced unless tenants had certain rights against arbitrary eviction. Most of tenancy problems were due to large number of tenants and less available land. This gave advantage to the landowners.

The superior tenants had now become virtual landowners after zamindari abolition and tenancy reforms. They had no incentive in becoming landowners as it would mean legal hassles and other problems.

After independence the land reforms were initiated in India. These had been influenced to an extent by the peasant movements in the freedom struggle. Tenancy reforms and zamindari abolition were based on that influence. However co-operativization and community development weren’t and so were Indian innovations after independence. Some have criticized these innovations as not being in the interest of farmers and not being suitable for them. However these land reforms more or less have managed to restore the agrarian structure. Farmers could now be incentivized to invest in land and boost their incomes.