As of 2023, the Indian economy is ranked fifth in the world in terms of nominal GDP and is currently Asia’s fastest growing economy. While the country has managed to stay afloat after the COVID pandemic and even overtake the UK, it has not always been this way. So why have we only witnessed economic prosperity in the past 30 years?
British India consisted of the countries we now know as India, Pakistan and Bangladesh, as one land under British colonial rule. It was only on the 15th of August 1947 that India gained independence, and it brought dreams of economic, social and political freedom. The original holders of British India, the British East India Company, whose political power expanded in India from 1757 onwards, used revenue generated by the provinces for purchasing Indian goods, spices and raw materials as well as waging wars in Europe, so less of the revenue would be spent on development. This ruthless exploitation caused India’s economy to deteriorate, even after the British Raj took over after the company’s dissolution. As per British economist, Angus Maddison, India’s share of the world income went from 27% in 1700 (compared to Europe’s share of 23%) to 3% in 1950. (Livemint, 2019). A total of $45 trillion was taken.
India then started to rebuild their economy in the 50s after deindustrialisation; the citizens were subject to many famines and over one sixth of the population were illiterate. They formed a command economy, which is essentially when the state makes economic decisions regarding distribution of resources, and they decided to focus primarily on investing in infrastructure, irrigation & agriculture. (Livemint, 2019) This was to boost the establishment of modern industries such as scientific and technological programmes and increase farm outputs since trade heavily relied on it, but despite all efforts this was proven unsustainable and did not achieve the level of growth intended for the next three decades. (Livemint, 2019)
However, 1991 was a pivotal year for the nation. Due to an excess reliance on imports and loss of confidence in the government, a severe current account deficit (when the value of imports is greater than the value of exports) occurred, so India was suddenly facing its worst economic crisis yet. In order to improve this economic climate, a decision was made to liberalise the economy by loosening restrictions in the private sector to allow growth. In addition, a man named Ramachandra H. Patil, helped set up the National Stock Exchange of India and other institutions that changed India’s capital market, allowing tech driven trading exchange and removal of entry barriers (Livemint, 2019) . Since then, the economy has progressed tremendously with GDP progressing at the rate of 6-8% per annum.
The highest contributor currently to India’s economy is domestic consumption which accounts for around 60%, particularly in the service sector when barely fifty years ago it accounted for a tiny fraction of GDP. But India now steadily catching up with China to become the most populated country (Worldometers, 2023), far more people are purchasing goods and services compared to 20 years ago. This has also been aided by the great progress in reducing extreme poverty over the past two decades – from 2011 to 2019, the country is estimated to have halved the share of the population living in extreme poverty (World Bank, 2021). The government has also invested heavily in scaling up national access to quality primary and secondary education. Fortunately, more than 50,700 women especially have benefited from these improvements and has allowed the labour force in India to increase in size and quality, which will improve the economy’s productivity and efficiency. (World Bank, 2021)
A lot of India’s economic growth also arises from international trade. Today India’s major trading industries include: information technology, textiles, chemicals, processed foods, steel and electronics. Agriculture, a significant industry that was once India’s main source of revenue and income, it started to face problems when water from monsoons necessary for crop production became insufficient (Page, 2022). It is for this reason that several economists feel there needs to be a shift in the sector most workers specialise, as currently 45% of India’s workforce is employed in the farm sector, which contributes just 15% to the economy. (Al-Jazeera, 2023) However, despite this, India is still the leading global producer of bananas, mangoes, papayas, and limes, which are exported to its top trading partners such as the UAE, Saudi Arabia and Russia. (Page, 2022)
While the country has faced many obstacles to achieve the growth it has today, the huge domestic consumption, rising income levels, investment opportunities, and younger population will establish future growth. By 2050, it is forecasted that there will be an immense “tectonic shift” in the economic structure of the world, with China and India’s share in world output projected to surpass the USA (PwC, 2017), so many of us may witness this shift in years to come.
Bibliography:
www.aljazeera.com. (n.d.). India’s economy picks up speed amid global slowdown. Available at: https://www.aljazeera.com/economy/2023/5/31/indias-economy-picks-up-speed-amid-global-slowdown.
The World Bank (2021). Overview. World Bank. Available at: https://www.worldbank.org/en/country/india/overview
Page, V. (2022). How India Makes Money. [online] Investopedia. Available at: https://www.investopedia.com/articles/investing/043015/fundamentals-how-india-makes-its-money.asp#:~:text=Historical%20Development%20of%20India.
Livemint (2019). A short history of Indian economy 1947-2019: Tryst with destiny & other stories. [online] Available at: https://www.livemint.com. https://www.livemint.com/news/india/a-short-history-of-indian-economy-1947-2019-tryst-with-destiny-other-stories-1565801528109.html.
HISTORY OF INDIAN ECONOMY Ancient times till 1707 AD. (n.d.). Available at: https://cgijeddah.gov.in/web_files/267622636-History-of-Indian-Economy.pdf.
www.gktoday.in. (n.d.). India’s Export of Fresh Fruits – GKToday. [online] Available at: https://www.gktoday.in/indias-export-of-fresh-fruits/#:~:text=The%20major%20destinations%20of%20exports
Worldometers (2023). India Population (2019) – Worldometers.
Worldometers.info. Available at: https://www.worldometers.info/world-population/india-population/.PwC (2017). The World in 2050. [online] PwC. Available at: https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html
