Economic reforms in India
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Economic reform in India is something which is under close study. The phrase is commonly used to describe post-1991 events. The country however has seen a number of distinct eras, which had definite differences from the economic practices of the previous eras. In a sense, economic reform can be said to have started with the first large scale integration of the country from many small kingdoms and provinces to a large entity under one government.
The Pre-British Era
This was a period in Indian history where for the fist time, large areas of the land was brought under the control of a single entity either the Lodhis, The Suris or the Mughals. Though coinage and commerce with neighboring states was practiced, it is in this era that noticeable use of Macroeconomic stimuli like building of roads, tombs and gardens was introduced (most likely unconsciously). Large scale building projects like the Grand Trunk Road (2500 kilometers long - 16th Century), Tuglakabad, Fatehpur Sikri, Taj Mahal were carried out in this period. This led to urbanization of alternate locations and creation of skilled labor pools, concentrated around these cities. This process started with the Suris (notably Sher Shah Suri) and ended with Aurangazeb.The British Era
Even under the Delhi rulers, India was not fully integrated under one government. The Western and Southern parts of the country were still outside the influence of the Dilli empire. With the arrival and the rapid establishment of the British East India Company as a single trading block, the economic landscape changed. With the Company influencing decisions in different parts of the country, there was a general direction given to the governance and to the economy as such. The British soon formalized the colonization of the country and with this, the economic policies began to reflect those of the British Empire.Large-scale trading with other countries and the formation of industries like textile and steel happened in this era. This also saw the discovery of petroleum and the setting up of a refinery in Digboi, Assam.
The British Era was characterized by the country growing into an economic block and also by industrialization of many parts of the country notably Bombay (now Mumbai), Calcutta (Kolkata) and Madras (Chennai).
The Nehruvian Era
This era started out with the independence and was marked by a high degree of uncertainty with respect to the direction the country had to take. Nehru was enamoured by the Socialist model of development and envisioned an economy directed by the government. The country under him adopted the Socialist model of development. This marked, in a sense, a reform from the British economic model. Under this model a Planning Commission was set up and a process of generating Five-Year Plans was initiated.The central idea was that the country had to progress in orderly steps. The first plan focused on Agriculture and the second on Industries. Though Agriculture remained shackeld by lack of labor reform, industrialization picked up in a big way. The large industrial institutions that today form the Navratnas had their roots in this period, either as separate companies or as departments in the respective ministries.
Macroeconomically, this period was important in that the country saw a large amount of investment in the infrastructure sector. This period saw large projects like dams, steel plants, refineries, fertilizer plants, hydel power stations etc. being built. This era also saw the establishment of the premier education institutes of India, like the Indian Institute of Technology, the Regional Engineering Colleges, which focused on development of human capital. These institutions of this era have formed the backbone for supply of the manpower to the technology sector.
The initial success was not matched and the country was not able to generate enough capital to sustain growth. Planning estimates often went awry and delays became commonplace. Subsequent to the Chinese War of 1962 the economy was in shambles and the reform in agriculture had failed. India by this time had to depend on aid of food from the US and other countries. The PL-480 wheat from the US had become a symbol of the collapse of this mode of development. 1960 alone saw $1524 Million in aid from USAid. [link]
The Nationalist Era
The period after Nehru was politically fluid and notable reforms did not happen immediately. After Indira Gandhi became the Prime Minister, the economic process in the country changed direction. Till this period, the state was primarily a planner of the growth, with high degree of private participation. From this period onward the state became the planner and the executor of macroeconomic policies.
This period saw the success of the Green Revolution which effectively freed India from starvation. There was lesser dependence on aid.
Mrs. Gandhi had a deep suspicion of foreign companies and this led to the nationalization of all foreign-owned companies. Primarily the nationalization was done in the banking and the refining sectors. This period saw the formation of large companies in these sectors. Notably Indian Oil Corporation, Hindustan Petroleum, Bharat Petroleum. The State Bank of India became a parent organization for these banks and all banking was brought under the Reserve Bank of India.
During the seventies, India moved closer to the Socialist bloc and the development was often in collaboration with these countries. A number of Indian companies tied up with Russian or Soviet Bloc companies to manufacture products in India. This led to some degree of high technology finding its way into the Indian industries. However, this period was characterized by the near total withdrawal of Western companies from India.
Despite near complete food sufficiency, this period saw very little overall development of the country. An emergency saw a change of government resulting in a non-Congress coalition forming the government. This government introduced a Two-Year planning process understanding the requirement of faster change in plan allocations. The government collapsed and the later government under Mrs. Gandhi went back to the five-year plans.
The major successes in this period were the development in space and nuclear frontiers.
After the assassination of Mrs. Gandhi in 1984, Rajiv Gandhi became the Prime Minister. The overwhelming majority for this government allowed for some bold deisions on the economic front. This period saw the opening up of the telecom sector and the focus on high-technology.
Though there were some positives, the general impact of this period has been largely negative. Investment stagnated and to fund government investment, tax rates were very high, (more than 50% in some cases). The savings rate was also poor. To further fund and sustain its expenditure, government had to rely on internal and external debt. The debt figures were huge and most of the new aid and debt was going towards servicing these debts.
The First Gulf War saw high oil prices and the Indian economy, largely dependent of Gulf oil was on the verge of collapse. There was a debt repayment crisis and the forex reserves were near zero. This period saw India pledging its gold to boost up reserves. With this balance of payment crisis the nationalist period also came to an end.
== The Post-Reform Era ==Once the short term was delt with India embarked on structural reform of the economy.
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