The rise of the Asian Tiger: India's economy through the years

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Currently, India is the 5th fastest growing economy in the entire world, with the number 3 being the Indian economy’s rank in Asia. That said, it wasn’t always in such a great position. In fact, for the better part of the 20th century, we found ourselves in precarious economic and financial situations numerous times. And so, in this chapter of Smart Money, we’re going to be tracing back to our roots to take a look at the growth of the Indian economy into the behemoth it is right now. Let’s begin.

Post-independence

After being ruled by the British for decades, India was finally granted independence in 1947. However, the events leading up to the independence and immediately afterward such as the partition, the mass migration, and general disorderliness had left our economy in shambles.

The country was reeling from poverty and lack of education and literacy. India’s share of the world economy was at its lowest at around 3.8% in 1952, down from about 22.6% in 1700. And the GDP per capita was hovering from $500 to $600 in 1950.

During 1950 to 1965

The policies of India's first independent government headed by our first Prime Minister Jawaharlal Nehru were overwhelmingly in favour of the state rather than private businesses. And thus began our economic journey spearheaded by the state and its public sector businesses.

The first focus of Jawaharlal Nehru was to bolster industries and the manufacturing sector to boost economic growth, which it did to an extent. From 1950 to 1965, India’s GDP per capita rose by an average of 1.7% to almost $800.

During 1965 to 1975

Starting from 1965, the country went through a massive green revolution, which completely transformed the agricultural industry through the use of high-yielding seed varieties, better irrigation, and increased use of fertilizers. The green revolution effectively strengthened the productivity of crops and crop patterns.

This was effectively followed by the white revolution, which boosted the dairy sector through cooperative movements. During the ten years from 1965 to 1975, India saw a rise in its GDP per capita to around $1,000. The Indian GDP rate of growth was also at its highest at 9.15% in 1975.

 

During 1975 to 1991

The 16-year period from 1975 to 1991 saw many changes. The imposition of emergency by Indira Gandhi, the election of the Janata party, and the subsequent re-election of the congress party were a few of the political changes that happened during this time. Demonetization of Rs. 1,000, Rs. 5,000, and Rs. 10,000 currency notes by Prime Minister Morarji Desai of the Janata Party and the exit of Coca Cola and IBM due to the stringent Foreign Exchange Regulation Act, were a few of the notable economic developments of that time.

Despite going through such severe changes on both the political and economic fronts, the growth of the Indian economy continued, with its GDP per capita rising all the way up to around $1,500 in 1991, with the GDP growing at an average of around 4.55%.

Post liberalization

1991 was the year the country’s economy transformed completely. Dubbed Economic Liberalization, the efforts of the then Prime Minister V. Narasimha Rao and his Finance Minister Manmohan Singh bore tremendous fruit as our country’s economy shot up with the GDP doubling every five years till 2010. The GDP per capita rose from around $1,500 in 1991 to about $6,000 in 2011, which was an exponential increase.

Ending the license raj, public monopolies, and ushering in free trade during the liberalization period seemed to have finally done the trick of putting India on the map amongst the heavyweights.

During 2011 to 2020

The exponential growth that India witnessed, finally slowed down starting from the year 2012, where the Indian GDP rate of growth was at 5.6%. That said, it didn’t last long and we were once again on the path to growth starting from 2013 - 2014. After touching another high of 8.3% in 2016, the GDP growth rate slowed down once again to 4.2% in 2019. Although the onset of the COVID-19 pandemic in 2020 effectively crippled our vibrant economy, we are already on the path of recovery, exceeding the expectations of experts.

Wrapping up

Taking the rise of the Indian economy from the ashes into account, if the current growth trajectory was to continue for another few years, our dream of becoming a $5 trillion economy may just not be that far away.

A quick recap

  • India’s share of the world economy was at its lowest at around 3.8% in 1952, down from about 22.6% in 1700. And the GDP per capita was hovering from $500 to $600 in 1950.  
  • The policies of India's first independent government headed by our first Prime Minister Jawaharlal Nehru were overwhelmingly in favour of the state rather than private businesses. 
  • Starting from 1965, the country went through a massive green revolution, which effectively strengthened the productivity of crops and crop patterns. 
  • This was effectively followed by the white revolution, which boosted the dairy sector through cooperative movements. 
  • Another turning point in the Indian economy was the liberalization of 1991. 
  • The exponential growth that India witnessed, finally slowed down starting from the year 2012, where the Indian GDP rate of growth was at 5.6%. That said, it didn’t last long and we were once again on the path to growth starting from 2013 - 2014. 
  • Although the onset of the COVID-19 pandemic in 2020 effectively crippled our vibrant economy, we are already on the path of recovery, exceeding the expectations of experts.

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FAQ'S

Different theories exist about the three pillars of the economy. Commonly, experts consider households, corporations and banks as the three pillars. Another school of thought considers gross domestic product (GDP), personal income, and employment as the three pillars of economic analysis.
Primarily, the sectors in the Indian economy are grouped into three categories: primary, secondary and tertiary. On taking a closer look, we find that there are around 30 sectors in the Indian economy.
The Gross domestic product (GDP) is the most commonly used metric to measure the size of an economy. It measures the monetary value of final goods and services produced in a country in a given period of time.
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