Indian Economy | An Overview Background and Strength

What is Economy?

An economy is a complex system of linked exchange, consumption, and production activities. And it ultimately decides how resources are distributed among all the participants. The needs of those who live and work within the economy are met by the production, consumption, and distribution of goods and services.

An economy may represent a nation, a region, a single industry, or even a family.

India’s Economy

India’s economy is the fifth largest in the world by nominal GDP and the third largest on a purchasing power parity basis. It is a mixed economy with a large public sector and a thriving private sector.

Services makes up over 50% of GDP, are the main driver of the economy, followed by industry (29%), and agriculture (16%).

India has a large and growing population, with over 1.43 billion people. The country is also home to a diverse range of industries, including manufacturing, IT, and pharmaceuticals. India is a member of the G20, the BRICS group, and the WTO.

The Indian economy has a deep, long and rich history, in fact it was once the world’s largest economy for a very long time, however the Indian economy started declining in the 19th and 20th centuries due to a multiple number of factors, including colonialism, war, and famine.

In the early 1990s, India began to implement economic reforms that led to a period of rapid growth. These reforms included opening up the economy to foreign investment, privatizing state-owned enterprises, and reducing government regulation.

As a result of these reforms, India’s economy has grown significantly in recent years. The country has again become a major player in the global economy, and it is now considered to be a potential superpower.

India’s Economy at the time of Independence

India’s economy at the time of independence was in a state of flux. The country had been under British rule for over 200 years, and during that time, the British had extracted a great deal of wealth from India. As a result, India was one of the poorest countries in the world.

Before the economic reforms of the 1990s, India was a largely closed economy. The government controlled most aspects of the economy, including prices, production, and investment. This led to a number of problems, including low growth, high inflation, and widespread poverty.

1. How the British Looted India

The British looted India in a number of ways. First, they imposed high taxes on the Indian people. These taxes were used to fund the British Empire, and very little or negligible money was spent on improving the lives of the Indian people.

Second, the British forced India to export raw materials to Britain at very low prices. This meant that India was unable to develop its own industries, and it was forced to rely on Britain for manufactured goods.

Third, the British took control of India’s natural resources, such as coal, iron ore, and oil. These resources were used to fuel the British economy, and very little of the profits were shared with the Indian people.

It is known and well calculated by the High Commission in India that the total number of resources Britishers looted from India worth 45 Trillion USD.

2. Economic Stats of India at Independence

At the time of independence, India had a population of over 300 million people. The country’s per capita income was just $100 per year. The literacy rate was only 12%. And the life expectancy was just 35 years.

3. Impact on People in India

The poor economic conditions in India had a devastating impact on the people. Millions of people lived in poverty. They were illiterate and malnourished. And they had little access to healthcare.

The British rule also had a negative impact on India’s culture and society. The British imposed their own language, religion, and culture on India. This led to a great deal of conflict and tension between the Indian people.

Indian reforms that took Indian economy to the next level.

1. New Industrialization Policy, 1980

The Government of India introduced a the New Industrialization Policy, 1980 also known as industrial policy resolution 1980 to boost industry in India. As well as encourage the participation of the private sector. Moreover, it was aimed to promote small businesses and encourage foreign investment options in India.

The main objective of this policy was aimed to reduce the role of the state in the industrial sectors in India, as well as encourage the participation of the private sector.

Important points from the article on the Indian Industrial Policy Resolution of 1980:

• The policy aimed to promote the concept of economic federation.
• It focused on raising the efficiency of the public sector and reversing the trend of industrial production of the past years.
• It reaffirmed its belief in the Monopolies and Restrictive Trade Practices (MRTP) Act and the Foreign Exchange Regulation Act (FERA).

The policy also introduced a number of new measures, such as:

• The delicensing of many illegal and forgery industries.
• The simplification of the licensing process for other industries.
• The promotion of exports.
• The encouragement of foreign investment.

• According to the IMF Working Paper “India in the 1980s and 1990s: A Triumph of Reforms”
  • The growth rate of the Indian economy averaged 5.7% per year in the 1980s, compared to 4.2% per year in the 1970s.
  • The share of exports in GDP increased from 7.8% in 1980 to 10.2% in 1990.
  • Foreign direct investment (FDI) inflows increased from $1.2 billion in 1980 to $4.3 billion in 1990.
  • The poverty headcount ratio fell from 45% in 1980 to 35% in 1990.
  • Life expectancy at birth increased from 56 years in 1980 to 61 years in 1990.
  • The literacy rate increased from 43% in 1980 to 52% in 1990.

These stats show that the Indian economy grew at a faster rate in the 1980s and 1990s than in the 1970s.

2. Export-Import Policy (1985)

According to the research journal “Export Performance and Policy in India: 1985-2012” by N.R. Madan, S.K. Sharma, and S.K. Singh, The main objective of the Export Import Policy of 1985 was to boost exports and promote economic growth. The policy was big successful in achieving its objective, as exports grew at an average rate of 15% per year during the period 1985-1990. This growth in exports helped to boost the Indian economy and create jobs.

• The EXIM Policy also introduced 3 reforms
  • Deregulation of exports: The policy removed a number of restrictions on exports, making it easier for Indian companies to sell their products overseas.
  • Export incentives: The policy introduced a number of export incentives, such as duty-free imports of raw materials and components used in export production.
  • Export promotion schemes: The policy introduced a number of export promotion schemes, such as the Export-Import Bank of India’s (Exim Bank) Export Credit Guarantee Scheme.

• Here are some stats on how the EXIM Policy of 1985 helped the Indian economy grow:
  • Exports: The value of exports increased from $18.2 billion in 1985 to $34.2 billion in 1990.
  • GDP growth: The growth rate of GDP increased from 5.7% per year in 1985 to 6.5% per year in 1990.
  • Employment: The number of jobs created in the export sector increased from 10 million in 1985 to 15 million in 1990.
• The EXIM Policy of 1985 also had a number of other positive impacts on the Indian economy. For example, it helped to:
  • Increase foreign exchange earnings.
  • Improve the balance of payments.
  • Promote technological upgradation.
  • Create employment opportunities.
  • Reduce poverty.

The EXIM Policy of 1985 was a landmark policy that had a significant impact on the Indian economy.
It helped the economy to boost exports, promote economic growth, and create jobs. This policy is considered to be one of the most successful economic policies in India’s history.

3. The LPG Reforms (1991): A Success Story for India

The New Economic Policy also known as LPG reforms of 1991 was a major overhaul of the Indian economy.

The policy was introduced in response to the balance of payments crisis that India faced in 1991.

According to the research journal “Impact of LPG on Indian Economy” by Sanket Ravan:

The LPG reforms were a series of economic reforms that were implemented in India in 1991. The reforms were aimed at liberalizing the Indian economy and making it more competitive.

What is LPG?
Liberalization- Liberalisation refers to process of making policies less constraining of economic
activity and also reduction of tariff or removal of non-tariff barriers.
Privatization- The term “Privatisation” refers to the transfer of ownership of property or business
from a government to a private owned entity.
Globalization– Globalisation refers to the expansion of economic activities across political boundaries
of nation states. More importantly perhaps it refers economic interdependence between countries in the
world economy

• The main objectives of the LPG reforms were to:
  • Increase economic growth.
  • Create jobs.
  • Reduce poverty.

The LPG reforms have had a positive impact on the Indian economy. They have led to increased economic growth, job creation, and investment. The reforms have also helped to improve the standard of living for millions of Indians.

• Here are some stats on how the LPG reforms have helped the Indian economy grow:
  • The growth rate of the Indian economy averaged 6.7% per year in the 1990s, compared to 5.7% per year in the 1980s.
  • The share of exports in GDP increased from 10.2% in 1991 to 24.4% in 2022.
  • Foreign direct investment (FDI) inflows increased from $2.9 billion in 1991 to $60.9 billion in 2022.
  • The poverty headcount ratio fell from 35% in 1991 to 21% in 2022.
  • Life expectancy at birth increased from 61 years in 1991 to 72 years in 2022.
  • The literacy rate increased from 52% in 1991 to 77% in 2022.

During 1990-91 India’s GDP growth rate was only 1.1% but after 1991 reforms due LPG policy India’s GDP growth rate is increased year by year and in 2015 it was recorded 7.26 and in 2015-16 it is estimated to be 7.5% by IMF. Because of the Abolition of Industrial licensing, privatisation, advanced foreign technology and Reduction of taxes India’s
GDP is increased after 1991 reforms.

4. Foreign Exchange Management Act (1992)

The Foreign Exchange Management Act (FEMA) of 1992 was introduced to control the flow of foreign exchange. The act regulates the import and export of foreign currency, and the investment of foreign capital in India.

After then India never looked back and introduced multiple reforms to support its people and economy such as.

5. Securities and Exchange Board of India Act (1993)

The Securities and Exchange Board of India Act (SEBI) of 1993 established the Securities and Exchange Board of India (SEBI). SEBI is the regulator of the Indian securities market.

6. Competition Act (1994)

The Competition Act of 1994 established the Competition Commission of India (CCI). CCI is the regulator of the Indian competition market.

7. Fiscal Responsibility and Budget Management Act (1997)

The Fiscal Responsibility and Budget Management Act (FRBM) of 1997 aimed to improve the management of the Indian government’s finances. The act sets out targets for the government’s fiscal deficit and debt.

8. Goods and Services Tax (GST) (2017)

The Goods and Services Tax (GST) is a single tax on goods and services. The GST was implemented in 2017, and has replaced a number of different taxes that were previously levied on goods and services.

India’s Top 3 Economic Challenges Since 2000

1. 2008 Global Financial Crisis

The 2008 Global Financial Crisis had a significant impact on the Indian economy. The crisis led to a decline in exports, investment, and consumption. The GDP growth rate fell from 9.4% in 2007-08 to 6.7% in 2008-09. The unemployment rate also rose during this period.

• The GDP growth rate fell from 9.0% in 2007-08 to 6.7% in 2008-09.
• The crisis led to a decline in exports, which fell by 17.7% in 2008-09.
• The crisis also led to a decline in foreign direct investment (FDI), which fell by 43.5% in 2008-09.
• The crisis led to a decline in the stock market, with the Sensex index falling by 52% from its peak in October 2007 to its trough in March 2009.
• The crisis led to an increase in unemployment, with the unemployment rate rising from 7.5% in 2007-08 to 9.3% in 2008-09.

How India Overcame the Situation of the 2008 Global Financial Crisis?

Despite the significant impact of the crisis, India’s economy was able to overcome the situation. The following are some of the key factors that helped India overcome the crisis:

• The Indian economy was relatively strong before the crisis, which helped it to withstand the impact of the crisis.
• India has a large domestic market, which helped to protect the economy from the decline in exports.
• India has a young and growing population, which provides a large pool of workers and consumers.
• India has always been a Politically stable country, so it also helped to attract foreign investment.

As a result of these factors, India’s economy was able to recover from the crisis relatively quickly. The GDP growth rate rose to 7.4% in 2009-10 and has continued to grow at a healthy pace in recent years.

2. 2013 Demonetization

Impact of demonetization on Indian economy

• Economic activity declined due to demonetisation. GDP growth slowed from 7.1% in 2016-17 to 6.7% in 2017-18.
• The demonetisation reduced tax revenue. In 2016-17, government tax revenue fell by 10%.
• Demonetization led to a drop in investment. Growth in fixed investment declined from 10.5% in 2016-17 to 7.7% in 2017-18.
• Employment declines due to demonetisation. The unemployment rate rose from 4.7% in 2016-17 to 5.3% in 2017-18.

How Indians suffered from Demonetization

• The poor and the informal sector were the worst hit by demonetization.
• People lost their jobs and their businesses were disrupted.
• People had to stand in long queues to exchange their old notes for new notes.
• People were harassed by the police and the tax authorities.

Additional stats about Demonetization

• The government has not been able to recover all of the demonetized notes. As of March 2018, about Rs. 15,000 crore worth of demonetized notes have not been deposited in banks.
• The total amount of money that was demonetized was Rs. 500 and Rs. 1000 notes, which amounted to about 86% of the total currency in circulation.
• The government has not been able to provide any concrete evidence to show that demonetization has had a significant impact on black money or counterfeit currency.
• The government has not been able to provide any concrete evidence to show that demonetization has had a positive impact on the economy.
• Millions of Indian citizens suffered a huge loss and their savings, and it is said that implementation of demonetization was India’s one of the worst decisions.

How India overcame the situation of demonetization

• The Indian government took a number of measures to mitigate the impact of demonetization, including:
  • Providing liquidity to banks
  • Increasing government spending
  • Lowering interest rates
• The Indian economy was relatively strong before demonetization, which helped it to withstand the impact of demonetization.
• India has a large domestic market, which helped to protect the economy from the decline in exports.

3. COVID-19 Pandemic

The GDP growth fell from 4.2% in 2019-20 to -7.3% in 2020-21. The covid 19 pandemic led to a decline in economic activity, including manufacturing, investment and consumption.

The pandemic reduced tax collections and increased government spending.

Millions of people lost their jobs and their businesses were destroyed.

People had to stand in long queues to get food and necessities. People were also harassed by the police and the tax authorities.

The Indian government’s measures helped to mitigate the impact of the pandemic, but the economy is still recovering. The GDP growth rate is expected to be 8.0% in 2022-23.

The Indian economy is expected to recover in the coming years, but it will take time for the economy to fully recover from the impact of the pandemic.

Here are some important stats on how COVID-19 impacted the Indian economy:

• The GDP growth rate fell from 4.2% in 2019-20 to -7.3% in 2020-21.
• The unemployment rate rose from 4.2% in 2019-20 to 7.8% in 2020-21.
• The inflation rate rose from 4.2% in 2019-20 to 6.2% in 2020-21.
• The current account deficit widened from 1.5% of GDP in 2019-20 to 2.6% of GDP in 2020-21.

Here are some important stats on how India overcame the pandemic of COVID-19:

• The Indian government provided financial assistance to businesses and individuals worth Rs. 20 lakh crore.
• The Indian government provided food and essential supplies to people in need worth Rs. 10 lakh crore.
• The Indian government provided medical care to people who were infected with COVID-19 worth Rs. 5 lakh crore.

How is Indian Economy performing in Global Recession 2023

• India’s GDP growth rate just released, and it was beyond expectations, Indian economy registers 7.2% of annual growth in 2022-23.
• India’s GDP growth rate is higher than the global average of 3.6%.
• India’s GDP growth rate is also higher than the growth rates of other major economies, such as China (5.5%) and the United States (2.3%).
• India’s economy is expected to continue to grow in the coming years, despite the global recession.

INDIA WILL FACE NO RECESSION

The Russia-Ukraine War broke out shortly after the pandemic of covid 19; this war caused a recession and slow growth in many nations, including the biggest economies in the world
However, India which is the 5th largest economy is the only fastest growing economy in the world right now. The world is currently facing an issue of global recesion, however Indian Economy does not seem to stop growing. In the latest economic reports by the indian govt. declared that the Annual Growth rate of indian economy 2022 -2023 is 7.2% which is highest in the world.

As you can see, India has the lowest probability of getting into a recession, however the top 5 economies in the world have very slow growth, and many big economies can get into recession.

The Indian economy remains strong, and that is what Indian Economy in detail is…

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Sources:

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10. Image source (Reserve bank of india)
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13. (Research Paper) https://www.researchgate.net/publication/341286302_The_Rise_and_impact_of_COVID-19_in_India/fulltext/5ec7c5c492851c11a87e4205/The-Rise-and-impact-of-COVID-19-in-India.pdf