The post independence period of economy of India was a litmus test for the economic planners. Having come out of the shadow of colonial rule, the nation had a huge challenge of undoing the exploitation of colonial era. The founding fathers had to use economic upliftment as a tool for nation building. The economy then was backward in nature.
Industry was characterized by ill equipped technology and unscientific management. Agriculture was still feudal in nature and characterized by low productivity. Transport and communication systems were not properly developed, educational and health facilities insufficient and the complete absence of social security measures.
Poverty was visible and unemployment widespread, resulting in a low standard of living. To guide the Indian economy towards a path of growth and development, the economic planners decided to adopt a course of mixed economy, assigning a vital role to public sector enterprises and economic planning. Private enterprise participation was negligible. A system of License Raj developed, by which entrepreneurs had to seek permission from government to set up manufacturing units. The government effectively controlled everything. During this period the banks were nationalized between late 1960's and early 1970's.
India resorted to economic planning by the way of five year plans for economic development.
Crisis In The Economy
By the beginning of 1990’s, the Indian Economy was under great crisis and faced its stiffest challenge. India faced a serious balance of payment problem and foreign exchange reserves were at record low. That is when the government decided to alter the course of the Indian economy.
The introduction of reforms in 1991 resulted in sweeping changes in the Indian Economy. The reforms process consisted of three processes, liberalization, privatization and globalization (LPG model). Under liberalization markets were deregulated, under privatization private participation was encouraged and many a public sector undertaking (PSU) were privatized and under globalization restrictions on foreign investments were removed. The Indian economy moved away from its isolation, to be integrated with the global economy and to competitively utilize its advantages to make rapid strides in terms of growth.
In India today 60% of the population is dependent directly and indirectly on agriculture and agriculture contributes 17% of GDP.
The Industrial sector has witnessed massive restructuring by the way of mergers and acquisitions, process reengineering, foreign joint ventures, technological up gradation. Certain sectors like cement, steel, aluminium, pharmaceuticals, and automobiles have been witnessing unprecedented growth.
The service sector has been one of the major beneficiaries of the economic boom. The outsourcing industry comprising of IT and ITE’S became the new poster boy of the Indian economy. The huge pool of engineering talent was absorbed by the IT industry, while graduates could carve out a career in the ITE'S industry. The purchasing power of the booming middle class was enhanced, who went on a consumption spree, which in turn allowed the retail sector to flourish. The booming economy also created a wave of real estate boom across the country.
The supply of money into the economy has increased steadily due to FDI’s. (Between April 2008 and January 2009, India received total foreign investments of US $ 15,545 million).The Foreign Institutional Investors (FII’s) have invested heavily in the stock market, resulting in a continual bull run for an extended period of time. The BSE indices scaled a new peak of 21,000 in January 2008.
To summarise, post liberalization the Indian economy is one of the fastest growing economies in the world. It can also be said that the Indian economy has coped well to the pressures of the global recession, far better than most other nations. The future looks positive for India and one can expect the nation to progress strongly in the path of development.