Economic Infrastructure of India
Economic History of India
In order to understand India's present economic and business management system, we have to look a little back into the history of India in order to find out how did the present business and management system evolve.
Before 1947: British Colonialization, Post-Independence Period, 1st Five Years Plan, 2nd Five Years Plan, 3rd Five Years Plan, 4th & 5th Five Years Plan
Before 1947: British Colonialization
India gained independence on August 15, 1947 after two centuries of British colonial rule. British rule in India was launched with the emergence of the British East India Company. However, the company, whose aim was to maintain law and order, became directly involved in the affairs of India by usurping political power from the hold of the local trading community.
Industrial revolution in Britain led the British to exploit India. Raw materials were supplied cheaply to Britain to facilitate industrialization and, at the same time, dumped the goods produced in Britain back into India to facilitate growth. Worst of all, the British simultaneously closed their markets to India by imposing prohibitive duties, thus causing millions in India to sink into a state of poverty.
People in India were becoming increasingly suppressed due to the self-oriented rulings under the iron-hand of the British. The British did not consider developing India alongside their own development of Britain. Instead, India was to play the role of a supporting country to help Britain industrialize and grow by providing cheap raw materials. This led to the independence struggle of 1857. However, this independence movement merely shook the foundation of the company's rule and did not stop the continued reign of the British- the British Raj.
The British does not only interfere with the political and economical structure of India. It intruded the holy grounds of Indians Hindus and Muslims by ignoring the fundamentals in their religion. Indians Hindus and Muslims were required to oil a new version of rifle with animal fats extracted from cows and pigs. Hinduism advocates cows as scared animals, while Islam requires non-contact with pigs. In forcing the two majority populations in India to "betray" their culture and traditions, this inconsiderate action sparked great hatred towards the British. A Sepoy mutiny was formed to overthrow the tyranny of the British, but failed.
Emergence of "Swadeshi"
Putting in consideration the pressures of the British on India to conform to their wishes, the concept of self-reliance and nationalism is formed, known otherwise as "Swadeshi". India's economic position was left stagnant with an annual average growth rate of 0.5% when they got back their independence. Indian leaders believed that colonial exploitation had kept the country poor. They had identified the two major pests of the colonial era as rural feudalism in which the royalty and blue blood profited by taking away one-fifth of the national income while the poor starved and the exported capital from India's trade surplus with her colonial master, Britain. Thus, Indian leaders regarded export-orientation as an instrument of colonial exploitation and thus turned them against converting to a free market.
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Post-independence Period
Thus, after independence, India's economic policies were driven by her leaders' deep distrust of foreign trade and admiration for the Stalinist Soviet Model of Self-reliant industrialization. The objective of India's development strategy has been to establish a socialistic pattern of society through economic growth with self-reliance, social justice and alleviation of poverty. These objectives were to be achieved within a democratic political framework using the mechanism of a mixed economy where both public and private sectors co-exist.
Up to the present day, there are nine Five-Year Plans and the current plan
spans from 1997 to 2002. Each plan is based on some economic model. These
models determine the priorities, need for balance between sectors, growth
potentials and resource mobilisation
* First Five-Year Plan (1951-56)
The aim of the first Five Year Plan was to raise domestic savings for growth and help the economy resurrect itself from the twisted wreckage caused by colonial exploitation and the aftermath of partition. The First plan was based on Harrod Dumar Model with emphasis on capital output ratio and productivity. It was a success with a 3.65% growth.
* Second Five-Year Plan (1957-63)
The Second Five year Plan was known as the Nehru-Mahalanobis Plan, which it continued until the Sixth Plan. An Unbalanced Growth strategy was adopted. Heavy industries were given importance as it was considered as an engine of growth. This was on line with the Russian Development Model with self-reliance as objective, import substitution was emphasized initially. Import of capital equipment was allowed to develop productive capacities domestically. ("machines to build machines"). This plan had achieved a rate of 4 % growth. This structure of planning was aimed at self-sufficiency.
* Third Five Year Plan (1964-69)
This
plan showed a lowering of growth rate to 2.2% and was viewed as a failure
due to rapid population growth and failing agricultural productivity due to
bad monsoons.
The strategy underlying the 1st three plans assumed that once the growth process
gets established, the institutional changes would ensure that the benefits
of growth trickle down to the poor. However, the growth generated by the Planned
Approach remained too weak to create sufficient surpluses, which is a prerequisite
for the "trickle down" mechanism to work.
* Fourth & Fifth Five Year Plan (1970-79)
A diversified industrial structure got established emphasising on removing poverty. Professional, managerial and technical manpower and skills got created due to the leaders' policies at improving higher and tertiary education but their impact on economic development remained marginal. The growth rate averaged about 4% per annum, which has become known as the "Hindu rate of growth" as this rate was under the estimated potential growth rate of India and she was still lagging very much behind the rising East Asian neighbours. This term implied that India was doomed by its culture to lag behind other countries.
Therefore, for the four decades of the Post Independence period, India has
been an all-but-closed economy. Its currency was inconvertible and over-valued,
it's industries isolated behind huge tariff walls and an exceptionally severe
import-licensing regime. As a result, many Indian firms were spoilt for decades
by the absence of competition at home or abroad. Their markets remained among
the most protected, regulated and over-administered in the world.
