Indian Economy since Independence

Project Report
(Submitted for the Degree of B.Com. Honours in Accounting & Finance the University of
Calcutta)

Submitted by
Name of the Candidate :Ehtesham Quadir
Registration No.:
Name of the College – GOENKA COLLEGE OF COMMERCE & B.A.
College Roll No. - 402

Supervised by
Name of the Supervisor: Mriganka De Sarkar
Name of the College: Goenka College of Commerce & B.A.

Supervisor's Certificate
This is to certify that Ehtesham Quadir a student of B.Com. Honours in Accounting & Finance
of Goenka College of Commerce & B.A. under the University of Calcutta has worked
under my supervision and guidance for his Project Work and prepared a Project Report with the
title Indian Economy since Independence which he is submitting, is his genuine and original
work to the best of my knowledge.

Signature:
Place:KOLKATA Name:Ehtesham Quadir
College:Goenka College of Commerce & B.A.
Date:

Student's Declaration

I hereby declare that the Project Work with the title Corporate Governance Practices in India
submitted by me for the partial fulfilment of the degree of B.Com. Honours in Accounting &
Finance in Business under the University of Calcutta is my original work and has not been
submitted earlier to any other University /Institution for the fulfilment of the requirement for
any course of study.
I also declare that no chapter of this manuscript in whole or in part has been incorporated in
this report from any earlier work done by others or by me. However, extracts of any
literature which has been used for this report has been duly acknowledged providing details
of such literature in the references.

Signature:
Name: Ehtesham Quadir
Address:3A,Ram Mohan Bera Lane
Kolkata-700014
Registration No.

Place: Kolkata
Date:
 Acknowledgement

Nothing concrete can be achieved without an optimal combination

inspiration and perspiration. No work can be accompanied without taken the

guidance of experts. It is only critics from ingenious that help transform a

product into a quality product.

For this, I am grateful to Professor Mriganka De Sarkar for his constant

encouragement and invaluable critical suggestions given during the review

meetings. His timely advice and help proved his commitment and welfare of

his students and the institute as a whole.

Last but not the least, our sincere thanks to all the members who were a vital

thrust to our thoughts and needs throughout the functions assigned to group

to get done and prove our best. Finally thanks to others at G.C.C.B.A., who

put in numerous hours to make the intangible tangible.

EHTESHAM QUADIR
 Chapter 1: Introduction

Indian economic policy after independence was influenced by the

colonial experience, which was seen as exploitative by Indian leaders
exposed to British social democracy and the planned economy of the
Soviet Union. Domestic policy tended towards protectionism, with a
strong emphasis on import substitution industrialisation, economic
interventionism, a large government run public sector, business
regulation and central planning, while trade and foreign investment
policies were relatively liberal.  Five-Year Plans of India resembled
central planning in the Soviet Union. Steel, mining, machine tools,
telecommunications, insurance, and power plants, among other
industries, were effectively nationalised in the mid-1950s.

Never talk to me about profit, Jeh, it is a dirty word.

— Nehru, India's Fabian Socialism-inspired first prime minister to
industrialist J.R.D. Tata, when Tata suggested state-owned companies
should be profitable

The rate of growth of the Indian economy in the first three

decades after independence was derisively referred to as
the Hindu rate of growth by economists, because of the
unfavourable comparison with growth rates in other Asian
countries
Since 1965, the use of high-yielding varieties of seeds,
increased fertilisers and improved irrigation facilities collectively
contributed to the Green Revolution in India, which improved the
condition of agriculture by increasing crop productivity, improving
crop patterns and strengthening forward and backward linkages
between agriculture and industry. However, it has also been
criticised as an unsustainable effort, resulting in the growth of
capitalistic farming, ignoring institutional reforms and widening
income disparities.
Subsequently, the Emergency and Garibi Hatao concept under
which income tax levels at one point rose to a maximum of 97.5%
– a world record for non-communist economies – started diluting
the earlier efforts.
In the late 1970s, the government led by Morarji Desai eased
restrictions on capacity expansion for incumbent companies,
removed price controls, reduced corporate taxes and promoted
the creation of small-scale industries in large numbers.

I cannot decide how much to borrow, what shares to issue, at

what price, what wages and bonus to pay, and what dividend to
give. I even need the government's permission for the salary I pay
to a senior executive.
— J. R. D. Tata, on the Indian regulatory system, 1969
1.1. Background Of The study
The economic profile of India was in complete distress at the time
of independence. Being a typical case of colonial economy, India
was serving a purpose of development not for herself but a
foreign land—the United Kingdom. Both agriculture and industry
were having structural distortions while the state was playing not
even a marginal role. During the half century before India became
independent, the world was having accelerated development and
expansion in its agriculture and industry on the shoulders of the
active role being played by the states, with the same happening in
the UK itself.1 There was not only the unilateral transfer of
investible capital to Britain by the colonial state (the ‘drain of
wealth’) but the unequal exchange was day by day crippling
India’s commerce, trade and the thriving handloom industries, too.
India remained a continent of illiterate peasants under British rule.
At the time of independence, its literacy was only 17 per cent with
32.5 years of life expectancy at birth.3 Industrialisation of India
was also neglected by the colonisers—the infrastructure was not
built to industrialise India but to exploit its raw materials. Indian
capitalists who did emerge were highly dependent on British
commercial capital and many sectors of industry were dominated
by British firms, e.g. shipping, banking, insurance, coal, plantation
crops and jute.4 The pre-independence period was altogether a
period of near stagnation showing almost no change in the
structure of production or in the levels of productivity—the
aggregate real output during the first half of the 20th century
estimated at less than 2 per cent a year or less.5 The overall
economic performance of India under the British rule was very
low. According to economic statistian Angus Maddison, there was
no per capita growth in India from 1600 to 1870— per capita
growth was a meagre 0.2 per cent from 1870 to 1947, compared
with 1 per cent in the UK.6 The per capita incomes of Rs. 18 for
1899 and Rs. 39.5 for 1895 in current prices say the true story of
the abject poverty Indian masses were faced with.7 The repeated
famines and disease epidemics during the second half of the
nineteenth century and the first half of the twentieth century show
the greatest socio-economic irresponsibility and neglect of the
British Government in India at one hand and the wretchedness of
the masses at the other.

1.2.literature review
An economy (from Greek οίκος – "household" and νέμoμαι –
"manage") is an area of the production, distribution, or trade
and consumption of goods and services by different agents.
Understood in its broadest sense, 'The economy is defined as a
social domain that emphasises the practices, discourses, and
material expressions associated with the production, use, and
management of resources'. Economic agents can be individuals,
businesses, organizations, or governments. Economic
transactions occur when two parties agree to the value or price of
the transacted good or service, commonly expressed in a
certain currency. However, monetary transactions only account
for a small part of the economic domain.
Economic activity is spurred by production which uses natural
resources, labor, and capital. It has changed over time due
to technology (automation, accelerator of process, reduction of
cost functions), innovation (new products, services, processes,
expanding markets, diversification of markets, niche markets,
increases revenue functions) such as, that which produces
intellectual property and changes in industrial relations (for
example, child labor being replaced in some parts of the world
with universal access to education).
1.3.objectives of the study
1. To study India’s economic growth since independence.

2. To know the impact of various economic policies since independence.

3. To study the five year plans.

4. To look at the ways forward for development of the economy.

1.4.Research Methodology
For our study we have looked into the progress of the Indian Economy
since Independence and taken into consideration the various components
of economy i.e. consumption, saving, investment etc. The three sectors
of the economy i.e. Primary, Secondary and Tertiary have also been
analysed. The study is based on secondary data. The paper discusses the
trends, status and impacts of various economic policies taken by
government. Several reputed research journals including research papers
and articles have also been used.
 Chapter 2: A conceptual framework
2.1. History of Indian Economy

British era (1793–1947)

From the beginning of the 19th century, the British East India
Company's gradual expansion and consolidation of power
brought a major change in taxation and agricultural policies, which
tended to promote commercialisation of agriculture with a focus
on trade, resulting in decreased production of food crops, mass
impoverishment and destitution of farmers, and in the short term,
led to numerous famines.[93] The economic policies of the British
Raj caused a severe decline in
the handicrafts and handloom sectors, due to reduced demand
and dipping employment.[94] After the removal of international
restrictions by the Charter of 1813, Indian trade expanded
substantially with steady growth.[95] The result was a significant
transfer of capital from India to England, which, due to the colonial
policies of the British, led to a massive drain of revenue rather
than any systematic effort at modernisation of the domestic
economy.

Under British rule, India's share of the world economy declined

from 24.4% in 1700 down to 4.2% in 1950. India's GDP (PPP) per
capita was stagnant during the Mughal Empire and began to
decline prior to the onset of British rule.[103] India's share of global
industrial output declined from 25% in 1750 down to 2% in 1900.
[78]
 At the same time, the United Kingdom's share of the world
economy rose from 2.9% in 1700 up to 9% in 1870. The British
East India Company, following their conquest of Bengal in 1757,
had forced open the large Indian market to British goods, which
could be sold in India without tariffs or duties, compared to local
Indian producers who were heavily taxed, while in
Britain protectionist policies such as bans and high tariffs were
implemented to restrict Indian textiles from being sold there,
whereas raw cotton was imported from India without tariffs to
British factories which manufactured textiles from Indian cotton
and sold them back to the Indian market. British economic
policies gave them a monopoly over India's large market and
cotton resources.[104][105][106] India served as both a significant
supplier of raw goods to British manufacturers and a large captive
market for British manufactured goods.[107]
British territorial expansion in India throughout the 19th century
created an institutional environment that, on paper,
guaranteed property rights among the colonisers,
encouraged free trade, and created a single currency with fixed
exchange rates, standardised weights and measures and capital
markets within the company-held territories. It also established a
system of railways and telegraphs, a civil service that aimed to be
free from political interference, a common-law and an adversarial
legal system.[108] This coincided with major changes in the world
economy – industrialisation, and significant growth in production
and trade. However, at the end of colonial rule, India inherited an
economy that was one of the poorest in the developing world,
[109]
 with industrial development stalled, agriculture unable to feed
a rapidly growing population, a largely illiterate and unskilled
labour force, and extremely inadequate infrastructure.[110]
The 1872 census revealed that 91.3% of the population of the
region constituting present-day India resided in villages.[111] This
was a decline from the earlier Mughal era, when 85% of the
population resided in villages and 15% in urban centers
under Akbar's reign in 1600.[112] Urbanisation generally remained
sluggish in British India until the 1920s, due to the lack of
industrialisation and absence of adequate transportation.
Subsequently, the policy of discriminating protection (where
certain important industries were given financial protection by the
state), coupled with the Second World War, saw the development
and dispersal of industries, encouraging rural–urban migration,
and in particular the large port cities
of Bombay, Calcutta and Madras grew rapidly. Despite this, only
one-sixth of India's population lived in cities by 1951.[113]
The impact of British rule on India's economy is a controversial
topic. Leaders of the Indian independence
movement and economic historians have blamed colonial rule for
the dismal state of India's economy in its aftermath and argued
that financial strength required for industrial development in
Britain was derived from the wealth taken from India. At the same
time, right-wing historians have countered that India's low
economic performance was due to various sectors being in a
state of growth and decline due to changes brought in by
colonialism and a world that was moving towards industrialisation
and economic integration.[114]
Several economic historians have argued that real wage decline
occurred in the early 19th century, or possibly beginning in the
very late 18th century, largely as a result of British imperialism.
Economic historian Prasannan Parthasarathi presented earnings
data which showed real wages and living standards in 18th
century Bengal and Mysore being higher than in Britain, which in
turn had the highest living standards in Europe.[101][78]Mysore's
average per-capita income was five times higher
than subsistence level,[115] i.e. five times higher than $400
(1990 international dollars),[116] or $2,000 per capita. In
comparison, the highest national per-capita incomes in 1820 were
$1,838 for the Netherlands and $1,706 for Britain.[117] It has also
been argued that India went through a period
of deindustrialization in the latter half of the 18th century as an
indirect outcome of the collapse of the Mughal Empire.
[

Economy on the Eve of

Independence
There is no doubt that our grievances against the British Empire had a
sound basis. As the painstaking statistical work of the Cambridge
historian Angus Maddison has shown, India's share of world income
collapsed from 22.6% in 1700, almost equal to Europe's share of 23.3%
at that time, to as low as 3.8% in 1952. Indeed, at the beginning of the
20th century, "the brightest jewel in the British Crown" was the poorest
country in the world in terms of per capita income.

-Manmohan Singh
Indeed some kind of chart might be drawn up to indicate the close
connection between length of British rule and progressive growth of
poverty. That rule began with outright plunder, and a land revenue
system which extracted the uttermost farthing not only from the
living but also from the dead cultivators. It was pure loot.
-Jawaharlal Nehru