B.1] Introduction to Indian Economy

1. Historical Factors

1.1 Pre-Independence Economy (1857–1947)

• Colonial Economic Policies:

  • British colonial rule led to the transformation of India into a supplier of raw materials and a market for British goods.
  • Deindustrialization: Traditional Indian industries like textiles and handicrafts declined due to British policies.
  • Land Revenue System: Zamindari, Ryotwari, and Mahalwari systems were implemented, leading to agrarian distress.

• Economic Structure:

  • Agriculture-dominated: About 70% of the population was engaged in agriculture.
  • Lack of Industrialization: Minimal industrial base with only a few textile mills and railways.
  • Trade Imbalances: Heavy dependence on British imports and limited exports.

• Key Events:

  • 1857 Revolt: A significant impact on the economy due to war and destruction.
  • 1913: First Indian textile mill established in Mumbai.
  • 1930: Salt Satyagraha highlighted economic exploitation.

1.2 Post-Independence (1947–1991)

• Economic Planning:

  • Five-Year Plans: Launched in 1951, aimed at rapid industrialization and self-reliance.
  • Mixed Economy Model: Combination of public and private sectors.

• Land Reforms:

  • Land Ceiling Acts: Implemented in various states to limit land ownership and promote redistribution.
  • Cooperative Movement: Encouraged collective farming and resource sharing.

• Industrialization:

  • Public Sector Expansion: Heavy industries like steel, coal, and energy were nationalized.
  • Industrial Licensing: Strict controls on industrial activity under the Industrial Policy Resolution of 1948.

• Key Policies and Acts:

  • Industrial Licensing Policy (1956): Regulated industrial growth.
  • Planning Commission (1955): Formed to oversee economic planning.
  • National Income Accounting: Introduced in 1951 to measure economic performance.

1.3 Liberalization (1991–Present)

• Economic Reforms (1991):

  • Balance of Payments Crisis: Triggered liberalization measures.
  • Policy Changes:
    • Removal of industrial licensing.
    • Deregulation of foreign investment.
    • Tax reforms and privatization of public sector enterprises.

• Key Acts and Policies:

  • Liberalization, Privatization, and Globalization (LPG) Reforms (1991).
  • New Economic Policy (NEP, 1991): Aimed at economic liberalization and growth.
  • Foreign Exchange Management Act (1999): Facilitated foreign investment.

2. Current Development and Aspects

2.1 Economic Indicators

2.2 Sectoral Contributions

2.3 Key Economic Schemes

• Make in India:

  • Launched in 2014 to boost manufacturing and attract foreign investment.
  • Focus on infrastructure and skill development.

• Digital India:

  • Aimed at transforming India into a digitally empowered society.
  • Focus on e-governance, digital literacy, and broadband connectivity.

• Ayushman Bharat:

  • Launched in 2018 to provide health insurance to 10 crore families.
  • Part of the government’s focus on social welfare and inclusive growth.

2.4 Major Economic Reforms

• Goods and Services Tax (GST):

  • Implemented in 2017 to unify the tax structure.
  • Replaced multiple indirect taxes with a single tax system.

• Direct Taxes Code (DTC):

  • Aimed at simplifying the tax structure and reducing tax evasion.
  • Not yet implemented as of 2023.

• Insolvency and Bankruptcy Code (2016):

  • Streamlined the process of resolving insolvency and bankruptcy.
  • Promoted business efficiency and investment.

2.5 Challenges and Opportunities

• Challenges:

  • Inequality: Persistent income and wealth disparities.
  • Infrastructure Deficits: Need for better transport, energy, and digital infrastructure.
  • Unemployment: High youth unemployment and underemployment.
  • Environmental Concerns: Balancing growth with sustainability.

• Opportunities:

  • Digital Economy: Growth in e-commerce, fintech, and IT services.
  • Green Economy: Focus on renewable energy and sustainable development.
  • Global Trade: Participation in global trade agreements and markets.

2.6 Important Terms and Definitions

• GDP (Gross Domestic Product): Total value of goods and services produced within a country.
• GNP (Gross National Product): Total value of goods and services produced by a country’s residents, regardless of location.
• PPP (Purchasing Power Parity): Method to compare economic productivity and standards of living between countries.
• LPG Reforms: Liberalization, Privatization, and Globalization reforms introduced in 1991.
• NEP (New Economic Policy): Economic policy introduced in 1991 to liberalize the Indian economy.

2.7 Frequently Asked Questions (SSC, RRB)

• Q. What was the main reason for the 1991 economic crisis?

  • A. Balance of payments crisis due to high fiscal deficit and foreign exchange reserves depletion.

• Q. Which year marked the beginning of economic liberalization in India?

  • A. 1991

• Q. What is the current GDP growth rate of India?

  • A. ~6.8% (2023)

• Q. Which sector contributes the most to India’s GDP?

  • A. Services sector (60%)

• Q. What is the purpose of the Goods and Services Tax (GST)?

  • A. To unify the tax structure and replace multiple indirect taxes with a single tax system.