|
A generation of Indian leaders grew up with a fervent commitment to socialist econnomics, economic autarky, and central planning. Market capitalism became seen as not only backward, but avtually destructive. And when India became independent, these were the policies they implemented. In fact autarky is ensrined on India's flag--the spinning wheel. This was Ghandi idea of returing to domestic production rather than importing British cloth and under products. Nehru and other Congress Party leaders revered Ghandi, but thought he as out of date economically. They agreed with autarky, but wanted to industrialize India. They put in place a stifling beaureacracy, nationalized basic industry, and moved toward a state-controlled ecomnic structure with Soviet-inspired 5-year Plans. The result was instead of the expect modernization, devlopment, and prosperity was economic failure. Finally after decades of stagnant econonics and limited growth, it became clear to Indian leaders that their cherished socialist principles simply do not generate economic groth. Socialist policies can distribute income, but they do not seem to be very good at generating wealth to distribute. Indian politicans reluctantly turned to free market sollutions. Tht began to implement a range of free-market economic polices (1990s). In sharp comparison to the stagnation of the post-independence years, the result was dynamic economic growth. The result has been a huge expansion of the country's middle class. Government studies suggest that about 30 percent of the country now belong to the middle class. Many are nw entrants to the middle class from humble origins. A strong vibrant middle class is a key factor in both democratic government and economic prosperity.
A generation of Indian leaders grew up with a fervent commitment to socialist econnomics, economic autarky, and central planning. Market capitalism became seen as not only backward, but avtually destructive. And when India became independent, these were the policies they implemented. In fact autarky is ensrined on India's flag--the spinning wheel. This was Ghandi idea of returing to domestic production rather than importing British cloth and under products. Nehru and other Congress Party leaders revered Ghandi, but thought he as out of date economically. They agreed with autarky, but wanted to industrialize India. They put in place a stifling beaureacracy, nationalized basic industry, and moved toward a state-controlled ecomnic structure with Soviet-inspired 5-year Plans. The result was instead of the expect modernization, devlopment, and prosperity was economic failure. India rather than closing the economic gap with the West, found that gap widening.
India began the process of de-colonization. And many other newly independent Third World countries followed various variants of the same policies with equally failing results. Three Asian countries (South Korea, Singapore, and Taiwan and the British Crown Colony of Hong Kong which employed market economics began to experience remarkable economic growth (1960s). And unlike many newly independent countries, the four Asian Tigers possessed almost no natural resources except the abiliities of their people. The employed the exact oppositite policies of the Soviets, Communist Chinese, India, and the rest of the Third World. They embraced market reconomics and internatinal trade.
The result was rapid industrialization. They achived and maintained the extrodinarily high growth rates that other Third world leaders thought that socialism would bring them. These countries reported ecomomic growth rates exceeding 7 percent annually (1960s-90s) Hong Kong's rise began even earlier. The Asian Tigers by the beginning of the 21st century in only four decades had achieved econpmies on a par with Europe. They had achieved high-income propsperous economies, specializing in areas where they could achieve competitive advantage in the international economy. Hong Kong and Singapore today are important inernational financial centers. South Korea and Taiwan are important industrial nations and leaders in high-tech manufacturing.
After the disaster of Mao's Great Leap Forward and the tragedy of Mao's Cultural Revolution, Chinese leaders begn to rethink their economic policies. And the reason for this was the success of the Asian Tigers. All three at the time of the Communist Revolution were as poor, ever poorer, than China. And while under Communism, China lanuished in poverty and famine, the Asian Tigers achieved economic success and modern, prosperous economies. Deng Xiaoping who had been persecuted under Mao's Cultural Revolution emerged as China's new leader. The stunning change in China's economy appears to have begun when Deng paid an official visit to Singapore, a city tate with a nostly Chinese ethnic population (1978). Lee Kuan Yew provided Deng details on Singapore's remarkable achievenents. China's market reforms befan soon after. Some even refer to Lee as the father of modern China. The moribund Communist economy soon responded. China is a big country. And has not achieved the same spectacuar transformation throughout the country. And the Communist leaders hang on to inefficent state-owned enterprises. China has achieved remaraable growth with an economy that has now surpased ll countries except the United States. China's new middle-class and sparkling new cities although bedeveled by pollution offere a life style approching Europen levels. The countryside continues to lag behind, bit even there the economic improvement has been enormous.
While first the Asian Tigers and then China began their phenomenal economic transformation, Indian leaders were unmoved, continuing to pursu the same failed economic policies adopted at independence. It is interesting that India held on to socialism, central planning, and autarky longer then of all places Communist China. It is unclear just what brought about the change in India. We note reports that emphasize the role of China. Others stress the deeping failure of post-independence India. Finally after decades of stagnant econonics and limited growth, it became clear to Indian leaders that their cherished socialist principles simply do not generate economic groth. Socialist policies can distribute income, but they do not seem to be very good at generating wealth to distribute.
A reader tells us, "I am a bit familiar with the politics of India as I have a very good friend who moved back to India to raise his children, but went to grad school and worked here for about 20 years. His take on India was that the economic reforms of the 1990s was a direct response to China's increasing economic strength and the fear that that would lead to military dominance. Remember all the politicians of the time were still reeling from China's invasion of India in 1962, but thought China would soon collapse. Then in 1978 Deng Xiaoping gave his famous 'Black cat white cat' speech and by the 1990s China's economic might was evident and according to my friend India had to respond by opening their economy to capitalism or there would have been a revolt and possibly an invasion by China."
India's economic failures were coming to a serious situation by the early 1990s. A serious ballance of payments problem was developing. Foreign countries had no interest in low quality, high priced Indian goods. The stagnant Indian economy could not create the high-quality, high tech products that Indians desired. State-owned companies were a disater and the private sector was shackled by regulation and red tape. Thus a serious balance of payments problem developed (1980s). The situation was worsened by India's exchange rate system. The rupee was pegged to the value of a basket of currencies of major trading partners.
The only problem was that the economic policies of independent India was that they did not work. The Indian economy did not develop and grow at the expected rate. Or the needed rate to have any real impact in the country's widespread poverty. India's GDP per capita grew at an annual rate of only 3.5 percent in the years prior to the 1980s. [Kotwal] While reasonable for a developed country like the United States, given how poor India was, this was not going to lift the Indian people out of poverty After four decades, the per capita GDP was only US $447 (1985). This was an embarrassment given the stunning successes being reported early by the Asian Tigers. And like many countries that are unable to generate enough revenue finance government projects or welfare programs through taxation, India turned to the debt market and it borrowed heavily. India's government debt reached $70 billion (1991). India had to face the specter of bankruptcy. The optimistic dreams at independence simply did not materialize. Industries that did develop like the Soviet financed steel system, proved to be inefficient. This meant that like the Soviets, significant sales outside the controlled domestic market were very limited. Indian business that had no choice but to purchase Indian steel, meaning high prices for an inferior product. Similar ripples flowed throughout the economy. This made Indian products noncompetitive in world markets. It also meant that Indian companies could not pay high salaries to their workers. And Indians to a substantial degree has shut ed themselves off to technological advances in the West. Few Western companies had any incentive to invest in India. The economic crisis forced Indian leaders to do something they had reject at independence and which they did not want to do, even after the failure of the economic policies which they had endorsed with a passion. The balance of payments problem began to threaten the economic stability of the Indian state. Some feared that India would default on the country's debt. [Ghosh]
The Reserve Bank of India (RBI) began refusing new credit. Foreign exchange reserves virtually disappeared. The Government could barely manage to finance 3 weeks of imports. The Government was forced to appeal to the Internstionsl Monetary Fund (IMF) to bail them out. This was a painful appeal because the IMF was an instution Indian leaders had harshly criticized. As part of the IMF assistance pckage, the Indian Government had to pledge 20 tonnes of gold to Union Bank of Switzerland and 47 tonnes to Bank of England. That way the Indian Government could nominally hold ownership of its gold reserves. This was important because for the Indian public, gold has a special appeal. Many observers believe that the ecomomic crisis essentially forced market reforms in India. ["Economic crisis ...."]
Indian politicans reluctantly turned to free market sollutions. It was a painful decision because sdo mny thought that market economies were a failed system and socialism was the road to the future. They has no choice, however, as the country faced national economic failure and bankruptsy. Indian officials were fiorced to implement a range of free-market economic polices (1990s). [Emran, Shilpi, and Alam] The industrial license requirement (the License Raj) for most sectors. Limits on capital accumulation were ended. Restructions on imports, espoecially requiring licenses were ended for most
most goods. Import tariffs were reduced, but still remined relatikely high. Many ecinomic sectors that had been resrved for the public sector were opened o ghe poivte sector. Banks were able to lower
reserves and restrictions on interest rates were also rediced. Restrictions on foreign investment were also reduced. The results were unfolded very quickly and were stunning. In a shot period they promoted business activity, stimulated growth, and revived international trade. The stagnation of the post-independence er (1940s-80s) quickly to an era dynamic economic expnsion. The result has been a massive expansion of the country's middle class as seen in the Asian Tigers and China. One Government study reports tht omething like 30 percent of the popultion now can be classified as middle class. Most are entirely new entrants thrut from abject poverty into the middle class. And the middle class has proven critical to building a strong, prosperous economy. And like the case of earlier capitlist demcracy hshlped to support a dedmocrtic political system. China appears to be proving that is is not, however, an inevitble end result.
Emran, M. S., F. Shilpi, and M.I. Alam. (2007). "Economic Liberalization and Price Response of Aggregate Private Investment: Time Series Evidence from India" (Libéralisation économique et réponse des prix de l’investissement privé agrégé: résultats enregistrés par les séries chronologiques pour l’Inde) . The Canadian Journal of Economics / Revue canadienne d’Economique Vol. 40, pp. 914–34.
Ghosh, Arunabha. India's Pathway through Financial Crisis (Global Economic Governance Programme).
Kotwal, A., B. Ramaswami, and W. Wadhwa. "Economic Liberalization and Indian Economic Growth: What’s the Evidence?" Journal of Economic Literature Vol. 49, (2011), pp. 1152–99.
"Economic crisis forcing once self-reliant India to seek aid," New York Times (June 29, 1991).
Navigate the Children in History Website:
[About Us]
[Introduction]
[Biographies]
[Chronology]
[Climatology]
[Clothing]
[Disease and Health]
[Economics]
[Freedom]
[Geography]
[History]
[Human Nature]
[Law]
[Nationalism]
[Presidents]
[Religion]
[Royalty]
[Science]
[Social Class]
[Bibliographies]
[Contributions]
[FAQs]
[Glossaries]
[Images]
[Links]
[Registration]
[Tools]
[Children in History Home]
Navigate the Boys' Historical Clothing national pages:
[Return to the Main Indian economy page]
[Return to the Main Indian class/caste page]
[Return to the Main Indian country page]
[Return to the Main countries page]
[Australia]
[Belgium]
[China]
[England]
[France]
[Germany]
[Indonesia]
[Ireland]
[Italy]
[Japan]
[Korea]
[Malaysia]
[Mexico]
[The Netherlands]
[Portugal]
[Scotland]
[Spain]
[United States]
