C ONTENTS FOREWORD iii UNIT I : DEVELOPMENT POLICIES AND EXPERIENCE (1947-1990) 1-35 CHAPTER 1: INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 3 – LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER THE COLONIAL RULE 4 – AGRICULTURAL SECTOR 5 – INDUSTRIAL SECTOR 7 – FOREIGN TRADE 8 – DEMOGRAPHIC CONDITION 9 – OCCUPATIONAL STRUCTURE 10 – INFRASTRUCTURE 11 CHAPTER 2 : INDIAN ECONOMY 1950-1990 16 – THE GOALS OF FIVE YEAR PLANS 19 – AGRICULTURE 22 – INDUSTRY AND TRADE 27 – TRADE POLICY: IMPORT SUBSTITUTION 30 UNIT II : ECONOMIC REFORMS SINCE 1991 36-56 CHAPTER 3 : LIBERALISATION, PRIVATISATION AND GLOBALISATION : AN APPRAISAL 38 – BACKGROUND 39 – LIBERALISATION 41 – PRIVATISATION 44 – GLOBALISATION 45 – INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT 48 UNIT III: CURRENT CHALLENGES FACING THE INDIAN ECONOMY 57-178 CHAPTER 4 : POVERTY 59 – WHO ARE THE POOR? 60 – HOW ARE POOR PEOPLE IDENTIFIED? 63 – THE NUMBER OF POOR IN INDIA 66 – WHAT CAUSES POVERTY? 68 – POLICIES AND PROGRAMMES TOWARDS POVERTY ALLEVIATION 72 – POVERTY ALLEVIATION PROGRAMMES—A CRITICAL ASSESSMENT 75 CHAPTER 5 : HUMAN CAPITAL FORMATION IN INDIA 82 – WHAT IS HUMAN CAPITAL? 84 – SOURCES OF HUMAN CAPITAL 84 – HUMAN CAPITAL AND HUMAN DEVELOPMENT 90 – HUMAN CAPITAL FORMATION IN INDIA: GREAT PROSPECTS 91 – EDUCATION SECTOR IN INDIA 92 – FUTURE PROSPECTS 94 CHAPTER 6 : RURAL DEVELOPMENT 99 – WHAT IS RURAL DEVELOPMENT? 100 – CREDIT AND MARKETING IN RURAL AREAS 101 – AGRICULTURAL MARKET SYSTEM 104 – DIVERSIFICATION INTO PRODUCTIVE ACTIVITIES 106 – SUSTAINABLE DEVELOPMENT AND ORGANIC FARMING 110 CHAPTER 7 : EMPLOYMENT: GROWTH, INFORMALISATION AND OTHER ISSUES 116 – WORKERS AND EMPLOYMENT 118 – PARTICIPATION OF PEOPLE IN EMPLOYMENT 119 – SELF-EMPLOYED AND HIRED WORKERS 120 – EMPLOYMENT IN FIRMS, FACTORIES AND OFFICES 123 – GROWTH AND CHANGING STRUCTURE OF EMPLOYMENT 124 – INFORMALISATION OF INDIAN WORKFORCE 127 – UNEMPLOYMENT 130 – GOVERNMENT AND EMPLOYMENT GENERATION 132 CHAPTER 8 : INFRASTRUCTURE 139 – WHAT IS INFRASTRUCTURE? 140 – RELEVANCE OF INFRASTRUCTURE 141 – THE STATE OF INFRASTRUCTURE IN INDIA 141 – ENERGY 144 – HEALTH 149 xii CHAPTER 9 : ENVIRONMENT AND SUSTAINABLE DEVELOPMENT 162 – ENVIRONMENT — DEFINITION AND FUNCTIONS 163 – STATE OF INDIA’S ENVIRONMENT 167 – SUSTAINABLE DEVELOPMENT 171 – STRATEGIES FOR SUSTAINABLE DEVELOPMENT 172 UNIT IV : DEVELOPMENT EXPERIENCES OF INDIA : A COMPARISON 179-197 WITH NEIGHBOURS CHAPTER 10 : COMPARATIVE DEVELOPMENT EXPERIENCES OF 181 INDIA AND ITS NEIGHBOURS – DEVELOPMENTAL PATH — A SNAPSHOT VIEW 182 – DEMOGRAPHIC INDICATORS 185 – GROSS DOMESTIC PRODUCT AND SECTORS 186 – INDICATORS OF HUMAN DEVELOPMENT 189 – DEVELOPMENT STRATEGIES — AN APPRAISAL 190 GLOSSARY 198-206 xiii UNIT UNIT I III D P E EVELOPMENT OLICIES AND XPERIENCE (1947-90) The two chapters in this unit give us an overview of the state of the Indian economy as it was at the eve of independence till after four decades of planned development, which was a path that India chose. This meant that the Government of India had to take a series of steps such as the establishment of the Planning Commission and announcement of five year plans. An overview of the goals of five year plans and a critical appraisal of the merits and limitations of planned development has been covered in this unit. 1 I E NDIAN CONOMY ON THE E I VE OF NDEPENDENCE After studying this chapter, the learners will • become familiar with the state of the Indian economy in 1947, the year of India’s Independence • understand the factors that led to the underdevelopment and stagnation of the Indian economy. “India is the pivot of our Empire... If the Empire loses any other part of its Dominion we can survive, but if we lose India, the sun of our Empire will have set.” Victor Alexander Vruce, the Viceroy of British India in 1894 1.1 INTRODUCTION rapidly expanding modern industrial base. An understanding of the The primary objective of this book, exploitative nature of this relationship Indian Economic Development, is to is essential for any assessment of the familiarise you with the basic features kind and level of development which of the Indian economy, and its the Indian economy has been able to development, as it is today, in the attain over the last six decades. 1.2 aftermath of Independence. However, it is equally important to know something about the country’s economic past even 1.2 LOW LEVEL OF ECONOMIC as you learn about its present state and DEVELOPMENT UNDER THE COLONIAL RULE future prospects. So, let us first look at the state of India’s economy prior to the India had an independent economy country’s independence and form an before the advent of the British rule. idea of the various considerations that Though agriculture was the main shaped India’s post-independence source of livelihood for most people, development strategy. yet, the country’s economy was The structure of India’s present- characterised by various kinds of day economy is not just of current manufacturing activities. India was making; it has its roots steeped in particularly well known for its history, particularly in the period when handicraft industries in the fields of India was under British rule which cotton and silk textiles, metal and lasted for almost two centuries before precious stone works etc. These India finally won its independence on products enjoyed a worldwide market 15 August 1947. The sole purpose of based on the reputation of the fine the British colonial rule in India was quality of material used and the high to reduce the country to being a feeder standards of craftsmanship seen in all economy for Great Britain’s own imports from India. Box 1.1: Textile Industry in Bengal Muslin is a type of cotton textile which had its origin in Bengal, particularly, places in and around Dhaka (spelled during the pre-independence period as Dacca), now the capital city of Bangladesh. ‘Daccai Muslin’ had gained worldwide fame as an exquisite type of cotton textile. The finest variety of muslin was called malmal. Sometimes, foreign travellers also used to refer to it as malmal shahi or malmal khas implying that it was worn by, or fit for, the royalty. 4 INDIAN ECONOMIC DEVELOPMENT The economic policies pursued by Rao whose estimates of the national the colonial government in India were and per capita incomes during the concerned more with the protection colonial period were considered very and promotion of the economic significant. However, most studies did interests of their home country than find that the country’s growth of with the development of the Indian aggregate real output during the first economy. Such policies brought about half of the twentieth century was less a fundamental change in the structure than two per cent coupled with a of the Indian economy — transforming meagre half per cent growth in per the country into a net supplier of raw capita output per year. materials and consumer of finished industrial products from Britain. 1.3 AGRICULTURAL SECTOR Obviously, the colonial government never made any sincere attempt to India’s economy under the British estimate India’s national and per colonial rule remained fundamentally capita income. Some individual agrarian — about 85 per cent of the attempts which were made to measure country’s population lived mostly in such incomes yielded conflicting and villages and derived livelihood directly inconsistent results. Among the or indirectly from agriculture. However, notable estimators — Dadabhai despite being the occupation of such Naoroji, William Digby, Findlay Shirras, a large population, the agricultural V.K.R.V. Rao and R.C. Desai — it was sector continued to experience Box 1.2: Agriculture During Pre-British India The French traveller, Bernier, described seventeenth century Bengal in the following way: “The knowledge I have acquired of Bengal in two visits inclines me to believe that it is richer than Egypt. It exports, in abundance, cottons and silks, rice, sugar and butter. It produces amply — for its own consumption — wheat, vegetables, grains, fowls, ducks and geese. It has immense herds of pigs and flocks of sheep and goats. Fish of every kind it has in profusion. From rajmahal to the sea is an endless number of canals, cut in bygone ages Fig. 1.1 India’s agricultural stagnation from the Ganges by immense labour for under the British colonial rule navigation and irrigation.” (cid:190) Take note of the agricultural prosperity in our country in the seventeenth century. Contrast it with agricultural stagnation around the time when the British left India, around 200 years later. INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 5 stagnation and, not infrequently, regardless of the economic condition unusual deterioration. Agricultural of the cultivators; this caused productivity became incrementally immense misery and social tension low though, in absolute terms, the among the latter. To a very great sector experienced some growth due extent, the terms of the revenue to the expansion of the aggregate area settlement were also responsible for under cultivation. This stagnation in the zamindars adopting such an the agricultural sector was caused attitude; dates for depositing specified mainly because of the various sums of revenue were fixed, failing systems of land settlement that which the zamindars were to lose their were introduced by the colonial rights. Besides this, low levels of government. Particularly, under the technology, lack of irrigation facilities zamindari system which was and negligible use of fertilisers, all implemented in the then Bengal added up to aggravate the plight of Presidency comprising parts of India’s the farmers and contributed to present-day eastern states, the profit the dismal level of agricultural accruing out of the agriculture sector productivity. There was, of course, went to the zamindars instead of the some evidence of a relatively higher cultivators. However, a considerable yield of cash crops in certain areas of number of zamindars, and not just the country due to commercialisation the colonial government, did nothing of agriculture. But this could hardly to improve the condition of help farmers in improving their agriculture. The main interest of the economic condition as, instead of zamindars was only to collect rent producing food crops, now they were Work These Out (cid:190) Compare the map of British India with that of independent India and find out the areas that became parts of Pakistan. Why were those parts so important to India from the economic point of view? (Refer, to your advantage, Dr Rajendra Prasad’s book, India Divided). (cid:190) What were the various forms of revenue settlement adopted by the British in India? Where did they implement them and to what effect? How far do you think those settlements have a bearing on the current agricultural scenario in India? (In your attempt to find answers to these questions, you may refer to Ramesh Chandra Dutt’s Economic History of India, which comes in three volumes, and B.H. Baden-Powell’s The Land Systems of British India, also in two volumes. For better comprehension of the subject, you can also try and develop an illustrated agrarian map of British India either by hand or with the help of your school computer. Remember, nothing helps better than an illustrated map to understand the subject at hand). 6 INDIAN ECONOMIC DEVELOPMENT producing cash crops which were to ensured to the maximum advantage of be ultimately used by British their home country — Britain. In the industries back home. India’s unfolding economic scenario, the agricultural production received a decline of the indigenous handicraft further set back due to the country’s industries created not only massive partition at the time of independence. unemployment in India but also a new A sizeable portion of the undivided demand in the Indian consumer country’s highly irrigated and fertile market, which was now deprived of the land went to Pakistan; this had an supply of locally made goods. This adverse impact upon India’s output demand was profitably met by the from the agriculture sector. increasing imports of cheap Particularly affected was India’s jute manufactured goods from Britain. industry since almost the whole of the During the second half of the jute producing area became part of nineteenth century, modern industry East Pakistan (now Bangladesh). began to take root in India but its India’s jute goods industry (in which progress remained very slow. Initially, the country had enjoyed a world this development was confined to the monopoly so far), thus, suffered setting up of cotton and jute textile heavily for lack of raw material. mills. The cotton textile mills, mainly dominated by Indians, were located in 1.4 INDUSTRIAL SECTOR the western parts of the country, As in the case of agriculture, so also namely, Maharashtra and Gujarat, in manufacturing, India could not while the jute mills dominated by the develop a sound industrial base under foreigners were mainly concentrated in the colonial rule. Even as the country’s Bengal. Subsequently, the iron and world famous handicraft industries steel industries began coming up in declined, no corresponding modern the beginning of the twentieth century. industrial base was allowed to come The Tata Iron and Steel Company up to take pride of place so long (TISCO) was incorporated in 1907. A enjoyed by the former. The primary few other industries in the fields of motive of the colonial government sugar, cement, paper etc. came up after behind this policy of systematically de- the Second World War. industrialising India was two-fold. The However, there was hardly any intention was, first, to reduce India to capital goods industry to help the status of a mere exporter of promote further industrialisation in important raw materials for the India. Capital goods industry means upcoming modern industries in industries which can produce machine Britain and, second, to turn India into tools which are, in turn, used for a sprawling market for the finished producing articles for current products of those industries so that consumption. The establishment of a their continued expansion could be few manufacturing units here and INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 7