India’s freedom at the stroke of midnight, did not begin on a happy note, to state the least. Partition of the nation into two – a precondition for freedom – had rendered millions homeless overnight, resulted in religious sectarianism and a subsequent spate of grimy killings.
And as a violence-stricken nation turned over a new leaf, the most important challenge facing it was rebuilding the economy from scratches and tackling widespread poverty.
Looking back now, one can say that the progress made on those two fronts over have been substantial. But at the same time, one cannot afford to ignore the glaring failures, costly missteps and opportunities frittered away.
Nevertheless, from a mere Rs2.7 lakh crore economy then, to Rs.137 lakh crore now, the nation has come a long way.
We bring you key highlights from the nation’s economic trajectory under successive governments that has moulded trade and commerce, taxation and industries over the years.
Nehru’s grand plans based on socialistic principles misses the mark
When Nehru took over the reins of the newly minted nation, he had a vision – shape the economy on the socialistic principles to create an egalitarian society. He was heavily inspired by the erstwhile Soviet Union, which apparently had managed to do so.
To give shape to his vision, he begun by framing laws for land redistribution so as to close the gap between landed and the land-less classes. He also felt industrialisation was the way forward in a nation riddled with unemployment and poverty and shorn of economic development (this was a marked departure from the Gandhian economic vision centred on household production).
Nehru created the concept of the Five Years Plan – something that has been scrapped by the present BJP led NDA-government. Under the first two Plans, nationalisation of heavy industries and construction of state-owned hydro-electric power plants was carried out.
Under him, the government framed rigorous licensing rules and ushered in high taxation. All these, unfortunately, far from bolstering the economy, stymied it by restraining industries from achieving their fullest potential, giving rise to corruption and aggravating poverty and unemployment.
Lal Bahadur Shastri tries to upend Nehru’s policies
He had a brief stint for he died while in office from a heart attack. But had he continued longer, he could have changed the face of politics and economy permanently. For one, Shashtri could have thwarted the dynastic politics from taking root in India. Having demonstrated tremendous resolve in winning the war against Pakistan in 1965, he could have also changed the power dynamics between the two nations.
On the economic front, he could have paved the way for a capitalistic society for he realised, rather early, that Nehru had made a hash of the economic policies with emphasis on physical controls, promotion of heavy industries, at the expense of agriculture, and the growing mesh controls.
Despite opposition from the Congress party, which considered it sacrilegious to disregard Nehru’s policies so soon after his death, Shashtri focused back on agriculture, encouraged businesses by slackening controls to a degree and emphasized on the private sector and foreign investment.
First demonetisation under Morarji Desai
Modi’s sweeping and instantaneously controversial move of demonetisation, was not the first of its kind the nation had witnessed. Almost four decades back in January 1978, Morarji Desai of Janata Party had rendered high value currency notes of Rs.1000, Rs.5000 and Rs.10000 illegal. It was done to curb black money and combat corruption. But its impact was limited.
Indira Gandhi prolongs misery with more controls
Indira Gandhi had two terms. The first time she took up the top job, after the sudden demise of her predecessor Lal Bahadur Shashtri in 1966, she gave more teeth to the economic policies of her father by nationalising all banks in the country – Nehru was the first one to initiate the process by bringing Imperial Bank (now State Bank of India) under the state control. The intent was to give the unbanked poor access to cheap credit.
Though noble, the move only served to stoke corruption by encouraging crony capitalism. The bad loan problem – scourge of present day banking system – took roots then, when money lent to favoured businessmen never got repaid. She also brought insurance companies and the coal sector under state control. This snuffed out competition which drastically reduced efficiency in the aforementioned sectors. Finally, such moves only bogged down the performance of the economy.
On returning to power again in 1980, she attempted to undo the damage by undertaking fiscal reforms, revamping the public sector undertakings, reducing import duties and delicensing the domestic industry (although the government determined and allocated production capacities in each sector and company).
Rajiv Gandhi champions liberalisation but borrows heavily internationally too
The change initiated by his mother Indira Gandhi in her second term was taken forward by Rajiv Gandhi. He brought about further decentralization and economic reforms by lifting sanctions on various sectors and scrapping pricing controls to induce growth.
He tried to boost international trade and investment, and initiated privatization, inflation control measures and tax reforms.
Rajiv Gandhi, however, borrowed internationally very heavily as a result of which the fiscal deficit went up. This, to an extent, is said to have precipitated the Balance of Payment crisis of 1991.
Taking a cue from his predecessors, V. P. Singh takes cautious steps to free trade
V. P. Singh, much like his predecessors, oscillated between free trade, a floating exchange rate and deregulation, on one hand, and new controls, on the other hand.
Extreme measures undertaken by Chandra Shekhar to tide over Balance of Payment crisis
He inherited an economy that was in pieces. It was a result of both external factors and short sighted policies adopted by previous governments. The nation was struggling to repay official debt and pay for essential imports of oil and fertilisers (it had reserves to fund only three weeks of imports). It was the most serious Balance of Payment crisis in India’s history.
In addition, there was steep inflation on account of the Gulf War which led to spike in prices.
To fix the problem, Chandra Shekhar endorsed a proposal to mortgage gold abroad with the Bank of England and the Bank of Japan to raise $400 million. His government repurchased it after a few months once the situation improved. The move, however, cost him his premiership.
Economy veers towards capitalism under P. V. Narasimha Rao
His tenure marked a definitive change in the course of the economic trajectory of India. The small steps taken with trepidation towards liberalisation, privatisation and globalisation by premiers before him, was given full force by his government in the historic 1991-budget by opening up the economy through lifting of sanctions and scrapping the License Raj formally. True, it was done under pressure from the World Bank and the International Monetary Fund (IMF) that would lend to India only on the condition of economic reforms, but, truth be told, it required immense resolve to turn decades-old policies on their head.
With the reforms, India began a new chapter in its economic history. The big private banks, multinational companies, the software boom and glitzy supermarkets and multiplexes that we see now are all a result of that seminal budget.
Atal Bihari Vajpayee carries forward the legacy of previous government
Widely remembered for the Pokhran blast that catapulted India to the nuclear-haves club, Vajpayee was also an avid economic reformer. He attempted to resuscitate the economy further by getting off the grounds the ambitious Golden Quadrilateral – a network of four-lane and six-lane highways connecting India’s four biggest metropolitan cities, namely Delhi, Kolkata, Mumbai and Chennai – to fillip trade and commerce.
Among his other notable contributions are emphasis on development of SEZs, opening up of the telecom spectrum to private players and ending the monopoly of VSNL.
Manmohan Singh ushers in more reforms, but is bridled by powerful party members
Already famous for the seminal 1991 budget, the nation was expecting more reformist measures from him. He did deliver, to a degree, by raising of Foreign Direct Investment (FDI) in a dozen of sectors, including the politically contentious one of multi-brand retail.
Pity, the world renowned economist could not make more bold moves as he was not much of a shrewd politician and his actions were mostly controlled by powerful party members. Soon enough, widespread corruption in Congress party and lack of powerful economic moves by Manmohan Singh, led to his party losing the elections.
Modi and his big, bold moves
When it comes to drastic reforms, Modi has taken it a notch higher by raising the FDI limit in many other sectors, making the ambitious Goods and Services Tax (GST) a reality, fast-forwarding Aadhar, digitisation of commerce and banking and focussing on financial inclusion,
He has also failed on many counts such as demonetisation and creation of jobs. So far, none of his initiatives have borne results in the way they should have. Going ahead, even though a second term seems assured for him, irrespective of performance, Modi and his mandarins need to figure out means to fulfil their promises on improving ease of doing business, doubling rural income, bringing about affordable housing for all and eradicating corruption, if they want to be recognised for good work.