Timeline of the economy of India
Encyclopedia
This is a timeline
of the economy of India
. It includes the economic timeline of the Indian subcontinent
, from the ancient era to the present. The history of the Indian economy can be broadly divided into three phases : the Pre-colonial period, Colonial period and the Post-independence period.
Causes and Consequences
The government adopted an economic strategy that banked on public spending to facilitate growth. For a decade the government resorted to borrowing to finance its expenditure. The domestic public debt as a percentage of the GDP in the year 1980 was 36% and it increased to 56% in 1991. During this same period the external debt rose to $70 billion. Political turmoil in the country and the Persian Gulf Crisis of 1990 further worsened the situation. The crisis resulted in an increase in oil prices, which increased the cost of oil imports. As a consequence the foreign exchange reserves of the country depleted. As a result of all these events India was reeling under a Balance of Payments crisis. In mid 1990 India was on the watch list of International institutions and credit agencies. By the end of 1990 Moody's downgraded India's credit rating. Access to sources of borrowing, particularly short term credit was cut.
During the initial months of 1991, India was on the periphery of defaulting. India started discussions with the IMF for a withdrawal of $1.2 billion. Withdrawals were made in January 1991 when the foreign reserves were adequate to pay for only three weeks of imports. India began negotiations with various International institutions to raise revenues. In May 1991, the government was able to mobilize $200 million by selling 20 tonnes of gold to the Union Bank of Switzerland. In addition, another $405 million was mobilized by dispatching 47 tonnes of gold to the Bank of England.
By the end of June 1991, RBI held foreign currency assets worth $1.12 billion, which could cover only three weeks of imports. Given the situation, devaluation had become necessary. The rupee was devalued on the 1st and 3rd of July 1991. Overall the rupee depreciated 18%-19%. . During this period, India was still adhering to the fixed exchange rate system, where the rupee was linked to a basket of currencies.
Efforts were on to bring about various reforms such as liberalization of trade.
In December 1991:
Aftermath: Reforms
Post 1991, the Indian economy underwent a rapid transformation from being a closed economy to more open economy. Prior to the reforms, the policies that were adopted were highly protective in nature. Economic liberalisation was initiated by Indian prime minister P. V. Narasimha Rao
and his finance minister Manmohan Singh
in response to a macroeconomic crisis.Following are the initiatives taken by policy makers to integrate the Indian economy with the global economy:
Prior to the reforms: Many sectors of the economy were reserved only for the public sectors. This move of the government greatly discouraged participation by the private sector. Foreign investment into the economy was restricted . Permission was required from the central government which ranged from starting new businesses to approvals for transferring technology from abroad.
Objective of the reforms: Initiate competition and increase efficiency.
The Reforms: Reforms were introduced in these five areas: Industrial Licensing, Foreign Investment, Foreign Technology Agreements, Public Sector Policy and Monopolies And Restrictive Trade Practices Act(MRTP). Prior to the reforms 18 industries were under the public sector. But with the reforms only 3 industries were set aside for the public sector due to security concerns. They were: Atomic energy, Railways and Defense. Industrial licensing was done away with for all industries but was retained for those considered hazardous.
The government permitted foreign investments with a limit of 51% in industries that required the use of advanced technology and large scale investments.
The terms of agreement with regard to the transfer of technology was left to beneficiaries of the contract with minimal government interference.
Regarding the MRTP act, major attention was paid on monitoring unfair trade practices. No mandate of the central government was necessary for setting up and expansion of business units and mergers.
Prior to the reforms: Trade policies imposed high levels of tariffs, banned the imports of manufactured goods and restricted imports of other goods. The issuance of licenses was marred by delay and corruption. Import duty rate for the year 1991-1992 stood at 72.5%.
Objective of the reforms: Scrap import licensing and reduce import duties.
The Reforms: The trade policy reforms consisted of 2 strategies : abolishing import licensing and high tariff rates. In a matter of 2 years import licensing for capital goods and intermediate goods were done away with entirely. As some of the consumer goods were reserved for small scale production abolishing the restrictions on import of manufactured goods was proving to be a task for the government. Tariff rates fell steadily but still remained high when compared to other developing countries. Tariff rates were brought down to 24.6% in 1996-1997.
In 1990 India recorded a FDI inflow of just $162 million. The government realized the impact of FDI such as an increase the in the forex reserves, technology transfer and an increase industrial progress in the country. Considering the above benefits FDI norms were relaxed. FDI was permitted into sectors that were initially banned from receiving any foreign capital, for example infrastructure. Foreign institutional investors could invest in the secondary and primary markets. The permitted investment levels in equity for foreign capital ranged from 51%, 74% and in some cases to 100% . As a result of the measures taken, by 1998 the FDI inflows increased to $3.370 billion.
While the rest of the economy seemed to be benefiting from liberalization, policy makers were criticized for neglecting agriculture. Agriculture was the main source of employment for 60% of the population. However, the reforms in trade policy proved to be beneficial for the agricultural sector and this was evident as the nations contribution to the total global exports increased. But as a whole the growth of the agriculture was on the decline. This decline can be attributed to :
The objective of introducing reforms at various stages of the banking system and the financial markets was:
The committee's first report suggested adopting a dual exchange rate system, wherein the official rate was set by the RBI and the other rate was determined by market forces. In 1992, the government switched from a fixed exchange rate system to the dual exchange system, which was called Liberalised Exchange Rate Management System (LERMS). Under LERMS an exporter could convert 40% of his foreign earnings under the exchange rate set by the RBI and the remaining 60% could be converted into the market exchange rate. A year later, in March 1993, the unified exchange rate system was introduced, signalling the end of the dual exchange rate. Under the unified exchange rate system, there existed only one exchange rate that was entirely decided by the market forces of demand and supply. Exporters could now exchange the whole of their earnings under this market rate. In August 1993, the value of one rupee to that of the dollar was Rs.31.37 i.e, $1 = Rs 31.37
Industrial production for the third and fourth quarter stood at 3.8%. Industrial growth recorded till the month of October stood at 2.2%
Timeline
A timeline is a way of displaying a list of events in chronological order, sometimes described as a project artifact . It is typically a graphic design showing a long bar labeled with dates alongside itself and events labeled on points where they would have happened.-Uses of timelines:Timelines...
of the economy of India
Economy of India
The Economy of India is the ninth largest in the world by nominal GDP and the fourth largest by purchasing power parity . The country is a part of the G-20 major economies and the BRICS, in addition to being partners of the ASEAN. India has a per capita GDP of $3,608 as per 2010 figures, making it...
. It includes the economic timeline of the Indian subcontinent
Indian subcontinent
The Indian subcontinent, also Indian Subcontinent, Indo-Pak Subcontinent or South Asian Subcontinent is a region of the Asian continent on the Indian tectonic plate from the Hindu Kush or Hindu Koh, Himalayas and including the Kuen Lun and Karakoram ranges, forming a land mass which extends...
, from the ancient era to the present. The history of the Indian economy can be broadly divided into three phases : the Pre-colonial period, Colonial period and the Post-independence period.
Pre-colonial period
- 500 BC
- Silver punch-marked coins were minted as currency belonging to a period of intensive trade activity and urban development by the MahajanapadasMahajanapadasMahājanapadas , literally "great realms", were ancient Indian kingdoms or countries...
.
- Silver punch-marked coins were minted as currency belonging to a period of intensive trade activity and urban development by the Mahajanapadas
- 1
- India's economy had a 32.9% share of world income, the largest in the world.
- 1000
- India's economy had a 28.9% share of world income, the largest in the world.
- 1500
- India's economy had a 24.5% share of world income, the second largest in the world after China, which had a 25% share.
- 1600
- India's income of £17.5 million (under Akbar's Mughal Empire, pop approx. 150 million people) was greater than the entire treasury of Great Britain in 1800, which totalled £16 million.
- 1700
- India's economy had a 24.4% share of world income, the largest in the world, under Aurangzeb's Mughal Empire.
East India Company
- 1793
- Cornwallis' Permanent Settlement Instituted in BengalPermanent SettlementThe Permanent Settlement — also known as the Permanent Settlement of Bengal — was an agreement between the East India Company and Bengali landlords to fix revenues to be raised from land, with far-reaching consequences for both agricultural methods and productivity in the entire Empire and the...
- Cornwallis' Permanent Settlement Instituted in Bengal
- 1820
- China was the world's largest economy followed by the UK and India. Industrial revolutionIndustrial RevolutionThe Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
in the UK catapulted the nation to the top league of Europe for the first time ever. During this period, British foreign and economic policies began treating India as an unequal partner for the first time.
- China was the world's largest economy followed by the UK and India. Industrial revolution
- 1850
- The gross domestic product of India in 1850 was estimated at about 40 per cent that of China. British cotton exports reach 30 per cent of the Indian market by 1850.
British Raj
- 1868
- First estimation of India's national income by Dadabhai NaorojiDadabhai NaorojiDadabhai Naoroji , known as the Grand Old Man of India, was a Parsi intellectual, educator, cotton trader, and an early Indian political leader. His book Poverty and Un-British Rule in India brought attention to the draining of India's wealth into Britain...
- First estimation of India's national income by Dadabhai Naoroji
- 1870
- India's economy had a 12.2% share of world income under the British EmpireBritish EmpireThe British Empire comprised the dominions, colonies, protectorates, mandates and other territories ruled or administered by the United Kingdom. It originated with the overseas colonies and trading posts established by England in the late 16th and early 17th centuries. At its height, it was the...
.
- India's economy had a 12.2% share of world income under the British Empire
- 1913
- India's economy had a 7.6% share of world income under the British Empire.
- 1943
- Famine of BengalBengal famine of 1943The Bengal famine of 1943 struck the Bengal. Province of pre-partition India. Estimates are that between 1.5 and 4 million people died of starvation, malnutrition and disease, out of Bengal’s 60.3 million population, half of them dying from disease after food became available in December 1943 As...
- Famine of Bengal
Nehruvian era
- 1950 - The government of India constituted the planning commission. Jawaharlal Nehru was the commission's first chairman . The main motive behind establishing the commission was to allocate resources efficiently to various sectors in an attempt to provide augment employment opportunities and put the economy on the path of economic development.
- 1951 - The first five year plan was launched. An enormous portion of resources was directed to the agricultural sector.These resources were invested in rural infrastructure. As a result of the plan, the food production rose by 18%.
- 1952
- India's economy had a 3.8% share of world income.
- 1973
- India's economy was $494.8 billion, which accounted for a 3.1% share of world income.
1991
Balance of payment crisisCauses and Consequences
The government adopted an economic strategy that banked on public spending to facilitate growth. For a decade the government resorted to borrowing to finance its expenditure. The domestic public debt as a percentage of the GDP in the year 1980 was 36% and it increased to 56% in 1991. During this same period the external debt rose to $70 billion. Political turmoil in the country and the Persian Gulf Crisis of 1990 further worsened the situation. The crisis resulted in an increase in oil prices, which increased the cost of oil imports. As a consequence the foreign exchange reserves of the country depleted. As a result of all these events India was reeling under a Balance of Payments crisis. In mid 1990 India was on the watch list of International institutions and credit agencies. By the end of 1990 Moody's downgraded India's credit rating. Access to sources of borrowing, particularly short term credit was cut.
During the initial months of 1991, India was on the periphery of defaulting. India started discussions with the IMF for a withdrawal of $1.2 billion. Withdrawals were made in January 1991 when the foreign reserves were adequate to pay for only three weeks of imports. India began negotiations with various International institutions to raise revenues. In May 1991, the government was able to mobilize $200 million by selling 20 tonnes of gold to the Union Bank of Switzerland. In addition, another $405 million was mobilized by dispatching 47 tonnes of gold to the Bank of England.
By the end of June 1991, RBI held foreign currency assets worth $1.12 billion, which could cover only three weeks of imports. Given the situation, devaluation had become necessary. The rupee was devalued on the 1st and 3rd of July 1991. Overall the rupee depreciated 18%-19%. . During this period, India was still adhering to the fixed exchange rate system, where the rupee was linked to a basket of currencies.
Efforts were on to bring about various reforms such as liberalization of trade.
In December 1991:
- A committee was established to provide recommendations on the Balance of payments
- The World Bank authorized a loan of $500 million to assist with the reforms .
Aftermath: Reforms
Post 1991, the Indian economy underwent a rapid transformation from being a closed economy to more open economy. Prior to the reforms, the policies that were adopted were highly protective in nature. Economic liberalisation was initiated by Indian prime minister P. V. Narasimha Rao
P. V. Narasimha Rao
Pamulaparti Venkata "Narasimha Rao" was the ninth Prime Minister of India . He led an important administration, overseeing a major economic transformation and several home incidents affecting national security of India. Rao accelerated the dismantling of the Licence Raj. He is often referred to as...
and his finance minister Manmohan Singh
Manmohan Singh
Manmohan Singh is the 13th and current Prime Minister of India. He is the only Prime Minister since Jawaharlal Nehru to return to power after completing a full five-year term. A Sikh, he is the first non-Hindu to occupy the office. Singh is also the 7th Prime Minister belonging to the Indian...
in response to a macroeconomic crisis.Following are the initiatives taken by policy makers to integrate the Indian economy with the global economy:
- Reforms in industrial policy
Prior to the reforms: Many sectors of the economy were reserved only for the public sectors. This move of the government greatly discouraged participation by the private sector. Foreign investment into the economy was restricted . Permission was required from the central government which ranged from starting new businesses to approvals for transferring technology from abroad.
Objective of the reforms: Initiate competition and increase efficiency.
The Reforms: Reforms were introduced in these five areas: Industrial Licensing, Foreign Investment, Foreign Technology Agreements, Public Sector Policy and Monopolies And Restrictive Trade Practices Act(MRTP). Prior to the reforms 18 industries were under the public sector. But with the reforms only 3 industries were set aside for the public sector due to security concerns. They were: Atomic energy, Railways and Defense. Industrial licensing was done away with for all industries but was retained for those considered hazardous.
The government permitted foreign investments with a limit of 51% in industries that required the use of advanced technology and large scale investments.
The terms of agreement with regard to the transfer of technology was left to beneficiaries of the contract with minimal government interference.
Regarding the MRTP act, major attention was paid on monitoring unfair trade practices. No mandate of the central government was necessary for setting up and expansion of business units and mergers.
- Reforms in trade policy
Prior to the reforms: Trade policies imposed high levels of tariffs, banned the imports of manufactured goods and restricted imports of other goods. The issuance of licenses was marred by delay and corruption. Import duty rate for the year 1991-1992 stood at 72.5%.
Objective of the reforms: Scrap import licensing and reduce import duties.
The Reforms: The trade policy reforms consisted of 2 strategies : abolishing import licensing and high tariff rates. In a matter of 2 years import licensing for capital goods and intermediate goods were done away with entirely. As some of the consumer goods were reserved for small scale production abolishing the restrictions on import of manufactured goods was proving to be a task for the government. Tariff rates fell steadily but still remained high when compared to other developing countries. Tariff rates were brought down to 24.6% in 1996-1997.
- Foreign direct investment
In 1990 India recorded a FDI inflow of just $162 million. The government realized the impact of FDI such as an increase the in the forex reserves, technology transfer and an increase industrial progress in the country. Considering the above benefits FDI norms were relaxed. FDI was permitted into sectors that were initially banned from receiving any foreign capital, for example infrastructure. Foreign institutional investors could invest in the secondary and primary markets. The permitted investment levels in equity for foreign capital ranged from 51%, 74% and in some cases to 100% . As a result of the measures taken, by 1998 the FDI inflows increased to $3.370 billion.
- Agriculture
While the rest of the economy seemed to be benefiting from liberalization, policy makers were criticized for neglecting agriculture. Agriculture was the main source of employment for 60% of the population. However, the reforms in trade policy proved to be beneficial for the agricultural sector and this was evident as the nations contribution to the total global exports increased. But as a whole the growth of the agriculture was on the decline. This decline can be attributed to :
- The steady fall in rural infrastructure on the part of state governments, which began in the 1980's and continued through the 1990's on account of their weak financial positions.
- The policies adopted benefited only the rich farmers at the expense of poor farmers.
- Financial sector
The objective of introducing reforms at various stages of the banking system and the financial markets was:
- To ensure resources were allocated optimally and utilized to the maximum.
- Achieve stability at the macro-economic scenario
- To promote investor confidence through regulations that aimed that aimed at improving transparency.
- Private and foreign competition was promoted through relaxation of restrictions with regard to expansion and obtaining licenses.
- Exchange rate
The committee's first report suggested adopting a dual exchange rate system, wherein the official rate was set by the RBI and the other rate was determined by market forces. In 1992, the government switched from a fixed exchange rate system to the dual exchange system, which was called Liberalised Exchange Rate Management System (LERMS). Under LERMS an exporter could convert 40% of his foreign earnings under the exchange rate set by the RBI and the remaining 60% could be converted into the market exchange rate. A year later, in March 1993, the unified exchange rate system was introduced, signalling the end of the dual exchange rate. Under the unified exchange rate system, there existed only one exchange rate that was entirely decided by the market forces of demand and supply. Exporters could now exchange the whole of their earnings under this market rate. In August 1993, the value of one rupee to that of the dollar was Rs.31.37 i.e, $1 = Rs 31.37
1992
The policies of 1991 provided the much needed boost for the economy. But high inflation rates and unsatisfactory industrial growth were a cause of concern. Reported growth rates fell short of expectations.- During the period 1991-1992, the economy was expected to grow at 2.5% but recorded a growth of only 1.2%.
Industrial production for the third and fourth quarter stood at 3.8%. Industrial growth recorded till the month of October stood at 2.2%
- The Securities and Exchange Board of India was established under the Securities and Exchange Board of India Act, 1992. SEBI was set up to over look the operations in the financial markets. Its functions include safe guarding the interests of the investors, promoting investor confidence and encourage foreign investments. One of its supreme function is to protect the interests of the investors and it does so investigating and penlize those responsible for misleading the markets and for fraudulent practices. As part of its regulations, intermediaries in the primary and secondary market such as merchant bankers and brokers are required to register themselves with SEBI. Foreign institutional investors and mutual funds also register themselves with SEBI. It also assess the financial statements of various intermediaries.
2010
-
- India's economy is $4.06 trillion (purchasing power parityPurchasing power parityIn economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
) which accounts for a ~6.0% share of world income, the fourth largest in the world in terms of real GDP.
- India's economy is $4.06 trillion (purchasing power parity
Further reading
- Maddison, AngusAngus MaddisonAngus Maddison was a British economist and a world scholar on quantitative macroeconomic history, including the measurement and analysis of economic growth and development...
(2004). The World Economy: Historical StatisticsThe World Economy: Historical StatisticsThe World Economy: Historical Statistics is a book by Angus Maddison. Published in 2004 by the OECD Development Centre, it studies the growth of populations and economies across the centuries: not just the World Economy as it is now, but how it was in the past.Among other things, it showed that...
. OECD. ISBN 92-64-10412-7. (See Sample Table.) - World BankWorld BankThe World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, 1 July 2006. PPP GDP 2005.
External links
- http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12252#EXC Exchange Rate Policy and Modelling in India
- http://www.thehindubusinessline.in/2005/07/19/stories/2005071900210900.htm Liberalised Exchange Rate Management System — The story of India's Gulf crisis
- http://siadipp.nic.in/publicat/nip0791.htm STATEMENT ON INDUSTRIAL POLICY
- http://planningcommission.gov.in/aboutus/history/index.php?about=aboutbdy.htm
- http://www.time.com/time/magazine/article/0,9171,807766,00.html
- http://indiaonline.in/Profile/Economy/PlanningCommission/Five-Year-Plans.aspx