Economy

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Do you think the economic path that India followed soon after its independence was practical and rational? Critically discuss. (200 Words)

 
As country had extreme poverty and social problems of illiteracy, communalism, rigid caste system etc. so It was necessary for government to uplift the condition of poor people. So Socialist character became unavoidable but industrialization was also must for economic growth. So Nehru adopted MIXED economy
Rational factors:
  1. Coming from colonial rule for 200 years, it was rational to think that the then leadership feared the dominance of foreign countries on this newly independent country if they open gates to FDI.
  2. India was predominantly poor country and it can’t afford further rich-poor gap by following a pure capitalistic approach benefitting the elite class
Practical factors:
  1. In India entrepreneurial class was yet to emerge. The private sector was not having enough capital to invest, particularly in Heavy industry. So public investment in basic and strategic industries was followed.
  2. Immediately after independence, India was primarily an agrarian economy, so it was practical to invest more in agriculture (1st FYP).
  3. To reduce regional imbalance, public sector enterprises were set up in backward regions for balanced regional development
Over-protection given to domestic industries led to stagnation of economy, later Indian liberalized FDI regime and opened doors to foreign investors. Many of the PSUs opened turned into sick enterprises. India thus took up downsizing and rightsizing, easing of license-quota-permit raj. Even agriculture did not meet the target 4 % growth rate. Though the strategy it followed was sound and was backed by rational and practical reason, lack of proper implementation resulted in mixed results.
The Indian economy was in the grip of a massive crisis in many aspects by mid – 1960s, which rapidly changed Indias image from a model developing country to a Basket Case. Examine the causes of this crisis, its effects and how India managed to come out of this. Also add a critical note on the response of international community to this crisis. (200 Words)
The mid-1960s were a vulnerable period for India because India was facing an acute economic crisis
Causes:
  1. Two wars in 1960s and one humiliating defeat. This pushed Indian state to increase expenditure on military at the cost of developmental expenditure.
  2. 3 years of monsoon failure cause food scarcity. Agriculture showed signs of stagnation.
  3. Rising inflation. This was partly due to the reduced agricultural yields and partly due to the 1962 and 1965 wars with China and Pakistan respectively, which lead to a massive increase in defense expenditure.
  4. Deterioration of the balance of payments situation.
Effects
  1. The adverse condition of agricultural sector led to dwindling food stocks which threatened famine conditions in some parts.
  2. Forex dwindling to unprecedented levels – so much so that they would cover only two months of imports.
  3. This caused India to become increasingly dependent on foreign aid rendered by US.
International response
  1. US, which was the most important donor at this time, refused to renew the wheat loan agreement with India as a response to the Indo-Pak war and India’s stand on Vietnam;
  2. This made India develop good relations with Russia  (1971 – Friendship Treaty)
  3. Further, aid by US and the Bretton Wood twins was made conditional on India’s adoption of a new agricultural policy, devaluation rupee and liberalization her trade and economy.
Steps taken by India
  1. In the beginning, the government devalued the rupee and also liberalized some controls on trade. These failed to bring much change especially due to their ineffective implementation.
  2. To restore BoP – adopting drastic cuts in the government expenses mainly the capital expenditure.
  3. Steps were taken to improve India’s food reserves. It was these measures, which finally culminated in the green revolution.
  4. The government introduced many anti-poverty schemes which reflected the government’s motto of “Garibi Hatao”
  5. Nationalization of Banks was major step taken during this period to meet investment needs of economy.
As a consequence of these measures, India’s imaged changed from that of ‘begging bowl’. In the long run, this period helped the economy become more resilient and self-sufficient in the face of crisis.