THE INDIAN ECONOMY@75

-ACHIEVEMENTS, CHALLENGES AND PROSPECTS

Prof. Dr. Uday N. Salunkhe

Group Director
Prin. L.N. Welingkar Institute of Management Development & Research, Mumbai
director@welingkar.org

Prof. Dr. C S Deshpande

Professor, Economics & Program In change
Prin. L.N. Welingkar Institute of Management Development & Research, Mumbai
dchandrahas@gmail.com, chandrahas.deshpande@welingkar.org

Dr. Vaishali Patil1

Senior Associate Dean, Research & Publication and IT
Prin. L.N. Welingkar Institute of Management Development & Research, Mumbai
vaishali.patil@welingkar.org

Abstract

Indian economy today is at a crucial threshold. The journey so far has been arduous, long but

enriching. There is a sense of achievements as well as a realization of the shortcomings

experienced so far, which need a course-correction.

In this Paper, we review the economic performance of India, in two distinct phases – 1947-1990

and 1991-till date, as two time-zones before and after Liberalization. We list the achievements,

shortcomings and the challenges, which the nation now confronts. We then turn our attention to

the review of the post-Covid emerging economic realities.

We briefly discuss the factors that would determine the economic prospects and indicate the

possible policy options, which would be an important ingredient in making India, an economic

powerhouse over the medium-term. We then offer concluding remarks.

Key-words – Economy, Investment, Policy, Challenges, Global, Stability

1
Corresponding author: Dr. Vaishali Patil1,Senior Associate Dean, Research & Publication and IT ,Prin. L.N.
Welingkar Institute of Management Development & Research, Mumbai, Email :vaishali.patil@welingkar.org,
Mobile :9821757231

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INTRODUCTION

In this Paper, we propose to very briefly review the Performance of the Indian Economy

till date (1947-2022) – highlighting the major achievements therein-, then turn to the analysis of

the current scenario and the emerging challenges especially the post-Covid socio-economic

concerns and finally, we intend to indicate India’ Economic prospects and policy-options over the

next few years. Needless to say, the global economic situation, the modern context of ‘Technology

and Economy’, as well as ‘Climate Change / Environment and Economy’, will form the necessary

backdrop in this endeavor.

The Indian Economy has travelled quite a huge distance after Independence, amidst

frequent - at times unanticipated - global and domestic turbulences and Today, she has rightfully

earned a place in the sun among the comity of Nations. On many global fora and among the key

Multilateral Organizations of the world, India’s voice and opinion do matter and in the global

marketplace as well as in the geo-political space, India has become an Economic powerhouse to

reckon with.

It also needs to be placed on record that the economic transformation in India, especially

in the last three decades, has been carried out, - within the Parliamentary Democracy-framework,

with all its social, political pulls and pressures. Hence, while we are aware of the stark economic

problems confronting the Nation at this hour, we do take justifiable pride in the glorious economic

achievements which have come to us hard-earned, by the vision, perseverance and hard work of

all the stakeholders – the Comon man, the Political Leaders, the Bureaucracy, Judiciary, the

Businesses, farmers, bankers and technocrats alike. As we look back today, there is a definite need

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to recap our achievements, focus on the challenges ahead and chart a possible course for a brighter

economic future.

I. Post-Independence Economic Performance

The economic journey of India can be traced through Two distinct phases, A. 1947-1990 and

B. 1991- till date. The very recent development of the global Pandemic in the form of COVID

19 and its (ongoing) variants, have added a totally new dimension and they continue to have

unprecedented implications for the Global as well as Indian economies and businesses, going

forward.

A. Indian Economy:1947-1990

This phase of economic development of India was characterized by State-led development,

isolation from the rest of the world and public sector dominance. ‘Central Planning’ was the

consciously adopted development strategy, with command rather than demand and control –

rather than competition as the leading thought-process. Huge industrial base was created with

Steel, Railways, Irrigation Dams, Infrastructure Projects, Steel, Heavy Chemicals, etc.

The Indian economy however, remained trapped in low economic growth, insignificant global

presence and lost out to many then poorer countries such as China, which mended their ways

and forged ahead. The economic growth performance of the Indian economy was sub-par in

the three decades 1951-80, with about 3.5-4% average annual GDP growth for the entire 30-

year period.

Some winds of modernization, change of track in policies, did flow and surface from the 1980s

and as a consequence, the GDP-growth did witness a significant boost in the decade of the

‘80s. The economy registered about 5-5.5 % annual GDP growth in that decade and the period

also witnessed partial decontrols on cement, pharma, fertilizer’s etc. As well as a fresh policy-

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 approach to Electronics and Telecommunications. However, the Govt. Finances as well as the

External Sector developed unprecedented stress towards the end of the decade and, as of 1990,

the Economy was on the brink of a serious crisis and disaster, because of reckless internal and

external borrowings, causing unsustainable Fiscal as well as Current Account Deficits, loss of

international confidence in the Rupee and steep depletion of Forex reserves to – less than two

weeks of imports. Also, we still remained as a poor country, with abysmal levels of primary

health, education, housing, infrastructure and financial competence.

As is said, crisis always gives rise to opportunities, which when seized, improve the prospects.

This is what happened in 1991, when we were at the doorsteps of the IMF for a loan and the

Policy-makers of the day began converting this mammoth crisis into an opportunity for

recovery, growth and modernization of the Indian Economy.

Thus, was ushered in the story of the remarkable economic transformation of India, - to a more

competitive, fat-growing, much more open and above all, a resilient economy. This saga still

continues, but with different and new sets of challenges in the form of the post-Pandemic

economic uncertainties – global as well as domestic.

B. The Journey post-1991

As the economic crisis intensified in mid-1991 with reaching the lowest levels of forex

reserves, the difficulties were further accentuated with political uncertainty with the formation

of a Minority Govt. at the Centre. However, the Govt. quickly responded to the situation by

introducing and implementing a series of unprecedented measures on virtually every economic

front – domestic and foreign investment, taxation, foreign trade, industrial policy, banking and

finance and others.

The response of the policymakers essentially comprised three major reverses from the

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 prevailing regime.

1. From Public-sector ‘commanding heights’-approach to the ‘Private-sector’ as the principal

engine of the economy-approach;

2. The fresh thrust on ‘market / competition’ as the major economic strategy as against the

‘control and regulation’ approach. ( ‘Demand’ replacing ‘Command”).

3. The complete turnaround from a ‘closed’ economy to ‘open’ economy, welcoming foreign

direct investment, renewing the emphasis on exports and getting the realistic value of rupee.

This three-pronged and “blitzkrieg” (high-speed reforms during 1991-93), strategy for

economic transformation of a crisis-ridden economy started working steadily but surely, as time

unfolded. Essentially, it was sought to change the contours of the erstwhile policy of ‘command-

control-closed’ economic regime to a more deregulated, open, market-oriented, modern and a

much more globally engaging economy.

After three decades of pursuing this course of Economic Policy, popularly termed as the

LPG-policies (Liberalization-Privatization-Globalization), admittedly, there are some serious

structural problems of poverty, inequality, low Human Development, which unfortunately still

haunt us, but there are a host of achievements, of which the Nation can legitimately take pride in.

Three decades is Not a very long period in the life of any country, and within this span, several

concrete achievements have accrued to India on her economic front.

Some of the significant and enduring achievements could be listed:

• The growth performance of the Indian economy has been substantially higher, in the last

three decades, than in the previous 45 years. Both on GDP as well as per capita basis,

India’s growth has been rapid and the average annual GDP growth of about 6.5-7% post-

1991, is much higher than that in the pre-1991 period. For last many years, after 2000,

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 Indian Economy has been the second fastest in GDP growth among all the economies of

the world on a consistent basis.

• The relatively more rapid growth in recent years has enabled a faster reduction in the

poverty ratio from around 45 % in 1993-94 to about 22% in 22011-12. (There are of course

contestable issues in the measurement of poverty which manifests in many dimensions,

HOWEER, it is now generally agreed by scholars that in the post-1991 period, the poverty-

reduction acquired greater pace.)

• The value of India’s Human Development Index (HDI) has risen from 0.42 in 1990 to 0.65

in 2020....not a small achievement for a big and socio-economically diverse country.

• Notwithstanding some of the critical issues in the current state of Govt. Finances – both at

the Central and state Levels, the public finances are far better and more productively

managed with the key ratios within prudent limits for most of the years post-1991. This is

in stark contrast with the huge levels of deficits experienced especially in the decade of

1980s.

• The Rate of inflation has been managed at low and stable levels, especially in recent (pre-

pandemic) period, with the average rate hovering between 4-6% for several years. The

double-digit inflation which used to occur frequently, i definitely a thing of the past.

• India can boast of stellar achievements on the External-Sector front. There has been

extraordinary growth in exports, rapid build-up of forex reserves (covering almost a year’s

imports now, as compared to coverage of less-than two weeks of imports in May 1991);

realistic float of the currency, prudent external-debt-to-GDP ratios and manageable Current

Account Balances all though these years.

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• One of the most remarkable achievements pertains to FDI. India has been steadily

attracting increased FDI in last two decades and today, India is one of the top 10-15 global

investment destinations. Our annual FDI inflows which were not even Dollar 1 bln in the

beginning of the 1990s, have reached a level of $75-80 Bln now.

• The coverage of people for essentials like – housing, gas, water, electricity, roads has been

rising consistently, in recent years and goes a long way in attaining ‘inclusive’ economic

development. Financial inclusion has also been commendable, with expanding Jan-Dhan

yojana beneficiaries.

While the above parameters are measurable, some of the qualitative achievements

of the Economy in the last three decades are also as important and noteworthy. The select

few can be mentioned;

• Our industrial and business sector has experienced a metamorphosis over the last three

decades. Indian industry has become more dynamic, globally competitive in many sectors

(such as – IT/ITES, R&D, Auto, Pharma), more environmentally conscious, technology-

savvy, almost unrecognizable from its pre-LPG avatar. The consistent improvement in the

“Ease of Doing Business” across States has been a major ingredient in India’s re-

industrialization of recent years.

• With the entry of Private Sector and with some successes in Public-Private partnership

(PPP) models, our infrastructure has witnessed a sea-change with many more and better

roads, power-plants, airports, ports, telecom services, renewable energy. The availability

as well as the quality of the overall infrastructure-services has drastically improved.

• With the adoption of e-Governance at various levels, the citizens’ access to essential

services has also gone up.

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• The incentivized and encouraged “start-up” culture of recent years, has also induced many

young boys and girls to take up too entrepreneurship rather than seeking jobs. several start-

up ideas and ventures ae fast coming into fruition, across sectors and across regions of

India. Several “unicorns’ have been created on the Indian soil and are turning commercially

successful.

• The different States of India are competing with each other in attracting domestic as well

as foreign investments. This has greatly facilitated the better economic management by

these States, no more depending on Central Govt. dictats.

• On any international fora – IMF / WTO/ G-20 / COP 26, India’s views are taken serious

cognizance of, as an emerging economic Powerhouse of Asia and the World.

• The rapid stride and global footprint made by India and Indians in the software / ITES

services is well-known, with the leading and prominent Big Tech Companies appointing

Indians as their CEOs.

• The Indian middle-class of about 350-400 million has become the virtual backbone of the

Economy, with diverse and dynamic base and a sizeable marketplace to reckon with.

It is pertinent to note that despite the series of changes in the Political Dispensation

at the Centre and in almost all the States in the last thirty years, the course of the economy

has been rarely reversed in any major way. This is especially important in a democratic

country like India. Indian Economy has continued solidly on a steady, stable growth path

even as it encountered numerous and unanticipated political, social, conflicts and natural

disasters.

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 C. Emerging Challenges

Even as we celebrate the above achievements, there remain some formidable challenges and

concerns which need our attention.

• One of the crucial challenges is to overcome the growing mismatch between Education and

Employability. Skill-development, capacity-building at all levels, will hold the key to the

future.

• Growing economic and income-inequalities – which are inter-personal, inter-State, intra-

state - are a matter of great concern for a healthy, peaceful society.

• The appropriate blend of ‘development’ and ‘ecology’ in the backdrop of worldwide

Climate Change is a major challenge.

• Although the poverty-rate has been reduced and India’s HDI has increased, we compare

very poorly even with many Developing countries on this aspect. The present levels of

stark, acute poverty, malnourishment, destitution and deprivation are clearly unacceptable.

• With the oncoming scenarios of Industry 4.0 / AI / Robotics, the displacement of workers

is likely to be a critical issue, which it has already become, in many developed countries.

This would be a major socio-economic challenge in the near future.

• The daunting Challenge of navigating the economic policies in the ever-changing global

and domestic settings, with better Governance, steadfast and transparent regulations and

better-quality Institutions

II. Post-COVID Economic Scenario

Since early 2020, effects of the unanticipated COVID 19, began to be increasingly felt by all

nations, adversely affecting not only global business, trade, investment and hence growth,

every economy had her own challenges which still continue, even as the Pandemic-variants

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become apparent. All the countries had to implement serious lockdowns in almost all regions,

to minimise the threat of the spread. Economic activity all over the world, came to a grinding

halt. All major economies – the advanced and the emerging economies alike have been bearing

the brunt for last about 24 months in various ways.

Needless to say, the economic consequences have been severe, and the recovery so far, has

been fragile and highly uneven across countries. The latest World Economic Outlook (WEO)

/ January 2022 of the IMF also indicates a slow and uncertain recovery in the coming year.

Govt. Finances, budgets, have been reoriented to meet the Pandemic and help the vulnerable

people on priority.

The Indian economy, which had already witnessed a growth-slowdown from 2017 to 2020,

experienced a severe jolt, with the economy contracting by 7.5 % in 2020-21, soaring deficits,

higher inflation, rising unemployment and job-losses and destruction of livelihoods for SMEs

and ordinary individuals. Healthcare services were over-stretched and over-stressed, as were

the budgets of Central and State Govts.

Vaccination took the Centre-stage, along with gradual unlocking of economic activities to deal

with the two waves of the Pandemic. The aggregate demand had ebbed across sectors and

across consumers. To revive the demand several financial and non-financial stimuli and

incentives were initiated.

As a consequence, the economy gradually began to recover in the year 2021-22. As of now,

the Economy has clocked a GDP growth of about 13% in the first half and by the estimates of

all the key domestic and global agencies, the year would end with about 9-9.5 % GDP growth.

(the Govt’s own Advanced Estimates have pegged the rate at 9.2 % in the current year ending

March 2022).

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 However, even if the economy grows by 9.5 % this year, the Indian Economy would

only be at a couple of notches higher level than in March 2020. The economy is expected only

to stabilize and be out of the woods by March 2022. The future, steady, uninterrupted growth-

pat of the economy can be ascertained only on the basis of the economic performance in the

year 2022-23.

It is pertinent to note that in the last two years, the entire gamut of economic policy,

business strategy, and the approach of all the principal stakeholders of the economy has

undergone a major shift. New business models have cropped up, even as the “work from home”

models set in. There have been major disruptions in the lives of millions of Indians in the last

two years and the recovery in livelihoods, incomes and the regaining of some semblance of

stability, safety and health...are likely to be gradual processes. However, with the gaining of

momentum in vaccination across the country coupled with the reduction in the severity of the

Pandemic itself, economic normalcy should be restored sooner than anticipated previously. All

in all, the next two to three years are going to be extremely crucial, as the world and India

grapple with the post-pandemic concerns, focus on economic revival and social stability.

III. Prospects and Policy-Options

We have already noted select challenges which have been confronting the Indian Economy,

even before the onset of COVID19. These challenges are further intensified after the Pandemic

and, new challenges as mentioned above have been added. Going forward, the prospects of the

Indian economy, we think, would critically hinge on the following factors:

• Indian industry’s ability to SIMULTANEOUSLY innovate, contribute to ecological

preservation and be in tune with the ever-changing technological landscape is going to be

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 a crucial parameter. Future industrial leadership is bound to be judged more by the response

to the above parameters, than on the attainment of numbers and ratios.

• The capacity of the Economy to not only engage meaningfully in the ruthless global

competition in the market-place, but to emerge as winner in some sectors. Indian brands

should proliferate across countries and across sectors of manufacturing as well as Services.

• How our youth navigates though personal as well as professional life, is another major

area, if India has to reap the ‘demographic dividend’, in the coming decades. Although we

boast of the youngest population in the world, the conscious creation of skill-development,

multi-tasking, multi-dimensional personality development – rather than creating tech.

silos- is going to play a major role, in aspiring for a healthy, peaceful society.

• Creation of entrepreneurship / start-up and other non-farm opportunities for the Rural

population of India, so as to take them out of the unviable agricultural occupations. Several

initiatives in this direction are being taken currently. They need strengthening and region-

wise diversification, depending on local strengths.

• As India becomes increasingly urban, the management of the cities - their transport,

ecology, housing, water, education etc., is going to be a critical determinant, for the

economic activities in these urban centers to thrive and prosper.

What then are some of the possible Economic Policy-options and priorities

for India @75?

While the specific policies to be initiated in different sectors would depend on the time and the

context, we venture to recommend here, some broad contours, from the viewpoint of

generating rapid, inclusive, sustainable economic growth and creating and nurturing a

dynamic, investor-friendly and globally competitive economy.

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1. The expenditure patterns of the Central as well as State Govts. Need a significant

reorientation. Primary healthcare, housing, education have to be accorded a far more share

in the total Govt Expenditure, than has been the case so far. The unproductive subsidies for

the relatively rich, have to be phased out in a transparent and predictable manner.

2. Infrastructureis a key area, for sustained economic and industrial prosperity. Our

experience with the PPP model has been that of a mixed success. Across the key sectors

like energy, irrigation, transport, water, housing etc., there is a dire need for PPPs with

appropriate contract enforcement and transparent, credible and stable policy-framework.

3. The NEP has been a major step towards reforming ourEducation and HRD systems.

However, we need to ensure that the NEP is efficiently and proactively implemented with

proper qualifications and caveates, across the States of India. India cannot be a super-power

in the coming years, if the demand for human resources and their supply are in a continuous

imbalance or mismatch. The demands of the dynamic economy are going to alter frequently

and the education, training and skilling has to be in tune with the dynamics of the

marketplace.

4. For Indian SMEs to be competitive globally, there has to be a specific focus on enabling

them to join the “Global Value Chains” (GVCs), which govern the global trade and

investments today. There are huge opportunities to be seized by Indian SMEs, ranging from

Textiles to Auto....to Modern Services such as Engineering Design, R&D, Media and

Entertainment, BFSI etc. The necessary policy reorientation has to be done by the

respective State Govts, bearing in mind the core competency of the specific regions or

districts. This will greatly enhance productive employment-generation as well.

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5. Indian agriculture and farmershave to be given a much better deal, freeing them from the

stranglehold of middlemen and traders. High tech agriculture and better linkages of

agriculture with industry, the efficient management of supply-chain of all the operations,

hold the key. However, the subject being politically and socially sensitive, the stakeholder-

consensus is a must, to move forward.

6. India has to be a major Trading nation in the near future. Our traditional export engines

like Textiles, Gems n Jewlery, Engineering Goods need to be substantially scaled up and

the Export of Services – Software / ITES and Tourism, Education Design etc. Have to be

given impetus and incentives.

7. Although we have come a long way in terms of improving our investment-climate in the

last three decades, we still need to cover lot more distance in making our business

environment much more investor-friendly for SMEs, big corporates and for FDI. This

involves a holistic approach of reform in – Taxation; HR or Labour Policies, Infrastructure,

Finance and Credit to Industry and Technological Innovation.

IV. Conclusion

Today, India is a 3 Trillion Dollar economy, a leading investment destination, a competitive

power in many sectors, an economy with boundless opportunities and unmatched potential. If

potential harnessed in good time and opportunities encashed, there cannot be any stopping of

the Indian Economic growth-machine. However, to double the size of the economy by India@

80, should be our next target.

This requires, consistent, long-term and collaborative efforts by all the major stakeholders –

individuals, businesses, educational institutions, financial institutions, professionals, judiciary,

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political parties and the Govt. Of the day. This has to be done by engaging more – not less –

with the rest of the world. Our Policies of ‘Make in India’, “Atmanirbhar Bharat”, have

therefore to be dovetailed with the changing global realities, but not by withdrawing from

them, but by actively engaging with them.

At the present moment, we can be legitimately proud of our achievements on the

economic front after a long and hard journey of 75 years and with the resolve and confidence

that ‘we shall overcome’ and prevail..

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