Indian Economy
Deeparghya Mukherjee
Background
• Why do you think we need to study about the economy?
• Its Good to know about one’s economy?
• May help answer general knowledge questions in placement interviews?
• Will help us know about what policies the government is thinking about?
• Sunrise sectors in the economy?
• Implications for “Amritkal” and upcoming trends in the economy and the
world
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Our focus
• Important to understand why we are, where we are
• Key trends in each sector- rising stars versus falling ones
• Trends cutting through all sectors
• Developments which impact all sectors
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
India 1947
• INDEPENDENCE
• PARTITION
• Emotions and patriotism at all time high
• Hopes
• What about Business?
• India was 23% of world income in 1700
• Around 3.5% in 1947!
• What was behind this decline?
• Are there examples of countries to follow?
• Bombay Plan (1944-46)
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Early years
• What were Nehru’s challenges/priorities?
• Poverty
• Inequality (land distribution)
• Literacy/education/ skills
• Build/ support entrepreneurs?
• Planned Economy?
• Why not Market?
• MIXED it is
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Why this design?
• Why did Nehru believe in the Socialistic style planned economy?
• What was happening in the world at that time? What are his choices?
• WW2, state of America, Britain, Europe before the war
• Shadow of Great Depression looming large
• Only about a decade since America emerged out of depression, free market had wrecked havoc and
also got the west to fight a dreadful war
• Free market had also brought East India Company to come and rule India from which we just
emerged!
• Russia did not see any of it- quite well run after Bolshevik Revolution!
• How do you tackle distribution of wealth, enough job creation in a country
riddled with illiteracy, lack of education, lack of institutions for the future?
• Do we privatize infrastructure building?
• Do we expect Private sector to build long gestation capital goods sector
(which are all being imported apart from the raw materials for production in
most sectors?)
We needed to build/ promote entrepreneurship along with state support
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Strategies
• Be self reliant! Did someone say Atmanirbhar!
• Accumulate Capital! Require high Savings
• Keep savings rates high
• Bad for entrepreneurs!- Borrowing rates are still higher
• Channel it to Govt. through riskless govt. securities
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
Five Year Plans
• Industrial Policy 1948: Shadow of the Bombay Plan
• 1951: First 5 year plan
• Education
• Agriculture and Irrigation: India a net importer of food
• 1956: Focus on Industrialization
• Funding through Govt. Debt
• Basic and strategic importance only for public sector(Atomic energy, Railways, arms)
• Industries to be incrementally state owned (Coal, iron, shipbuilding, telegraphs)
• Consumer industries (Automobiles, tractors, machine tools)
• Advent of the license raj
• Steel production prioritized Rourkela, Bhilai, Durgapur
• Shortage of funds from Farm sector- Food shortage
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
1960s
• Food aid spiked
• Green Revolution, White revolution
• Pressure on Govt. (2 wars 1962, 1965)
• 1966 to 1969 : 5 year plans abandoned for 1 year plans
• Rupee devaluation by 57% in 1966
• Lack of rural credit: Nationalisation of 14 banks (jolt to the economy)
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
1970s
• Legalisation of strikes, Reinstatement of trade unions
• FERA (no foreign investor to own more than 40% in Indian enterprise)
• Oil Crisis 1974
• Departure of IBM and Coca Cola
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
hindsight
• Between 1947 to 1990 India was neither Africa nor East Asia!!
• Compared with other countries between 1960 and 1992 India lies
bang in the middle of growth stories across the world
• We certainly cannot be awarded an F or even a D grade
• Education was a bright spot along with English language skills due to
colonial past which would become a bigger boon with increased
globalization
Slides used by Deeparghya Mukherjee for Indian Economy
Course, IIM Nagpur
