Economic history of India Totally Explained

Everything about Economic History Of India totally explained

Economic history of India, in the sense of the meaning of the term economic in its current sense, is at least 5,000 years old.

Indus Valley Civilization

The Indus Valley civilization, the first known permanent and predominantly urban settlement that flourished between 2800 BC to 1800 BC boasted of an advanced and thriving economic system. Its citizens practiced agriculture, domesticated animals, made sharp tools and weapons from copper, bronze and tin and traded with other cities. Evidence of well laid streets, layouts, drainage system and water supply in the valley's major cities, Harappa, Mohenjo-daro and Rakhigarhi reveals their knowledge of urban planning. They eventually over used their resources, and slowly died out. There have been few weapons found in the Indus Valley, showing that they were peaceful people, and they didn't get slaughtered by the Aryans.

Ancient and Medieval Characteristics

Though ancient India had a significant urban population, much of India's population resided in villages, whose economy was largely isolated and self-sustaining. Agriculture was the predominant occupation of the populace and satisfied a village's food requirements besides providing raw materials for hand based industries like textile, food processing and crafts. Besides farmers, other classes of people were barbers, carpenters, doctors (Ayurvedic practitioners), goldsmiths, weavers, etc.

Religion

Religion, especially Hinduism, played an influential role in shaping economic activities. The Indian caste system castes and sub-castes, despite its social fallbacks, functioned much like medieval European guilds, ensuring division of labour and provided for training of apprentices. The caste system restricted people from changing one's occupation and aspiring to an upper caste's lifestyle. Thus, a barber couldn't become a goldsmith and even a highly skilled carpenter couldn't aspire to the lifestyle or privileges enjoyed by a Kshatriya. Kshatriya person of a warrior class. This barrier to mobility on labour restricted economic prosperity to a few castes.
Pilgrimage towns like Allahabad, Benares, Nasik, Puri, Orissa Puri, etc., mostly centred around rivers, developed into centres of trade and commerce. Religious functions, festivals and the practice of taking a pilgrimage resulted in a flourishing pilgrimage economy.

Family business

In the joint family system, members of a family pooled their resources to maintain the family and invest in business ventures. The system ensured younger members were trained and employed in the family business and the older and disabled persons would be supported by the family. The system, by preventing the agricultural land from being split ensured higher yield because of the benefits of scale. The system curbed members from taking initiative because of the support system and family or work.

Organizational entities

Along with the family-run business and individually owned business enterprises, ancient India possessed a number of other forms of engaging in business or collective activity, including the gana, pani, puga, vrata, sangha, nigama and sreni. Nigama, pani and sreni refer most often to economic organizations of merchants, craftspeople and artisans, and perhaps even para-military entities. In particular, the sreni was a complex organizational entity that shares many similarities with modern corporations, which were being used in India from around the 8th century BC until around the 10th century AD. The use of such entities in ancient India was widespread including virtually every kind of business, political and municipal activity.
The sreni was a separate legal entity which had the ability to hold property separately from its owners, construct its own rules for governing the behavior of its members, and for it to contract, sue and be sued in its own name. Some ancient sources have rules for lawsuits between two or more sreni and some sources make reference to a government official (Bhandagarika) who worked as an arbitrator for disputes amongst sreni from at least the 6th century BC onwards. There were between 18 to 150 sreni at various times in ancient India covering both trading and craft activities. This level of specialization of occupations is indicative of a developed economy in which the sreni played a critical role. Some sreni could have over 1000 members as there were apparently no upper limits on the number of members. However, Economist and Journalist Evan Davis has praised Maddison's research by citing it as a "fantastic publication" and that "One shouldn't read the book in the belief the statistics are accurate to 12 decimal places."

Mughal Empire

1525 - 1550

During this period, India was the second largest economy in the world. The gross domestic product of India in 1550 was estimated at about 40 per cent that of China.

1550 - 1575

During this period, India was the second largest economy in the world. The gross domestic product of India in 1575 was estimated at about 50 per cent that of China.

1575 - 1600

An estimate of India's pre-colonial economy puts the annual revenue of Emperor Akbar's treasury in 1600 at £17.5 million, in contrast to the entire treasury of Great Britain in 1800, which totalled £16 million. The gross domestic product of India in 1600 was estimated at about 60 per cent that of China.

1600 - 1625

During this period, India was the second largest economy in the world. The gross domestic product of India in 1625 was estimated at about 70 per cent that of China.

1625 - 1650

During this period, India was the second largest economy in the world. The gross domestic product of India in 1650 was estimated at about 80 per cent that of China. Emperor Shah Jahan's treasury reported annual revenues exceeding £25 million by 1650.

1650 - 1675

During this period, India was the second largest economy in the world. The gross domestic product of India in 1675 was estimated at about 90 per cent that of China.

1675 - 1700

During this period, the Mughal empire expanded to almost 1,000 million acres (or 90 per cent of south Asia) and a uniform customs and tax administration system was enforced. Annual revenue reported by the Emperor Aurangzeb's exchequer exceeded £100 million in 1700 (twice that of Europe then). Thus, India emerged as the world's largest economy followed by China and France.

1700 - 1725

China was the world's largest economy followed by India and France. Collapse of the central authority of the Mughal Empire and the resultant chaos triggered India's long but slow decline on the world stage. The gross domestic product of India in 1725 was estimated at about 90 per cent that of China.

Nawabs, Marathas & Nizams

1725 - 1750

During this period, Mughals were replaced by the Nawabs in north India, the Marathas in central India and the Nizams in south India. However, the Mughal tax administration system was left largely intact. China was the world's largest economy followed by India and France. The gross domestic product of India in 1750 was estimated at about 80 per cent that of China.

1750 - 1775

During this period, about two-thirds of the civil service in India was still dominated by Muslim officers. During this period, the Maratha empire expanded to almost 250 million acres (or 34 per cent of Indian landscape) while the Nizam's dominion expanded to almost 125 million acres (or 17 per cent of Indian landscape). China was the world's largest economy followed by India and France. The gross domestic product of India in 1775 was estimated at about 70 per cent that of China.

British East India Company Rule

The British colonial rule created an institutional environment that did stabilize the law and order situation to a large extent. The British foreign policies however stifled the trade with rest of the world. They created a well developed system of railways, telegraphs and a modern legal system. The infrastructure the British created was mainly geared towards the exploitation of resources of India. By the end of the colonial rule India inherited an economy that was one of the poorest in the world and totally stagnant, with industrial development stalled, agriculture unable to feed a rapidly accelerating population. They were subject to frequent famines, had one of the world's lowest life expectancies, suffered from pervasive malnutrition and were largely illiterate.

GDP estimates An estimate by Angus Maddison, formerly of Groningen University, reveals that India's share of the world income went from 24.4% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952; however, these statistics too are based on assumptions that have been criticized.

Democracy

1950 - 1975

Socialist Reforms USA was the world's largest economy followed by the USSR, Japan, Germany and China. The gross domestic product of India in 1975 was estimated at about 5 per cent that of the USA..
   Before independence a large share of tax revenue was generated by the land tax, which was in effect a lump sum tax on land. Since then land taxes have steadily declined as a share of revenues and completely replaced by sales taxes. (External Link) Moreover, the structural economic problems inherited at independence were exacerbated by the costs associated with the partition of British India, which had resulted in about 2 to 4 million refugees fleeing past each other across the new borders between India and Pakistan. The settlement of refugees was a considerable financial strain. Partition also divided India into complementary economic zones. Under the British, jute and cotton were grown in the eastern part of Bengal, the area that became East Pakistan (after 1971, Bangladesh), but processing took place mostly in the western part of Bengal, which became the Indian state of West Bengal in 1947. As a result, after independence India had to employ land previously used for food production to cultivate cotton and jute for its mills.
   India's leaders -- especially the first prime minister, Jawaharlal Nehru, who introduced the five-year plans -- agreed that strong economic growth and measures to increase incomes and consumption among the poorest groups were necessary goals for the new nation. Giving utmost importance to the economy, Nehru appointed R. K. Shanmukham Chetty, a person who didn't participate in the mainstream Indian Independence Movement as the finance minister, since he believed that more than ideology, having the right person in the right job was important.
   Since 1950, India ran into trade deficits that increased in magnitude in the 1960s. The Government of India had a budget deficit problem and therefore couldn't borrow money from abroad or from the private sector, which itself had a negative savings rate. As a result, the government issued bonds to the RBI, which increased the money supply, leading to inflation. In 1966, foreign aid, which was hitherto a key factor in preventing devaluation of the rupee was finally cut off and India was told it had to liberalise its restrictions on trade before foreign aid would again materialise. The response was the politically unpopular step of devaluation accompanied by liberalisation. The Indo-Pakistani War of 1965 led the US and other countries friendly towards Pakistan to withdraw foreign aid to India, which further necessitated devaluation. Defence spending in 1965/1966 was 24.06% of total expenditure, the highest in the period from 1965 to 1989. This, accompanied by the drought of 1965/1966, led to a severe devaluation of the rupee. Current GDP per capita grew 33% in the Sixties reaching a peak growth of 142% in the Seventies, decelerating sharply back to 41% in the Eighties and 20% in the Nineties.
   From FY 1951 to FY 1979, the economy grew at an average rate of about 3.1 percent a year in constant prices, or at an annual rate of 1.0 percent per capita (see table 16, Appendix). During this period, industry grew at an average rate of 4.5 percent a year, compared with an annual average of 3.0 percent for agriculture. Many factors contributed to the slowdown of the economy after the mid-1960s, the main one was the socialist policies pursued by Nehru and his cabinet. They managed to tamp down on the natural business acumen and abilities of the population, yet some economists differed over the relative importance of those factors.
   Structural deficiencies, such as the need for institutional changes in agriculture and the inefficiency of much of the centrally directed industrial sector, also contributed to economic stagnation. Some other excuses that were generally offered were - War with China in 1962 and with Pakistan in 1965 and 1971; a flood of refugees from East Pakistan in 1971; droughts in 1965, 1966, 1971, and 1972; currency devaluation in 1966; and the first world oil crisis, in 1973-1974, all jolted the economy.
   This is a chart of trend of gross domestic product of India at market prices estimated by Ministry of Statistics and Programme Implementation with figures in millions of Indian Rupees. See also the IMF database.

Year	Gross Domestic Product	US Dollar Exchange in (Rs.)
1950	99,340	4.79
1955	108,730	4.79
1960	171,670	4.77
1965	276,680	4.78
1970	456,770	7.56
1975	832,690	8.39

Lawrence H. Officer, "Exchange rate between the United States dollar and forty other countries, 1913 -1999." Economic History Services, EH.Net, 2002. URL: http://eh.net/hmit/exchangerates/
The Union government treasury reported annual revenue of £5-6 billion in 1975 thus registering a average annual growth of almost 12 per cent during the third quarter of 20th century. Nevertheless, prime minister Indira proclaimed emergency and suspended the Constitution in 1975.

1975 - 2000

Privatisation Reforms USA was the world's largest economy followed by Japan, Germany and China. The gross domestic product of India in 2000 was estimated at about 4 per cent that of the USA. � See Also: Economic Reforms under Rao

As of 1991, India still had a fixed exchange rate system, where the rupee was pegged to the value of a basket of currencies of major trading partners. India started having balance of payments problems since 1985, and by the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports.
   The Government of India headed by Narasimha Rao decided to usher in several reforms that are collectively termed as liberalisation in the Indian media with Manmohan Singh whom he appointed as a special economical advisor. Plague returned to India in 1994.(External Link) For a short educational video of the "economic history of India".
   It is estimated that only 2 per cent of the population were taxpayers as of 2000. Mumbai overtook Calcutta as the largest city in the country.
   This is a chart of trend of gross domestic product and foreign trade of India at market prices estimated by Ministry of Statistics and Programme Implementation with figures in millions of Indian Rupees. See also the IMF database.

Year	Gross Domestic Product	Exports	Imports	US Dollar Exchange in (Rs.)	Inflation Index (2000=100)
1980	1,380,334	90,290	135,960	7.86	18
1985	2,729,350	149,510	217,540	12.36	28
1990	5,542,706	406,350	486,980	17.50	42
1995	11,571,882	1,307,330	1,449,530	32.42	69
2000	20,791,898	2,781,260	2,975,230	44.94	100

) The Union government treasury reported annual revenue of almost £19-20 billion in circa 2000 thus registering a average annual growth of merely 5 per cent during the last quarter of 20th century.

2000 - Present

Continued reforms The gross domestic product of India in 2007 was estimated at about 8 per cent that of the USA.
   National Democratic Front led by BJP, was in helm of economic affairs from 1998-2004. During this period there were two finance ministers, viz., Yashwant Sinha (1998-2003) and Jaswant Singh (2003-2004). The main economic achievement of the government was the universal license in telecom field, which allows CDMA license holders to provide GSM services and vice versa. NDA started off the Golden Quadrilateral road network connecting main metros of Delhi, Chennai, Mumbai and Kolkata. The project, still under construction, was one of the most ambitious infrastructure projects of independent India. Simultaneously, North-South and East-West highway projects were planned and construction was started.
   Education for all is still an unrealised dream in India. This was made a fundamental right by amending the constitution of India and huge amount of money was pumped into the project under the name of Sarva Shiksha Abhiyan. This project met with limited success.
   This is a chart of trend of gross domestic product and foreign trade of India at market prices estimated by Ministry of Statistics and Programme Implementation with figures in millions of Indian Rupees. See also the IMF database.

Year	Gross Domestic Product	Exports	Imports	US Dollar Exchange in (Rs.)	Inflation Index (2000=100)
2000	20,791,898	2,781,260	2,975,230	44.94	100
2005	34,195,278			44.09	121

Lawrence H. Officer, "Exchange rate between the United States dollar and forty other countries, 1913 -1999." Economic History Services, EH.Net, 2002. URL: http://eh.net/hmit/exchangerates/
For purchasing power parity comparisons, the US Dollar is exchanged at 9.46 Rupees only.
Despite steady growth and continuous reforms since the Nineties, Indian economy is still mired in bureaucratic hurdles from coast to coast. This was confirmed by a World Bank report published in late 2006 ranking Pakistan (at 74th) well ahead of India (at 134th) based on ease of doing business (External Link

) Haphazard industrial schemes and liberalisation reforms by different governments created a massive concentration of wealth in the hands of a few select oligarchs particularly in the southern and western states of India as well as a new underclass of 50 million internally displaced persons by the end of 20th century.(External Link

) These oligarchs control the media and the mineral resources and lobby vigorously for personal aggrandisement. In 2006, Forbes reported that India was home to more billionaires than any other nation in Asia except Russia. Plague returned to India in 2002(External Link

) and 2007(External Link

). An overwhelming 836 million people in India live on a per capita consumption of less than Rs.20 per day ($0.50 per day), according to the findings of the Arjun Sengupta report on the Conditions of Work and Promotion of Livelihood in the Unorganised Sector.(External Link

) The Union government treasury reported annual revenue of £51-52 billion in 2005 thus registering a average annual growth of almost 22 per cent since 2000.

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