Education About Asia

The History of Economic Development in India since Independence

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The Background

The task that the democratically elected leaders of newly independent India embarked on in the early 1950s was not for the faint of heart. It was to lift living standards of a people accounting for one-seventh of the world’s population who earned an average income that was one-fifteenth of the average American income of the time.1 Three-fourths of the Indian people were engaged in agriculture working with primitive tools and techniques, as either destitute landless laborers, highly insecure tenants-at-will, or small-plot holders eking out subsistence living from their meager plots. The literacy rate stood at 14 percent, and the average life expectancy was thirty-two years.

How successful has the country been in fulfilling the task over sixty years later? The charts in this article, using World Bank data, show how some of the country’s development indicators have changed in the last half-century. The country has experienced an increase in per capita income—especially since the 1980s—as well as reductions in poverty and infant mortality rates. These improvements are not insignificant and mark a sharp break from the near stagnation that the country experienced during British rule. But a comparison with the later superior performance of China and South Korea, countries with a comparable level of development in the 1950s, reveals that India’s performance remains below its potential. How did that come about? This essay provides an account of India’s strategy of economic development, its achievements, shortfalls, and future challenges.

The Initial Strategy

The government in the 1950s adopted a very particular strategy of economic development: rapid industrialization by implementing centrally prepared five-year plans that involved raising a massive amount of resources and investing them in the creation of large industrial state-owned enterprises (SOEs).2 The industries chosen were those producing basic and heavy industrial goods such as steel, chemicals, machines and tools, locomotives, and power. Industrialization was pursued because leaders believed, based in part on the beliefs of some economists, that the industrial sector offers the greatest scope of growth in production. It was not that the Indian agricultural sector offered no scope for growth. Crop yields in India were quite low compared to other countries, and the recent famine in 1943 had underscored the need to increase food production. Still, Indian leaders did not want to make agriculture the mainstay of their strategy. The preeminence of agriculture they believed was characteristic of a backward economy, and growth in agriculture eventually runs up against the problem of insufficient demand. There is only so much, after all, that people are willing to eat.

NOTES

1. The figure is calculated from the estimated per capita income of the two countries. See The Madisson-Project (2013) database at http://tinyurl.com/pvqeuay.

2. Francine Frankel provides a detailed study of how such a strategy came to be chosen is in India’s Political Economy: 1947-2004, 2nd ed. (Oxford: Oxford University Press, 2005).