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By: Neha Sharma Roll: PGP/22/088: TH TH

The document analyzes the factors contributing to India's economic growth patterns since 1947, including periods of slow growth and more recent dynamism. It identifies 1975 as a turning point when GDP grew 9% and the economy began changing. The 1980s saw further growth and India rising in international rankings. Major economic reforms in 1991 opened the economy to global trade. Savings and investment rates, which increased in the 1970s due to policies like nationalizing banks, also contributed to growth. However, the benefits of growth have not reached all equally, with issues around employment, wages, and inequality that need addressing to sustain growth long-term.

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27 views

By: Neha Sharma Roll: PGP/22/088: TH TH

The document analyzes the factors contributing to India's economic growth patterns since 1947, including periods of slow growth and more recent dynamism. It identifies 1975 as a turning point when GDP grew 9% and the economy began changing. The 1980s saw further growth and India rising in international rankings. Major economic reforms in 1991 opened the economy to global trade. Savings and investment rates, which increased in the 1970s due to policies like nationalizing banks, also contributed to growth. However, the benefits of growth have not reached all equally, with issues around employment, wages, and inequality that need addressing to sustain growth long-term.

Uploaded by

Nehas22
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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By: Neha Sharma

Roll: PGP/22/088

The Pattern and Causes of Economic Growth in India

This paper analyses the various forces that have contributed to the growth performance of Indian
economy, including its long period of hibernation and recent changes in dynamism. The analysis is
based on the macro parameters of growth of Indian economy since 1947 that have contributed to
the pattern. Apart from recognizing the history of growth of economy, and the politics associated
with it, it realizes the factors such as saving rates and investment rates to draw the relation between
the growth and development and recognizing the nature of labour market.

The growth of the Indian economy since Independence.

Drawing an overview of the growth performance of India over the last 50 years, the paper realizes
1975 as trend changing year in the history of growth, even though this hypothesis is not fully
recognized by Indian commentators who call it ‘totalitarian embarrassment’ of the national
emergency declared in the year. The next big spike came in the year 1980 when GDP not only
increased it broke ranks with other nations. Next big change happened in the year 1991 when owing
to macroeconomic factors and drying up of federal reserves, India opened its economy to the world
and adopted the policy of free trade.

The rate of growth of GDP averaged around 3 per cent in 1950, 1960 and 1970. This rate is called
“The Hindu growth rate” while beyond 1970’s, GDP showed an upward trend averaging around 6 per
cent. Indian population has grown more than double since 1960, while GDP has grown eight times.

In term of GDP per capita, India ranked 90 among the nations in 1975. There was a little fluctuation
in the rank between 1975 and 1982. From 1982, a monotonic growth with India’s PPP corrected GDP
rising to 75 position. In 1985, India’s PPP corrected GDP was 8 th largest in the world while in 2004 it
grew up to become 4th largest falling behind US, China and Japan. Despite this rank improvement,
India along with south Asia and still considered the poorest regions in the world.

The history of growth of economy

The first big growth for India in GDP happened in the year 1975. The GDP grew by 9 % and it is a
figure that has been surpassed only twice since then. The next big improvement came in the year
1980 when GDP grew and India was considered in the rank with other nations. The next big change
happened when in 1991, pushed by various macroeconomic factors, gulf wars and drying up of
foreign reserve, India adopted open economy and opened up trade to rest of the world. This is
considered the most sustainable change since independence.

Analysing the reasons behind the changes, apart from the monetary and fiscal policies adopted by
the government, the two other factor which played major role in the economy are Savings and
investment rates. These rates were generally low in India and averaged around 15 percent in the
sixties. However, it crossed 20 per cent mark in 1978 and 79. This author acknowledges has
contributed to the growth in the mid seventies and steady growth since eighties.
Contemplating the reasons behind the rise in saving rates, we come across several policies
introduced by the government that led to the increase of saving rate in India. First was the
nationalization of banks by Indira Gandhi in 1969 that pushed banks to open branches in rural areas
increasing the saving in the economy. Second was the introduction of State-Owned unit trust in 1964
that led to the increase in the development of the economy. Another reason was the increase in real
interest rates which led to the increase in household saving from 10 per cent to 25 per cent. Savings
are reported as a percentage of GNP at factor Cost.

Post 1991, India has focussed majorly on the international sector and the attempt has paid off.
However, we need to sustain this growth. Last 15 years has displayed a constant growth for India.
We need to sustain this growth and for that one need to focus on certain microeconomics factors.
Some of them are better distribution of Income in the labour market, introducing laws for minimal
welfare net for the unemployed labour, there is a need to control the control the corruption and
better perspective for the business and entrepreneurial growth. These reforms are called as second-
generation reforms. The requirement is to build a system that can provide for more flexible
contracts in the labour market, that has minimal welfare net for the labour out of work and that can
resolve labour market issues and disputes more quickly.

With the rapid boom in the Indian economy, there are evidence that the results of the boom are not
being transferred to the labours adequately. Employment is not growing as a fast as working age
population and there is a mismatch of the skill. Neither are wage rising as per capita income. There
are several reasons responsible for this. Some of it due to rapid globalization that are beyond the
policy reach. But most of it has to do with culture of India’s labour market which in turn is a
consequence of ill-conceived laws that govern the labour market.

To conclude, if India wants to sustain and raise even higher its current growth, the main
bottlenecks in the Indian economy will need to be addressed. These are lack of infrastructure for
instance lack of roads, freight rates, lack of power supply, lack of ports, and airports), introduction of
improved labour and bankruptcy regulations, and managing the high level of corruption in the
government bureaucracy. In addition, low growth pattern of the agricultural sector needs to be
addressed, and the rising income inequality—between different states, between rural and urban
areas, and within sections of society. However, Income inequality in India is a grave issue that need
to be recognized immediately as it can lead to political tension and destabilize the otherwise
optimistic growth scenario.

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