Countries of the World/COUNTRYS.BIN/dp/0167/01679.txt

Text File | 1991-06-25 | 20KB | 317 lines

$Unique_ID{COW01679}
$Pretitle{221}
$Title{India
Chapter 6A.   Character and Structure of the Economy}
$Subtitle{}
$Author{Darrel R. Eglin}
$Affiliation{HQ, Department of the Army}
$Subject{percent
economy
growth
economic
population
year
fy
india
poverty
increased}
$Date{1985}
$Log{}
Country:     India
Book:        India, A Country Study
Author:      Darrel R. Eglin
Affiliation: HQ, Department of the Army
Date:        1985

Chapter 6A.   Character and Structure of the Economy

     India's transition from millennia-old forms of economic life to more
modern ways was almost completely confined to the twentieth century. Progress
in the first half of the century was largely in education, which produced
the leaders for independence and the period after, and in health measures,
which resulted in rapid growth of the population. By independence in 1947,
economic life for the bulk of the population had changed little except that
there was much greater pressure on the land and resources and more extensive
poverty. Some modernization of transportation, communications, industry, and
commerce had occurred, but it affected only a few, mainly those in urban
areas. The few were important, however, because among them were the political
and economic leaders, many of them educated in Britain, who set the
postindependence goals.

     The primary goals of independent India were rapid economic growth and
reduction of poverty. After more than three decades of effort, only a moderate
rate of economic growth had been achieved, although it improved in the early
1980s. By fiscal year 1983-84, gross national product amounted to the
equivalent of US $167 billion, about fifteenth in the world. In terms of value
added by agriculture, India ranked about fourth largest in the world, and
by manufacturing India ranked perhaps fifteenth. Per capita gross national
product, however, was only about US $230 in fiscal year 1983-84. About half of
the population existed below the poverty line; perhaps half of the world's
poor lived in India. Although poverty probably had not increased since
independence, neither had it diminished significantly.

     With one foot in the past and one in the future, India's economy made
jerky progress. Sharp contrasts emerged. Cow dung and nuclear-fueled
electricity were primary energy sources. Close to two-thirds of the population
were illiterate, while the country's pool of scientific and technical manpower
was the eighth largest in the world. Ardent trade unionists coexisted with
large numbers of essentially indentured slaves. The country's own launcher
had placed an Indian-produced satellite in orbit, only the seventh country
to do so, while about 40 percent of the villages lacked electricity. Although
industry produced modern cars, airplanes, electronic equipment, and military
weapons, the bulk of the population used heat-wasting traditional stoves.

     Modernizing India's economy has been primarily an Indian effort. Growth
and transformation resulted largely from ever increasing investments, financed
from a high domestic saving rate in spite of the low consumption levels of
nearly all of the population. Technology was imported, of course, but was
"Indianized" as quickly as possible; foreign aid and other external borrowing
were also resorted to when minor but important areas of investment financing
were unavailable domestically. In 1985 India's public external debt was
manageable. But economic growth rapid enough to reduce poverty levels through
the rest of the 1980s depended largely on some increase in the level of
investments as well as continued liberalization of economic controls. The main
source for such investments had to come largely from increased output from
existing facilities, particularly the public sector industry. Increasing
savings by the low-income population was unjustifiable in terms of equity and
the risk of explosive social tensions. Much larger borrowings abroad would
soon constrain economic development because of balance of payments pressure.
In 1985 India's economic managers confronted a challenging period; if they
managed well, India could make substantial progress toward its primary
economic goals, but inadequate policies threatened greater poverty and misery
in the world's second most populous country.

Profile of the Economy

     When Indians assumed control of the country's economic and political life
at independence, they faced problems on a monumental scale. The country was
poor and backward, and the population exceeded that of any other nation except
China. The economy had stagnated for the half-century before independence,
growing probably at a rate slightly below that of the population. Some
estimates indicated a decline of average per capita income in the 50 years
before partition. Under British rule, Indian industrial development had been
severely restrained to preserve the area as a market for British
manufacturers. The production of textiles was the most developed Indian
manufacturing industry, particularly the processing of jute fibers into burlap
bagging. Other industrial activity was largely small-scale to meet local needs
where transportation costs from Britain made imports impractical.

     At independence the economy was predominantly agrarian. In fiscal year
1950-51 (FY-see Glossary) the Indian government began to collect and publish
national account data; in that year agriculture-including some fishing and
forestry-accounted for 52 percent of gross domestic product (GDP) and
employed around three-quarters of the labor force. Landownership, rental,
and sharecropping rights were complex, involving layers of intermediaries
(see Land Reforms ch. 7). The bulk of the rural population was very poor,
existing by cropping small plots and/or supplying labor to other farms.
Agricultural practices were almost completely traditional. Some rural
families earned an income from such cottage industries as weaving cloth.

     The partition of British India resulted in about 12 to 14 million Hindu,
Muslim, and Sikh refugees fleeing past each other across the new border
between India and Pakistan in search of the area of their choice. This
movement was accompanied by unprecedented communal violence that killed
several hundred thousand people. Settlement of refugees added considerable
costs to the other tasks facing the new government in each country. Partition
also divided what had been complementary economic areas. Under the British,
jute and cotton had been raised in the area that became Pakistan, but
processing was almost completely in areas subsequently incorporated into
India. India used land formerly devoted to food production to cultivate
cotton and jute for its mills. Key head waters of the Indus River irrigation
system were in India; more than a decade of negotiations and considerable
international financial assistance were required to achieve a settlement and
to establish the separate development of the Indus River and its tributaries
in Pakistan and India.

     India's leaders agreed that strong economic growth, combined with
measures to increase incomes and consumption among the poorest groups in the
society, was required even though there were some disagreements about the
means of achieving these goals. Since 1950 a series of plans have guided the
country's economic development (see Planning, this ch.). During the three
decades to the early 1980s, the economy grew at an average rate of about 3.6
percent a year in constant prices (see table 12, Appendix). The value added
(in constant prices) by industry, a major focus of development through most
of the period, rose by about 5.3 percent a year compared with an average of
2.2 percent a year in agriculture. Per capita incomes rose about 1.4 percent
a year during the period. These growth rates were lower than desired and
less than those of many other developing countries.

     These historical growth rates provide a frame of reference for evaluating
more recent developments. India's economy has exhibited periods o