XLRI ASSIGNMENT

INDIAN ECONOMIC GROWTH POST

INDEPENDENCE
Managerial Economics
ANDHERI MUMBAI

ESSAY BY:
1. Deepak Batra RB16061
2. Pradeep ShashidharanRB16006
3. Sabrina Sarosh- RB16061
4. Shilpi- RB16020

Indian Economic Growth Post Independence

Introduction
The Indian economy at the time of independence showed all the signs of
stagnation. About 47% of the population was below the poverty line in
1951.This figure went up in 1964-65, came down and again went up in
1977-78. Currently, the World Bank estimates that a third of the
global poor reside in India. At the time of independence 72% of the
work force was employed in agriculture and it contributed to nearly 50%
of the national income. Industrialization was at a very low level with only
2% of the work force employed in industries. In addition to this there was
hardly any investment in industries. The only industries which existed
were cotton and jute industries. They also suffered a major setback, as at
the time of partition major jute producing areas went to Pakistan and as a
result there was a shortage of raw material. Thus, at the time of
Independence, low agriculture output, little industrialization, low
figure of national income, high poverty and unemployment, slow
economic progress were the features of Indias economy.
The 67-years of independence have seen many changes in the socioeconomic landscape of Asia's third largest economy.
During the decades that followed the colonial rule, India's economy, in
absolute terms, has expanded to Rs 57 lakh crore from mere Rs 2.7 lakh
crore and the nation's foreign exchange reserves have crossed $300
billion, giving the economy firepower to fight external shocks.
Even as the country has progressed in laying out the basic framework to
take the economy to high growth path by building roads and ports and
ramping up the food grain production, a fast growing population and
infrastructure woes demand more work to be done on multiple fronts.
Since 1951, India has grown as a planned economy. The first few plans
focused on growth with strengthening of the manufacturing sector
emphasizing heavy industries to form the backbone of the economy. Other
principal areas of planning were agriculture and social development i.e.
housing and poverty alleviation. Over the years India saw a changing
composition of its economic structure: agriculture which initially
comprised of 60% of the GDP now comprises around 26% and services
comprise a massive 75% of the GDP growing from 30% in the 50s.
Landmark changes in 1991 were brought about under pressure from IMF
and World Bank when India was left with foreign exchanges to barely
support two weeks imports. The new era saw de-licensing, massive
tariff reductions, FDI cap relaxations and gradual convertibility of
the current account followed by the capital account. The
liberalisation process started in the early nineties has seen massive
growth especially in the services sector. India has consistently grown
at more than 6% over the last five years and in terms of sheer
GDP PPP currently stands at rank 4 in the world according to

latest World Bank estimates. However, when we look at GDP per

capita by PPP we rank at 153 according to the World Bank.
Liberalisation has helped India grow consistently and boost up its for-ex
reserves through massive inflows of foreign funds both through FDI and FII
establishing India among the worlds top three most preferred investment
destinations.
The improvement in Indias economic fundamentals has accelerated in the
year 2015 with the combined impact of strong government reforms, RBI's
inflation focus supported by benign global commodity prices.
India was ranked the highest globally in terms of consumer confidence
during October-December quarter of 2015, continuing its earlier trend of
being ranked the highest during first three quarters of 2015, as per the
global consumer confidence index created by Nielsen.
GDP
India's GDP, in absolute numbers, has grown from a mere Rs2.7 lakh crore
to Rs57 lakh crore in 67 years of independence.
Annual growth of GDP (In %)
Economic growth surged to near double-digit levels between 2005-06 and
2007-08 compared with anaemic growth in the early years post
independence..
Gross domestic savings as % of GDP
Gross domestic savings of Indians, as a percentage of GDP, has grown
over the decades to touch a high of 36.8 percent of GDP in fiscal year
2008, but the ratio has steadily declined after that to 30 percent in fiscal
year 2013, causing concern to the policymakers.
Food-grain production
India's food grain production has more than doubled over the decades
that followed colonial rule to a record 264 million tonnes in the fiscal year
2014. But, to feed the fast growing population, with more than a quarter
of them still estimated to be below the poverty line, the country needs to
produce more.
For-ex reserves
The nation's foreign exchange reserves have grown to over $ 300 billions
from a mere $ 2 billion at the time of independence. Strong foreign
exchange reserves have given the economy more fire power to withstand
external shocks compared. In January 1991, India had to pledge 67 tonnes
of gold to International Monetary Fund after the country's forex reserves
plunged to a mere $ 1.2 billion, just enough to finance three weeks of
essential imports.
Import/export
India's imports have shot up at a faster pace than exports over the
decades resulting in a widening gap in the trade balance. India's current

account deficit widened to a record 4.8 percent of the GDP in the fisal year
2013, before falling to 1.7 percent in fiscal year 2014 after the
government clamped down on gold imports.
India's external debt
The country's external debt has surged to $440 billion in the fiscal year
ending March 2014. The external debt, which comprises of government
and non-government borrowings, has risen mainly because of increase in
the non-government debt. At end March, 2014, total government debt
stood at $82 billion and that of non-government debt at $359 billion.
Recent Developments (M&A activities)
With the improvement in the economic scenario, there have been various
investments leading to increased M&A activity. Some of them are as
follows:
India has emerged as one of the strongest performers with respect to
deals across the world in terms of Aergers and Acquisitions (M&A). The
total transaction value of M&A involving Indian companies stood at US$
26.3 billion with 930 deals in 2015 as against US$ 29.4 billion involving
870 deals in 2014.In the M&A space, Telecom was the dominant sector,
amounting to 40 per cent of the total transaction value. Also, Private
equity (PE) investments increased 86 per cent y-o-y to US$ 1.43 billion.
Total private equity (PE) investments in India for 2015 reached a record
high of US$ 19.5 billion through 159 deals, according to the PwC Money
Tree India report.
According to The World Bank, India's per capita income is expected to
cross Rs 100,000 (US$ 1,505.4) in FY 2017 from Rs 93,231 (US$ 1,403.5)
in FY 2016.
Road Ahead
India has emerged as the fastest growing major economy in the world as
per the Central Statistics Organisation (CSO) and International Monetary
Fund (IMF). According to the Economic Survey 2015-16 and
Moodys economic survey, the Indian economy will continue to
grow more than 7 per cent in 2016-17 and can start growing at 8% or
more in next two years.
Besides, according to mid-year update of United Nations World Economic
Situation and Prospects, India is expected to grow at 7.7 per cent in 2016.
Furthermore, initiatives like Make in India and Digital India will play
a vital role in the driving the Indian economy.
Foreign direct investment (FDI) in India have increased by 29 per
cent during October 2014-December 2015 period post the launch
of Make in India campaign, compared to the 15-month period
before the launch.
The Nikkei/Markit Manufacturing Purchasing Managers Index (PMI) for
February 2016 was reported at 51.1, indicating expansion in Indian

manufacturing activity for a second month in a row, as both domestic and

foreign demand increased due to lower prices.
The steps taken by the government in recent times have shown positive
results as India's gross domestic product (GDP) at factor cost at constant
(2011-12) prices 2015-16 is Rs 113.5 trillion (US$ 1.668 trillion), as
against Rs 105.5 trillion (US$ 1.55 trillion) in 2014-15, registering a growth
rate of 7.6 per cent. The economic activities which witnessed significant
growth were financing, insurance, real estate and business services at
11.5 per cent and trade, hotels, transport, communication services at
10.7 per cent.
According to a Goldman Sachs report released in September 2015, India
could grow at a potential 8 per cent on average during from fiscal 2016 to
2020 powered by greater access to banking, technology adoption,
urbanisation and other structural reforms.
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