Over the course of human history, countries have transformed their society from poverty

to prosperity usually based on a single economic sector. This sector has been the engine for

economic and social growth for the countries. Examples of a few of the countries that have had

a single economic sector change the scope of life for its citizens are as follows: Britain’s textile

industry, Sweden’s timber industry, the United States’ railways which led to the industrial

revolution and China’s manufacturing industry.1 The sector that has driven India’s

transformation has become the telecommunication industry. When looking at India’s economy

and its surge in recent past, certain questions come to mind. Questions such as: why did the

economy flounder after British occupation? What caused the change in economy? And finally,

what are the effects of the changes? This paper attempts to answer these questions.

After British colonial rule, “India’s foreign reserves were among the largest in the world

and the country accounted for 2.4 percent of global trade.”2 But under half a century of

independence, India’s economy spiraled downwards. Over 90% of the populace lived on a dollar

a day.3 What caused India to fall? The answer lies with the two founding fathers of Post-British

India, Mahatma Gandhi and Jawaharlal Nehru. Gandhi’s and Nehru’s ideologies towards

business, economy, and government led to the path of destruction. The great leaders that led to

India’s independence also had a hand with their downfall. Mahatma Gandhi did not believe in

industrialization and Jawaharlal Nehru believed in socialism. Combining these ideologies and

following them in the ensuring years after Gandhi and Nehru led to India’s withdrawal from the

world economy.

Mahatma Gandhi’s principles supported India’s economic independence from the

industrialized western nation. He advocated traditional methods of production, such as his

1
India Unbound. (author, yr published, page number, publisher and where published)
2
McKinsey Report (author, yr published, article name)
3
The tiger and the Elephant. (author, yr published, page number, publisher and where published)
homegrown and sewn clothing. Gandhi also believed the only method for birth control was

celibacy. Jawaharlal Nehru supported socialism and central planning. During his term in office,

Nehru followed USSR’s model for central planning for government. Due to the fear of another

company or nation having control over India like the British East India Company, Nehru

implemented policies that made investments from foreign companies in India difficult. Nehru

also executed policies that promoted Indian products, such as the arduous process for Indian

companies to export and expensive for Indians to buy imported goods. 4

The policies and philosophies of Nehru and Gandhi were continued on for the next forty

or so years by the government. The party in command was Nehru’s party and they commanded

under a one party rule for until the downfall of India’s economy. Due to the policies and laws

employed by the government on the economy of India, India never realized their commercial

potential, considering their size and resources, under the Congress Party. Some of the policies

and laws included, but not limited to, state owned businesses that protected the company from

world class competition, bureaucracy of businesses, and job guarantees for workers. The

consequences for these laws and policies included corruption within the government, inefficient

practices, the workforce became lazy and an uncompetitive economy.

There were attempts made to reform the policies in 1985 under the command of Rajiv

Gandhi, son of Indira Gandhi. He increased the amount of imports coming into India and the

amount of exports going from India. Rajiv Gandhi also increased the antimonopoly limits,

allowing companies to grow, and price caps for were lifted on commodities like cement and

aluminum. The results of these reforms increased the economy fivefold. But to fund the greater

demands to the imports and consumer buying, the government began using short-term borrowing

4
Tiger and Elephant.
from banks.5 India’s finances were in a risky position, and in the summer of 1991, everything

came crashing down for India’s economy.

India’s economy was in trouble in the summer of 1991. The country had become

bankrupt.

5
Pp. 45. The Elephant and The Dragon.