India's Economic History

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History
India’s economic history can be traced back to Indus Valley Civilization that flourished between 2800 BC and 1800 BC. This civilization was quite advanced, it practiced agriculture, domesticated animals, used uniform weights and measurements, used and made tools and weapons and traded with other civilizations. Maritime trade was carried out between South India and southeast and West Asia from early times until 14th century AD. Malabar and Coromandal Coasts were important sites for trading centers from as early as 1st century BC, used for import and export activities. Jumping straight to pre-colonial economy, the Mughals functioned on a system of coined currency (gold, silver and copper coins were issued), land revenue and trade. The …show more content…

Domestic policy tended towards protectionism with a strong emphasis on import substitution. India adopted a semi-socialist economic model with few elements of capitalism. Five Year Plans of India resembled central planning in the Soviet Union. Jawaharlal Nehru, the first prime minister of India, oversaw the economic policies during the initial years of the country’s existence. Under Nehru’s leadership India saw low annual growth rate; it stagnated around 3.5% from 1950s to 1980s while per capita growth averaged to 1.3% a year. The costs associated with the partition weighed in heavy for the country, with 2 to 4 million refugees crossing the new borders. The division of the country also divided the economic zones, increasing the economic burden. Since 1950 India witnessed trade deficits which made it difficult to borrow loans from foreign sources. To combat this, the government issued bonds to the RBI, which increased money supply, which lead to inflation. Indo-Pak war, defense spending, droughts etc further lead to economic troubles and devaluation of the rupee. India continued to face serious food shortages, even towards the end of Nehru’s term. GDP per capita lowered to 41% in the 1980s (compared to 142% in the 1970s) and further fell to 20% in the 1990s. The emergence of populist policies like Nationalization of banks, insurance, and many other private sector companies, policies restraining …show more content…

When the USSR spilt into 15 nations, India’s primary buyer had vanished bringing down exports significantly. The Kuwait war also had a considerable impact on the Indian economy. Iraq and Kuwait, the countries involved in the war, were big suppliers of oil to the country. The war led to a reduction in oil import, increasing the prices substantially. On national level, the fiscal situation was destitute throughout the 1980s due to growing burden of non-development expenditure. The gross fiscal deficit of the central government rose to 7.8 % in 1990-91 from 5.1 % in 1981-82. To meet this deficit, the internal debt of the government increased, and the number struck 49.7 %( borrowing) of the GDP at the end of 1990-91. In 1990-91 interest payments had reached up to 39.1 % of the total revenue collections. The current account deficit which was $ 2.1 billion in 1980-81, rose to $ 9.7 billion in 1990-91. These deficits were financed from loans secured from foreign sources, leading India’s external debt rise from 12% to 23% of the GDP. The Gulf crisis (Kuwait war) stretched the Indian condition to a breaking point. In 1991 the foreign exchange reserves dropped to level which couldn’t finance import of even 10 days. The rate of inflation rose to 10.3 % from 6.7 % (1980s). Prices of food rose in spite of three good monsoons in a

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