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Economic Development Since Independence: Indian Economy Study Notes

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Economy at the Time of Independence

Overall Economic Condition (1947)

• Underdeveloped Economy: Low per capita income, widespread poverty affecting ~40% population
• Stagnant Growth: National income grew at mere 0.4% per annum (1900-1947), per capita income at 0.1%
• India's Global Share: Declined from 22.6% of world income (1700) to 3.8% (1952)
• Income Distribution: Highly inequitable between wealthy (government servants, industrialists) and poor masses

Agricultural Sector

Dominance and Dependence:

• 85% population dependent on agriculture for livelihood
• 50% contribution to national income despite majority dependence
• 127 million hectares net sown area (43.6% of reported land area)

Major Challenges:

1. Low Productivity: Among lowest per hectare output globally
2. Primitive Techniques: Dependence on monsoon, limited use of iron tools
3. Lack of Commercialization: Traditional subsistence farming
4. Poor Infrastructure: Only 17% area under irrigation
5. Exploitative Land Systems:
• Zamindari (58% land) - extractive rent collection
• Ryotwari (38% land) - some development
• Mahalwari (4% land) - community-based

Impact of Partition:

• Loss of fertile jute-growing regions to East Pakistan
• Cotton-growing areas (Sindh, Western Punjab) to Pakistan
• Major disruption to textile industry supply chains

Industrial Sector

Limited Industrial Base:

• Only 6.6% GDP contribution from secondary sector (1948-49)
• 1.8% population employed in industries
• Single major industry: TISCO (established 1905) - only significant capital industry

Industrial Development Phases:

1. Pre-WWI: Limited to cotton textiles and jute
2. WWI Period: Some impetus to consumer goods industries
3. WWII Era: Industrial output index rose from 100 to 161.6
4. Post-Independence: Severe setback due to partition

Key Industries and Regions:

• Cotton Textiles: Maharashtra and Gujarat as major centers
• Jute Industry: 112 mills operating but raw material in Pakistan
• Other Industries: Chemicals, cement, fertilizers in early 20th century

Currency and Financial Sector

Banking System:

• Establishment: First bank in 1786, slow development
• RBI Formation: 1935 as private company, monetary policy role during WWII
• Regulation: Banking Companies Act 1949 (later Banking Regulation Act)
• Coverage: Approximately 1100 small banks (1913-1948)
• Rural Gap: Complete absence of banking in rural areas

Currency Evolution:

• Pre-British: Different provincial currencies
• Silver Standard: 1835-1893 monometallic system
• Paper Currency: Introduced through Paper Currency Act 1861
• Exchange Rate: Indian rupee linked to British pound, at par with US dollar

Capital Markets:

• Stock Exchanges: Only 3 functional - Bombay (1877), Ahmedabad (1894), Calcutta (1908)
• Government Role: No regulation of stock exchanges pre-independence

Infrastructure State

Social Infrastructure Deficits:

• Education: 16% male literacy, 7% female literacy
• Healthcare: Hospitals limited to big cities, life expectancy 32 years
• Higher Education: Only 16 universities for 274 million population (1941)

Economic Infrastructure:

• Railways: Largest network globally by 1947, but selective development
• Roads: 0.4 km metalled roads per 1000 persons (vs 1.5+ in other British colonies)
• Ports: Major ports at railway-harbor convergence points
• Power: Almost negligible generation capacity
• Communication: Postal services from 1858, telegraph for administration

Development Paradigms

Approaches to Development

1. Market-Based Approach

• Core Principle: Well-developed competitive markets for optimal resource allocation
• Mechanism: Price signals and profits as investment incentives
• Limitation: Required state intervention in underdeveloped markets
• Application: More relevant post-liberalization era

2. State-Led Approach

• Rationale: "Big push" strategy for underdeveloped economies
• Target Areas: Subsistence agriculture, weak industrialization, poor infrastructure
• Method: Planned mobilization and allocation of resources to public sector
• Criticism: Red-tapism, corruption, inefficiency, losses in later years

3. Inclusive Growth Approach

• Philosophy: Growth and equity as complements
• Official Adoption: Eleventh Five Year Plan (2007-12)
• Historical Context: "Growth with justice" concept from First Plan
• Institutional Need: State role in productive sectors and distribution regulation

4. Sustainable Development Approach

• Definition: Development meeting present needs without compromising future generations
• Origin: Brundtland Commission Report (1987)
• Key Elements: Environmental protection, poverty alleviation, intergenerational equity
• Global Framework: 17 SDGs covering comprehensive development aspects

Economic Systems Comparison

Capitalism Characteristics:

• Private ownership of means of production
• Market-driven resource allocation
• Individual decision-making on production and consumption
• Profit maximization as primary motive

Socialism Features:

• Collective ownership of means of production
• State-led economic management
• Central planning for resource allocation
• Social welfare prioritization

India's Mixed Economy Model:

• Phase I (1950-1990): Public sector at commanding heights
• Phase II (1991 onwards): Increasing role of markets
• Combination: State control in strategic sectors, private enterprise in competitive areas
• Evolution: From state-dominated to market-friendly with social objectives

Global Economic Integration

Trade Integration Indicators:

• Export/GDP Ratio: Increased from 6.5% (1991-92) to 19.1% (2013-14)
• Total Trade/GDP: Rose from 13.6% to 46.5% over same period
• Global Market Share: Modest increase from 0.6% to 1.7% in exports

Tariff Liberalization:

• Mean Tariff Rate: Declined from 80% (1990) to 6.3% (2012)
• Export Diversification: Top 20 countries' share reduced from 80% to 67%

Financial Integration:

• FDI Inflows: Increased from 0.03% GDP (1991) to 1.96% (2016)
• Export Composition: Shift from traditional to value-added products
• Geographic Direction: Increasing share of developing countries in trade

Structural Changes

National Income Growth Patterns

Three Distinct Phases:

1. Phase I (1951-1979): 4% average annual growth - "Hindu Rate of Growth"
2. Phase II (1980-1997): 6% average annual growth - acceleration begins
3. Phase III (1997-2017): 7% average annual growth - sustained high growth

Factors Affecting Growth:

• Negative Factors: Wars (1962, 1965, 1971), droughts (1966, 1972, 1979)
• Political Instability: Coalition governments and policy uncertainty in late 1990s
• External Shocks: East Asian crisis (1997), global economic conditions

Sectoral Transformation

Agricultural Sector Decline:

• GDP Share: Decreased from 53% (1950-51) to 14% (2012)
• Employment Share: Remained high at 48.9% (2011-12) despite GDP decline
• Productivity Gap: Indicates low agricultural productivity and disguised unemployment

Industrial Sector Performance:

• GDP Share: Modest increase from 17% to 27% over 60 years
• Employment Growth: 8% increase in post-2000 period (contrary to expectations)
• Stagnation: Around 27% GDP share since 1991, recent improvement to 30% (2018-19)

Services Sector Boom:

• GDP Share: Dramatic increase from 30% to 59% (1951-2012)
• Growth Drivers: IT services, communications, banking, insurance
• Employment: 3% increase in post-2000 period
• Unique Pattern: Bypassed traditional industrialization route

Investment and Savings Trends

Savings Pattern (% of GDP):

• 2011-12: Total 34.6% (Household 23.6%, Private Corporate 9.5%, Public 1.5%)
• 2017-18: Total 30.5% (Household 17.2%, Private Corporate 11.6%, Public 1.7%)
• Trend: Declining domestic savings compensated by foreign inflows

Investment Dynamics:

• 1991-2004: Average 24.5% of GDP
• 2005-2013: Average 35.4% of GDP
• Financing Gap: Bridged through FDI, foreign remittances, external borrowing

Employment Structural Shifts

Post-2000 Employment Changes:

• Agriculture: 11% decline in employment share
• Industry: 8% increase (higher than services)
• Services: 3% increase
• Rural Non-farm: 10.5% increase (1993-2010)

Long-term Employment Transformation (1951-2012):

• Agricultural Employment: Declined from 70% to 49% (21 percentage points)
• Recent Acceleration: Faster pace post-2000 compared to 1951-2000 period

Urbanization Patterns

Demographic Shift:

• Rural Population: Decreased from 82% to 69% (1961-2011)
• Urban Population: Increased by 13 percentage points
• Growth Rate: Faster urbanization in post-liberalization period

Regional Disparities in Development

High-Income States: Gujarat, Maharashtra, Karnataka, Tamil Nadu
Low-Income States: Bihar, Jharkhand, Meghalaya, Nagaland
Disparity Indicators:

• Poverty rates varying from 41.9% (Bihar) to below 10% in developed states
• Human development variations across states
• Agricultural productivity differences
• Industrial concentration in few states

Resources and Constraints

Natural Resources

Water Resources:

• Availability Decline: From 5000 M3 per capita (1951) to 1588 M3 (2010)
• Future Projection: Expected 70% usage of freshwater by 2025
• Challenges: Population growth, irrigation needs, urbanization, industrialization

Energy Resources:

• Global Position: 4th largest energy consumer after China, US, Russia
• Per Capita Consumption: 615 units vs 6800 (US), 2030 (China)
• Import Dependence: 83% crude oil imported
• Coal Resources: 3rd largest consumer, 5th largest reserves
• Renewable Push: Government promoting wind, solar, hydro, waste-to-energy

Forest Resources:

• Coverage: 70 million hectares (21% of geographical area)
• Recent Change: 5800 hectares increase since 2011
• Regional Distribution: 25% of forest cover in northeastern states

Infrastructure Development

Physical Infrastructure Components:

• Transport: Roads, railways, shipping, airports, transport equipment
• Communications: Posts, telegraphs, telephones, radio, TV
• Energy: Coal, electricity, oil, gas, renewable sources
• Water: Irrigation, drainage, water supply systems

Social Infrastructure Elements:

• Education: Primary to higher education, vocational training
• Health: PHCs, CHCs, hospitals, medical facilities
• Housing: Urban and rural housing development
• Human Capital: Skill development, capacity building

Performance Assessment:

• Soft Infrastructure: Faster growth in human capital development
• Hard Infrastructure: Modest expansion considering population density
• Regional Variations: Significant differences across states

Infrastructure Development Challenges

Major Constraints:

1. Land Acquisition: Single largest roadblock for infrastructure projects
2. Regulatory Delays: Multiple clearances from different agencies
3. Environmental Issues: Delayed environmental and forest clearances
4. Water Disputes: Inter-state water sharing conflicts
5. Port Modernization: Political pressure, lack of autonomy, bureaucratic rigidities
6. Financing: Long-term capital requirements, limited private sector capacity

Governance and Institutional Issues:

• Coordination Problems: Multiple agencies at different levels
• Accountability Gaps: Poor performance management systems
• Transparency Deficits: Lack of clear performance standards
• Capacity Constraints: Limited technical and managerial capabilities

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Population and Human Development

Demographic Features

Current Demographic Profile

• World's Most Populous: Overtook China in 2023
• Median Age: 28 years (vs 37 in China/US, 45 in Western Europe, 49 in Japan)
• Working Age Population: 68% between 15-64 years
• Youth Demographics: 26% in 10-24 age group

Demographic Transition

Fertility Decline:

• Total Fertility Rate: Decreased from 5.9 (1951) to 2.0 (current)
• Below Replacement Level: Current TFR below 2.1 replacement level
• Interstate Variation: Bihar, MP, UP (2.5) vs Delhi, Maharashtra, Tamil Nadu (1.5)

Mortality Improvements:

• Life Expectancy: Increased from 37 years (1951) to 70 years (current)
• Infant Mortality: Reduced from 379 per 1000 (1951) to 35 (current)
• Under-5 Mortality: Significant decline due to improved healthcare

Demographic Dividend

Timeline and Characteristics:

• Peak Period: Expected around 2041 with 59% working-age population
• Duration: Longest globally, spanning 5 decades (2005-2055)
• Current Status: Working-age population exceeded dependents since 2018
• Projected Workforce: Over 800 million by 2030

Regional Variations:

• Advanced States: Southern states, Punjab, West Bengal (TFR below replacement)
• Transitioning States: Northern and eastern states with higher fertility
• Policy Implications: Need for tailored state-specific approaches

Unit 6: Education Sector

Educational Progress

Right to Education Act (2010):

• Coverage: Fundamental right for ages 6-14
• Private School Mandate: 25% seats reserved for poor children
• Prohibition: Donation and capitation fees banned

Higher Education Growth:

• Gross Enrollment Ratio: Increased from 23.7% (2014-15) to 28.4% (2021-22)
• Target: Government aiming to increase access and quality

Vocational Education Challenges:

• India's Performance: Only 2% in vocational education (upper secondary)
• BRICS Comparison: Russia 60%, China 48%, South Africa 14%, Brazil 8%
• Skill Development: PMKVY providing training to millions

Health and Nutrition

Health Infrastructure

Public Health System:

• Three-Tier Structure: Sub-centers, PHCs, CHCs at grassroots
• Government Hospitals: Include district and general hospitals
• Private Sector Dominance: 74% of healthcare spending, 74% hospitals, 40% beds

Health Indicators:

• Doctor Ratio: 0.7 per 1000 vs world average 2.5
• Nurse Ratio: 1.5 per 1000 vs world average 2.5
• Hospital Ratio: 1 per 1000 vs world average 2.9

Health Challenges:

• Growing Demand: Rising incomes, elderly population, changing disease patterns
• Medical Tourism: Increasing international patients
• Awareness: Better preventive and diagnostic care adoption

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Growth and Distribution

Poverty

Poverty Reduction Progress

• Extreme Poverty: Declined from 16.2% (2011-12) to 2.3% (2022-23)
• Regional Concentration: Bihar, UP, MP account for 44% total population
• Interstate Variations: Bihar 41.9%, Chhattisgarh 40.9%, Jharkhand 40.3%

Inequality

Regional Disparities

High Disparity Factors:

• Income Levels: Significant per capita GSDP differences
• Human Development: Literacy, health indicators vary dramatically
• Agricultural Development: HYV adoption increased regional gaps
• Industrial Concentration: Four advanced states dominate manufacturing

Employment and Unemployment

Current Employment Challenges

Labor Market Issues:

• High Informality: Large informal sector with poor working conditions
• Low Female Participation: Increased from 19.7% (2011) to 37% (2023)
• Skill Gaps: Mismatch between education and industry requirements
• Youth Employment: Large youth population entering job market annually

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International Comparisons

Comparative Growth Profile

Global Economic Position

• GDP Ranking: 5th largest economy globally (2023)
• GDP Value: $4.187 trillion (nominal, 2025)
• Growth Performance: Fastest-growing major economy
• Per Capita Income: Still low at $2,480 (2023)

Social and Economic Development Comparison

SDG Performance

• Global Ranking: 99th position (2025) with score 67
• Improvement: From 121st (2022) to 99th (2025)
• Regional Comparison: Better than Pakistan (140th), Bangladesh (114th)
• Progress Track: On track for 7 SDGs by 2030

Trade and Balance of Payments

Export Performance

• Export Value: $437 billion (2023-24)
• Product Composition: Shift from traditional to value-added items
• Engineering Goods: 23% of total exports (2014-15)
• Geographic Diversification: Increasing share of developing countries

Governance and Institutions

Reform Initiatives

Major Reforms (2014-2024):

• GST Implementation: Unified tax system replacing multiple taxes
• Ease of Business: Reduced 42,000 compliances, decriminalized 3,800 provisions
• Digital Governance: JAM trinity, direct benefit transfers
• Make in India: Manufacturing promotion initiative

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Current Trends and Future Outlook

Recent Economic Performance (2024-25)

• GDP Growth: 6.5% in FY25, RBI projects 6.5% for FY26
• Quarterly Performance: Q2 2025 showed 7.8% growth
• Global Projections: Deloitte expects 6.4-6.7% growth baseline

Policy Reforms and Initiatives

Infrastructure Investment:

• Budget Allocation: ₹10 lakh crore for infrastructure (2023-24)
• Flagship Programs: PM Gati Shakti, Smart Cities Mission
• Connectivity Projects: Delhi-Mumbai Corridor, Golden Quadrilateral

Future Projections

Vision 2047 - Viksit Bharat:

• Economic Targets: $5 trillion by 2025, $7 trillion by 2030
• Development Goal: High-income status by 2047
• Growth Requirement: World Bank suggests 7.8% sustained growth needed

Urbanization Outlook:

• 2031 Projection: 600 million urban population
• 2036 Target: 40% urbanization rate
• Infrastructure Needs: Massive investment in urban infrastructure

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Key Concepts and Definitions

Economic Development vs Economic Growth

• Economic Growth: Quantitative increase in national/per capita income
• Economic Development: Includes growth plus improvements in health, education, structural changes

Demographic Dividend

• Definition: Economic benefit from favorable age structure
• Characteristics: High working-age population, low dependency ratio
• Duration: India's window spans 2005-2055

Mixed Economy

• Definition: Combination of public and private sectors
• India's Model: State control in strategic sectors, private enterprise in competitive areas
• Evolution: From state dominance to market-friendly approach

Structural Change

• Definition: Major shifts in sectoral shares of employment and income
• Pattern: Agriculture → Industry → Services
• India's Uniqueness: Direct transition from agriculture to services

ICOR (Incremental Capital Output Ratio)

• Formula: ICOR = Investment/Growth Rate
• Significance: Measures capital efficiency
• Policy Use: Planning investment requirements for target growth

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Important Data and Statistics {#statistics}

Historical Benchmarks

• Independence Era: 0.4% annual growth (1900-1947)
• Planning Period: 4% average (1951-1979)
• Liberalization Era: 6-7% sustained growth (1991 onwards)

Sectoral Shares (% of GDP)

Sector	1950-51	2012	2018-19
Agriculture	53%	14%	16%
Industry	17%	27%	30%
Services	30%	59%	54%

Demographic Indicators

• Population: World's largest (2023)
• Median Age: 28 years
• Working Age: 68% of population
• Dependency Ratio: Declining trend

Infrastructure Metrics

• Road Network: National highways carry 40% traffic on 20% network
• Power Access: 75% population has electricity access
• Internet Users: Significant growth in digital connectivity

Global Comparisons

• GDP Ranking: #5 globally
• Growth Rate: Among fastest major economies
• Per Capita Income: Still below middle-income countries
• SDG Performance: Gradual improvement, entered top 100

These comprehensive notes will be useful in your UPSC exam prelims-mains, RBI Grade B exams, Banking exams like SBI PO/IBPS PO, University semester exams like BA/MA Economics or CUET UG/PG Economics.

Click here to download pdf !