India’s economy has been transformed since 1947, from a largely agrarian base to a services-led one.
Must Know
From Agrarian India to Liberalisation
MCQ Questions
- PrelimsObjective MCQs on this topic appear in UPSC and other competitive exams and related exams. Practice with the companion questions.
Written Answer Questions
- AgrarianAt independence in 1947, India’s economy was largely agrarian. Most people worked in farming.
- ColonialIndustry was small and underdeveloped after two centuries of colonial rule.
- LegacyThe new state inherited a weak industrial base and low per-capita output.
Planned Development (1950s-80s)
- PlansFrom the 1950s to the 1980s, India followed planned development. The government used Five Year Plans to guide investment.
- MixedThe state controlled key industries. Private business operated too, but under heavy regulation.
- License RajCritics nicknamed the system the ‘License Raj’ because of its heavy licences and controls.
The 1991 Liberalisation
- CrisisIn 1991, a serious balance-of-payments crisis forced sweeping economic reform.
- LPGThe reforms are summarised as LPG: Liberalisation, Privatisation and Globalisation.
- LeadersThe reforms were led by Finance Minister Dr. Manmohan Singh under Prime Minister P.V. Narasimha Rao.
Good to Know
Structural Change and New Institutions
How the Structure Shifted
- ShiftStructural change means a shift in which sector produces the most output and employment.
- PathIndia moved from agriculture toward industry, then increasingly toward services.
- ImbalanceA large share of the workforce still farms even today, a mismatch economists call a ‘structural imbalance’.
Unusual Growth Pattern
- LeapfrogMany economies moved agriculture to industry to services in order. India’s services sector grew unusually fast, even before industry matured.
- PatternEconomists call this ‘leapfrogging’ the normal industrial stage.
- CompareIndia’s trajectory is often compared to China’s, which liberalised around 1978, more than a decade earlier.
From Planning Commission to NITI Aayog
- 2015The Planning Commission was replaced in 2015 by NITI Aayog, the National Institution for Transforming India.
- RoleNITI Aayog acts more as a policy think tank. It does not allocate funds as the old Planning Commission did.
- FederalThe shift reflected a move toward ‘cooperative federalism’ and advisory planning.
Test Yourself
Great to Know
Growth, Development and Debate
Growth vs Development
- GrowthEconomists distinguish ‘growth’, a rising total size of the economy, from ‘development’, broader gains in living standards, health and education.
- RecordIndia’s post-1991 growth has been substantial.
- DebateDebates continue over how evenly that growth has translated into development for all sections of society.
The 1960s-80s Constraints
- ReservesBefore 1991, India’s foreign exchange reserves had fallen dangerously low, forcing the decisive break from the closed model.
- LessonThe 1991 crisis showed the cost of over-regulation and closed trade.
PYQ
Exam Point of View
1991 Reforms in UPSC
- Theme The 1991 economic reforms, the LPG framework and structural change are recurring UPSC Economy themes. The shift to NITI Aayog is also asked.
- Plan Link the 1947 agrarian base and planned development to the 1991 crisis-and-reform and the modern services-led structure.
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