Ayush Goswami, Young Leader - IndiaGlocal
Aysuh Goswami is a full time post graduate candidate at Indian Institute of Management, Ranchi. This article was submitted as part of his selection process as an IndiaGlocal - Young Leader. The views and opinion in the article are solely of the author.
India, the largest democracy of the world attained independence on the 15th of August 1947. The founding fathers and key decision-makers were in a dilemma to decide the path of a country in malaise. This was due to the fact as most of the economic indicators were in the south. It was suffering from a huge cost on the economy due to British politics. The nation on one side which was free to tread to become the Golden bird was facing the brunt of partition on the other side.
India had two options to go for first taking a socialist approach like Russia or opt for capitalism of the western world. Going for the socialist model would make the government the sole controlling authority of the economy and businesses. Though this helps in having better regulations and directions the country in the desired direction, But at times it leads to monopolies, less innovation, and the reins of government hampers the potential. The other side of the coin was capitalism which gives the power to industrialists to drive the growth potential. This can fuel the growth coupled with competition and innovation but it would lead to increased income disparity. This was a grave challenge for a country that is socially crippled.
The leaders took a balanced approached in going for a mixed approach to improving both economic and social conditions. The government allowed both public and private participation in the economy. The state came along with people like JRD Tata and GD Birla to have control and mitigate the risks of capitalism. Also to implement control regulators were set up viz. CBFC, EEPC, FIEO, etc to check on companies. The Nehruvian view was that mass poverty alleviation could happen in state-controlled industrialization. Dams, Education Institutes(IIMs, IITs), 5year Plans, etc were planned to target individual sectors to gain traction.
As the growth engine of India starting generating thrust post Independence. The period between 1960 to 1980 saw the sluggish growth. There are various reasons that worked in tandem. The License Raj that was established for better regulation and control by the government started showcasing the massive drawbacks of it. As the licenses were issued by the government, issuance led to massive corruption which debilitated the economy. The licenses were issued to favored ones depleting the growth potential. Also, the monopoly and localization of technology were the cause of trouble This could be gauged by the fact that a scooter purchase would take 4 years after prepayment. Moreover, the India China war dented the economy. Next event was the national emergency which also affected the economy adversely.
The post-1980 period witnessed some growth due to some path-breaking steps. The establishment of MNC’s like Infosys and Rajiv Gandhi’s effort with Sam Pitroda enabled connectivity with telephones which culminated in a growth environment. Setting up of Maruti Udhyog Limited set a new paradigm in four-wheeler manufacturing in India.
Then comes the post LPG era in the 1990s which took out India from the balance of payment crisis. It abolished license raj and promoted setting up businesses in India. This along with the dot com boom made the GDP growth skyrocketed for India. India also became nuclear capable during this time.
In pre-COVID days the country was witnessing an economic slowdown due to various reasons. To name a few: slowing demand, rising NPAs, all-time high unemployment levels, widening trade deficit, MSMEs distress, NBFC crisis, rising fuel prices were the Achilles heels for the state. The government and RBI took steps for the revival of the economy by using both fiscal and monitory instruments. The multiple cuts of repo rate by RBI were to increase the money supply in the country which has the power to boost consumption. Also, the state announced various stimulus packages in different sectors such as agriculture, infrastructure, banking, etc to give a push in the economy as it would result in a multiplier effect. The merging of PSU banks and state-owned insurance firms was taken to avoid unnecessary competition and maintain healthy books. The introduction of GST was a major tax reform to increase the tax net and the historical opening of 20 crore Jan Dhan accounts was a great step to include the mass population in the formal banking system. Also, the restructuring of Income-tax was aimed to increase the low tax base of India.
Another major social problem in India is of income disparity. Over the period it was witnessed that the richer got richer and poorer became poorer. The problem of wealth consolidation to a small chunk of people creates a divide in the society. The bottom of the pyramid people faces the resource crunch which acts as a double whammy i.e a whip in social development along with inaccessibility of indispensable services such as education and healthcare which buttress economic growth.
The 10% of richest holds around 77% of wealth while the poorest 60% holds 4.7% of wealth. This makes India among the nations having highest income disparity.
These challenges are very critical to fix which will decide the existence of the 'Golden Bird'.