A New India: From Poverty to Prosperity

Many people can easily point to China and explain how capitalism helped to eradicate poverty in the once backward totalitarian State. But when it comes to India, people tend to not hear much about her very own progress, so we will have a look at the Indian history today.


Indus Valley held an active trade route between 3300-2200 BC, it extended from Rome to Majapahit. India accounted for 33% of the GDP in the world during 1 AD predominantly by trading her spices and textiles with gold from Rome. India had many important inventions such as the discovery of the concept of zero, plastic surgery, pi and metallurgy; Kerala was the first refuge for Jewish people after the fall of the second temple in 70 AD and Gujarat was a Zoroastrian refuge to shelter the believers from Islamic prosecution in Persia.

Like many great empires, India declined in the 11th century due to the protectionism, limitation of access to new ideas and wasteful expenditure (such as importing new horses constantly instead of having training in veterinary). Sanskrit was an over-detail languages compared to popular Praskrit (similar to Italian compared to Latin) which meant peasants were unable to learn the complex language and further strengthen the ivory tower of the academia.


Raja Ram Mohan Roy began to introduce English to replace Sanskrit in school while Indian polymath Vidyasagar simplified Bengali scripts and established schools for girls to reduce the discrepancy of education.  But the first prime minister of India- Jawalharlal Nehru had a different vision. First of all he wanted an isolated economy to make India “sustain” on herself, resources were controlled in a planned economy, borders of India were closed and importation from private sector became illegal. Licensing was introduced to regulate industry, planning commission was established based on a 12×12 statistical grid to decide policies. To stimulate the economy, public sector projects were pushed for such as Dam Cum Irrigation similar to Hoover Dam.

The socialist/fascist/communist project was then succeeded by Indira Gandhi’s banking control, nationalization of Life Insurance Corporation in 1956 to hand out loan regardless of credits. Income tax was at one point 97.25% during the 70s. The disastrous planning led to a Public Distribution System to be set up to ration necessities. Regulation for investment required approval from ministry to industry then needed letter of intent while importation requires application to chief controller of import and exports at Ministry of Commerce then to be approved by committee under Ministry of Industry. On top of all these tedious bureaucracy, if foreign technology collaboration agreement was needed then it needs to get approval from committee chaired by finance secretary but serviced by the Ministry of Industry. Raising capital required capital controller of Capital Issues approval, raw material required approval from Commerce Ministry and  director general of technical development had to certify. After all these, then the license may be applied.

India was a horrible place for domestic investment, not to mention foreign investment. Restrictive Trade practices Act of 1949 further required additional licensing from Department of Company Affairs. As a result, black markets were prevalence for foreign goods, despite the risks of governmental forces, it was a better way to acquire goods the local industry simply could not produce.


The result of the communist policy was felt by everyone including the Janata party members. The  push for reformation reduced poverty rate from 51.3% in 1977 to 37.3% in 1993 and 22% in 2005; real wage increased from 2.4% to 4.4% during the 90s. Deregulation was the theme of the 90s, foreign technology such as coloured TV and engines for rail roads were permitted. Green revolution helped to increase production of food to feed to hungry, literacy went from 18% in 1951 to 52% in 1991. Manmohau Singh, a leading economist was elected as the prime minister (finally) he rapidly destroyed industrial licensing, reduced tax rates, torn down protectionism, ending governmental monopoly, enable foreign investments and depreciated exchange rates.

Singh’s first phase of reformation took place between 1992 to 1997, import tariff went from 350% to 85% in 1993 and 50% in 1995 which led to rupee depreciation. Air Corporations Act 1953 was repelled in 1994 to allow private airlines to appear, domestic banks and foreign banks entered the market from 1993 to 1998. Cable TV industry was created, India’s GDP growth went from 1.8% in 1991 to 7% in 1997, foreign exchange reserve also increased to $25 US billion, however corruption was still prevalent.

The second phase of reform (1998-2002) started by curbing the union power to make production of iron and steel manufacturing, auto-mobile production, technological production more effective. This resulted in the growth of software industry to provide cheap IT professionals and outsourcing. Unlike other parts of Asia where abundance of cheap labour for manufacturing was the primary factor for the prosperity, India developed her own focus on providing services due to the scarcity of natural resources, the result forced the people to use their capital sparingly.

The last phase of the reform (2003) allowed companies to go aboard such as Tata Tea shipped to UK. Credit boom was observed from banks and shopping malls began to dominate, reserve at this time was $280 US billion! The agricultural sector also went through a reform during this period, framing incentives were finally restricted as they were ineffective (such as providing electricity subsidy when water is really needed), agricultural sector began to shrink considerable and service industry grew to 40% of rural income. Telecommunication revolution allows farmers to communicate with each other and negotiate pricing to reduce wastage and inefficiency. For example, fishermen in Kerala in 1997’s profit rose while consumer cost declined.

India today has the 9th largest GDP[1] and very low unemployment rates[2], etc. There are still many potentials Indians should focus on to better themselves such as corruption and education, but with time, India will rise above her internal conflicts and be even more prosperous.


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