Back in the late 1600’s when George Washington drove the East India Co. from US, they entered into India in 1720’s with the mindset of trading but instead their primary motive became wealth accumulation and the trade converted into colonization. One of the major factors in Capital Accumulation was land. Government classified the irrigated and the non-irrigated land under three major categories namely:-
1. Forest Land
2. Revenue Land
3. Revenue Land not used for cultivation
Lord Cornwallis was appointed the first governor general of India with the main aim to earn revenue by enforcing new rules over trade and agriculture. One of the laws forced by him was the “3 Kathi System”, during the First World War the import of indigo was cut off from Germany which forced the Indian farmers to grow indigo on one third piece of their land thereby profiting the British Government, but it turned out that indigo plantation effected the other crops as a result of which their cultivation was impossible hence the farmers had no option but to grow indigo only. But, as soon as the First World War ended and the trade from Germany resumed, the Indigo prices slashed down the market and the worst hit were the Indian peasants forcing many of them to commit suicides, this major atrocity was seen in the Champaran district in Bihar.
Simultaneously, the problem that was going on in Ahmedabad was of the textile mills, there was a dispute between the laborer’s and the mill owners over the plague bonus. In 1917 a huge plague broke out in Ahmedabad and at that time the population of Ahmedabad was 2.5 lakh out of which 87 thousand people were working in the textile mills. The condition was that if the owners wanted to run the mills then they have to give a plague bonus to the workers. And it was given, but as soon as the plague ended their bonuses were withdrawn but the workers still protested because due to plague the prices were up and the economy was undergoing inflation hence the DA or the dearness allowance should be given as per the price rise. In this situation Mohandas Karamchand Gandhi was called and the problem was solved through arbitration.
Next door to Ahmedabad in the Kheda district the East India Co. had fixed the land revenue as per the size of the farm. There was a continuous failure of three crops as three monsoons have failed. The poor farmers were not able to pay the revenue, as a result all their buffalos or instruments or land was taken away from them by the British sold them to rich farmers. There was money imbalance the whole economy of that place was at stake, the rich got richer and the poor got poorer. MK Gandhi was again called for the rescue, he came up with a solution that in every village farmers will not buy any cattle or instruments, and “you do not make money at the expense of your neighbor”.
Soon after this situation was over MK Gandhi found out that many people in the Matyr village next to Kheda were in debt and JC Kumarappa was called from Stanford, US he was the first one to study public debt and in 1921 with the help of JC Kumarappa, MK Gandhi came up with the following facts:-
- “What did we used to do before the British Came?”
- “We produced and consumed our own.”
- “Only now we've to rely on the British.”
- "90% of cloth was consumed from UK."
On the basis of these above mentioned facts he came up with the conclusion, that to eradicate the debt and low status of living the following things should be done:-
- Stop consuming British Goods.
- We've to do things which employ larger number of people.
- We've to produce our self and not cooperate with the British.
- Create employment opportunities.
- If 90% of the cloth consumption from UK was stopped then everyone would get employed.
The result of which led to the Non-Cooperation movement and the Swadeshi Movement. MK Gandhi always used to pick up economic issues except the issue of 1942.
Congress in 1940 told Pandit Jawaharlal Nehru to plan for the economy after independence. JRD Tata prepared a blueprint for everything we need to do for our economy keep going. As a result in 1950 “Planning Commission” was jolted by Pandit Jawaharlal Nehru which included 5 year, 10 year and 15 year plans meant for catering agriculture, education, employment, health, mineral, industry, infrastructure, rural development, science and technology, social justice, etc.
The Prime Minister is always the chairman of the planning commission. The planning commission served as a roadmap which will have milestones. Example, we created the IIT’s, IIM’s, NID, CEPT, Government Universities to educate the future citizens of India with a new vision and power to change the country and eradicate illiteracy and poverty, for that we should have the appropriate human resources and for that cause we put individual’s in the foreign universities to gain their doctorate’s and come back to India to teach in these reputed institutes set up by the government.
For a country to nurture it should protect its private sectors from the foreign competition. So import duty came into existence and it was exercised on the foreign enterprises who wanted to do business in India. Also the private sector was not allowed to enter crucial services like arms and ammunition as then the private sector would dictate over the government policies. Many of the industries needed large gestation periods. And, at that time no industry had that kind of capital to make road, railways or Airports. Hence, all of them have to be run by the government.
The major operation of the Government was to provide social infrastructure like:-
- “Education” – was standardized at an affordable price. E.g. KV’s
- “Hospitals” – civil hospitals were made. The Government also set up medical and nursing colleges. Life expectancy in 1947 was 53 years; in 2010 it is 70-74 years.
- “Agriculture” – the government provide facilities like irrigation, electricity, pesticides and fertilizers.
You need to create an interrelated infrastructure to maintain an economy and keep it going.
Government also used to run hotels, produce insecticides, pesticides and fertilizers. The Government set company named HMT (Hindustan Machine Tools) which used to manufacture tractors, watches, condoms, etc. The government also gave farmers a support price that ensures every farmer to buy his produce at a fixed price. It is estimated that the food prices will be sky rocketing as now the seeds, pesticides; fertilizers, etc. are all in the hands of private players.
When the situation of importing wheat was at our gate from the US markets we realized that we need to secure our food future. Agriculture creation was the most important and simultaneously we’ve to create irrigation facilities and fertilizers. Therefore our 1st and 2nd five year plans concentrated on the development of heavy industry and the creation of agriculture.
For the agriculture to be effective the government set up “Agriculture Produce Marketing Companies” (APM’s) through which the government will give you food at floor prices. To improve the agriculture and to increase the agricultural produce the government needed to take up some necessary land reforms and remove middlemen who were exploiting the farmers e.g. zamidars, money lenders, etc.
As there was no banking system available the zamidars or the money lenders gave the money to the poor farmers at a very high rate of interest like 60% and that amount of interest keeps on adding and the poor farmers are struck in the cycle to repay the loan borrowed. The solution to this problem was provided by the city called Anand in Gujarat by coming up with a methodology of “co-operative”. Anyone who owned a buffalo or a cow or a milk animal can become a member of the co-operative. The job of a co-operative was to take the milk to the market and sell it and give its money to the members from which they took the milk. Milk was sold on the basis of its fat content which was measured by lactometer. The process in which the farmer would get the money once a month started getting money once a week.
All the people in the co-operative were also shareholders i.e. whatever the profit the co-operative incurs has to be equally divided among the members. Now number of co-operative increased, one co-operative gives way to another co-operative so the function of the co-operative moved to handle finance which gave birth to “Microfinance Banks” e.g. SKS Microfinance. These co-operative banks started lending money to the members at a very low rate of interest. So they also created co-operative co. such that they can order in bulk and can avail huge discount e.g. fertilizers, Amul.
Co-operative was a very important initiative fro breaking the middlemen because the buffalo which was not productive became productive; eventually the white revolution started taking place followed by the green revolution. Innovations in the field of agricultural practices started (R&D).
As the Prime Minister is always heads the planning commission its his job to plan the government expenditure and revenue. Indira Gandhi nationalized the banks of India hence by providing a certain degree of security and guarantee that the banks will safely hold the money of the citizens and will give them long term monetary benefits. Indira Gandhi didn’t allow the private banks to nurture; she did the monetization of the Indian economy hence by stating that all the transactions have to be done by money. Overall, she created the world’s best banking infrastructure. Today India is the only country whose banks uses the highest level of technologies and implements the world’s best banking methodologies.
Mrs. Gandhi said that if money is to be put in a bank then the bank must be solid means that the people should trust the bank they are depositing their hard earned money in. People invest only if they are sure that at any time they need money the bank will surely return it back to them. Mrs. Gandhi lad the foundation of the banks in 1966-67, the infrastructure was such that if people do small savings they will be best benefited. E.g. “Kisan Vikas Yojna” it worked in the places where there were no banks, the postal services were there where you can save your money. At that point of time we had a saving rate of 23 per 100 whereas, US had 4 or 5 per 100.
The initial 25 years of independence it goes well but then something goes wrong. The inability or unwillingness of the political party fails to do something about the land reforms. In 1962, 65 & 71 we had to face wars and during war the whole economy of the country suffered and it went under a massive turbulence. The bottleneck was energy crisis which led to the major setback of the Indian economy and created a slowdown.
From 1973-1980 was a period of political uncertainty we were growing at about 2.2%, which literally means that we were under recession as decided by the IMF (International Monetary Fund) that if a country grows less than the rate of 3% it is undergoing recession, where people do not have any money to spend. As a result of which the poor were malnourished, possessed no education and were illiterate, hence the people began to migrate for better opportunities and the rural poverty converted into urban poverty, which implies reduction in power and energy crisis that further led to violence.
The solution to this was either cerate economic opportunities or infrastructure. But as the political parties were unstable and unwilling, we were also facing the policy crisis. Summing it up in 1980’s we’ve a full grown crises that encapsulate four major sectors:-
- Poverty
- Unemployment
- Semi-Employed
- Disguised unemployment – e.g. working on a farm that does not add to productivity.
In 1984, Rajiv Gandhi starts to thinking about what comes next and plans accordingly for the upcoming situations. He interpreted that India has missed its technology and agriculture revolution but on the other hand he thought that India will be able to achieve the “information revolution” which encompasses the new areas of knowledge, as a result of which computers education and systems were injected into the course curriculum of the IIT’s. Rajiv Gandhi pushed these areas of Information Technology in our daily lives. He said that “we become familiar with technology only if we use it”.
The idea of rural telephony and mass telephony increased which was a major increase in technology or paradigm. Now phone has become accessible to everyone and we can make PP call (Particular Person) or a trunk call. But his success was very short lasting, people used to think that technology and computers is bad for the economy as it causes unemployment. They didn’t saw that if 10 people were being unemployed by a bank but it gave one employment to manage the system and that system was more efficient and fast then the ten men.
In 1991 under the PM command of Pamulaparthi Venkata Narasimha Rao the country was bankrupt we cannot pay for the food grains, technology, foreign goods, etc. At that point of time 300 ton of gold was literally traded for our survival. And now India’s story of Liberalization begins… PV Narasimha Rao was also the industries minister at that time. In 1991 when the budget was announced, on the same day in the evening the Industrial policy was also declared.
It was decided that now we were a mature economy and government must withdraw helping the economy to some extent e.g. hotel sector, tractors, watches, etc. Now was the time to allow the private enterprises to enter the scenario hence by creating space for them, the government should start evacuating the non-core areas. As a result of which the government should set off and start selling its assets to the private players. The government disinvests but it retains its control over them e.g. Steel Authority of India issued the shares to get fresh capital.
People began to invest in shares to earn long term profits simultaneously the public enterprises also started looking at profits and acquired a new style of management. Public Enterprises were sold off to fuel their growth. Large public enterprises like the ONGC were not financed by the government anymore, overall the whole outlook of the public business started to change.
Deregulation was done by the government meaning that if anyone who has money can start up an industry, but on one case that you will not compete with the government in that area. Import of machinery was tied up with export i.e. government can import machinery of same amount as you can export. Hence, a lot of industries flourished after 1991.
Before 1991 we were only allowed to legally buy 100$ if we wanted to go abroad as a result the black market or the NRI money in filtered, but the government said “NO” and now there is no black market for dollars in the country as there is no limit to the purchase of dollars. The government also started receiving lot of money from deregulation.
Government said that you can make people honest only when you have a rationale tax structure. It is estimated that in 2012 the process of rationalizing the tax structure would be complete and therefore all the black money will become unavailable. There was a time when the tax was 79% of the income and today it is a maximum of 30% in 2010. To reduce the consumption of black money the government issues PAN cards, which means that if you have to receive an official payment you cannot receive them without an official PAN card number.
Indirect taxes like octrai; VAT, etc are also being rationalized now. So, from 2012 there will be no excitement in the budget because everything would be known for the next 10 years and will show a moderate difference. As a result of which the corporate will be able to plan for the next 5-7 years in advance. It would be more convenient to people to save and invest for their 25 to 30 years of service.
The future perception of the economy is that in another 10 years the private sector will be allowed to operate a nuclear plant, e.g. France. Our idea is that the private sector would hold the country to ransom. Even now we can see that the Delhi metro, Mumbai metro, Ahmedabad metro will be done by public-private partnership, even the ports are handed to the private players e.g. Adani created its own port for doing larger and more profitable business through import and export.
Today people are giving money to buy shares form which the government builds infrastructure and for building infrastructure cement, heavy machinery, steel, etc are needed, as a result of which all the industries start doing better which means greater employment and employment will generate purchasing power to people.
Also we can see year by year the tax is lessening which would mean that we would have more disposable income and if we invest the money goes to the industries for expenditure again. As a result of which the infrastructure starts building up. Hence we can conclude that the vicious cycle continues. In the next ten years it is estimated that 300 new airports will be built as the expansion of infrastructure is taking place rapidly. The government has everything planned for our present and future.
Government brought out many financial infrastructure reforms by making the day to day financial operations of the banks more transparent. It incorporated the functionality of the “CRR” cash reserve ratio. E.g. if ICICI has 10,000 core , it will become profitable if it gives out some money but at the same time it has to reserve some money thus the people could withdraw. Greater the CRR will mean more profits to the bank and more liquidity in the market i.e. more money to give out to industries.
Rajiv Gandhi said that banks need to computerized and integrated now. Hence his concept of the new information age has come true and now we have all the inter-banking operations that are purely computerized or technology driven. Now all the banks and branches are networked through a purely transparent system, we can withdraw money anywhere and at any time. The entire concept is to speed up the flow of money such that the economy works faster, thereby reforming the financial sector.
The RBI plays a major role in managing day to day operations of banking. The three basic objectives of RBI are:-
1. Controlling inflation
2. Encouraging Growth
3. Maintaining Financial Stability
Government has started reducing the workload and giving it to the experts, hence ensuring long term gains and profits. Today, except on food items our inflation is zero. It was estimated that more men would go out to work, the less children they will have as a result of which women will get a chance to participate in the economy, thereby increasing the age of marriage and lessening the reproduction rate in India.
Earlier it was seen that the growth of reproduction was more then the growth of economy, now the situation is reversed. The economy is growing at the rate of 8% to 9% and the reproduction rate is 1% to 2%. Overall a good economy gives its citizens an assurance of the basic necessities of life that are food, clothing and shelter.
At the end the final result is that we are growing fabulously and India’s economy will be one of the best economies of the world and will continue to grow for the next 15 to 20 years.
Mr. Gurucharan Das (former CEO of P&G) has said "The economists have been trying to paint stripes on India since 1991 but they don't realize that India will never be a tiger. It is an elephant that has begun to lumber and move ahead. It will never have speed but it will always have stamina. The elephant is the wisest of all the animals, the only one who remembers its former lives and remains motionless for long periods of time meditating thereon".
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