India has a mixed economy in which both the central and state governments pay a leading role—as regulators, planners, and through ownership of public enterprises. Large-scale government involvement in the economy began in the 1950s as a reflection of nationalism and of the socialism of the first post-independence government led by Jawaharlal Nehru—and with the aim of speeding up economic development and growth to meet the needs of India’s rapidly growing population. The first of India’s five-year economic plans was launched in 1951. During the decades that followed the state took over certain key sectors and invested heavily in others, while the private sector was subject to wide-ranging controls. Tariff, and other, barriers were erected to protect domestic industries, and various agrarian reform programmes were initiated.
The results were generally positive, especially when compared with many other developing countries. Economic growth, except during times of severe drought such as 1979 and 1987, was steady; it averaged 3.6 per cent a year in real terms (that is, after taking into account population growth) between 1965 and 1980, and more than 5 per cent a year during the 1980s. Inflation and the national debt were generally kept low. Agricultural output rose significantly and the spectre of mass famine was eliminated. The basis of a modern industrial state was laid. However, growth levels were still too low to have more than a marginal impact on the income of the majority of Indians. In 2004 India’s gross national product (GNP) was about US$673,205 million, giving an income per head of just US$730.
In addition, more than 60 per cent of under-fives were malnourished, while access to clean water and sanitation was still available only to a minority of the population. In 1991 P. V. Narasimha Rao became prime minister and instituted a significant change in economic policy.
Many of the controls over the private sector have been abolished and the state monopoly in certain areas, such as air transport, was loosened. The economy generally was opened up by the reduction of tariff controls and by the encouragement of foreign investment. These changes were partly brought about by the need to sustain higher growth rates. However, the government also needed to cut public spending and to reduce inflation, debt repayments, and the balance of payments deficit—which had all risen sharply as a result of problems created by the Gulf War and by government borrowing in the late 1980s. In 1991 and 1992 real economic growth dropped to 1.1 per cent; by 1996 it was above 6.5 per cent.
Changes at national level have also been reflected at state level. The states have significant control over internal policy and interpret national policy in different ways. Some, like West Bengal, have far greater government control of the economy than average; others, like Maharashtra, have traditionally been more market-oriented. Since 1991, however, almost all the states have opened their doors to foreign investment, reduced controls over the private sector, and allowed some privatization of state companies. Some states have been more successful in this regard. Five major states, which together constitute one third of India’s population—Andhra Pradesh, Gujarat, Karnataka, Maharashtra, and Tamil Nadu—have secured two thirds of private investment proposals since 1991 and 60 per cent of commercial bank credit. In contrast, seven states, which together constitute 55 per cent of the population, have secured only 30 per cent of private investment proposals during the same period. These are the states of Assam, Bihar, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, and West Bengal. This disparity may lead to instability in the future. In 2005 some 3.92 million tourists visited India, and spent an estimated US$5,926 million. "India" © Emmanuel BUCHOT, Encarta, Wikipedia
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