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UPSC MainsPSYCHOLOGY-PAPER-II201130 Marks
Q15.

Indicate the milestones in the story of development from the Nehruvian Model to the Liberalisation Model.

How to Approach

This question requires a historical tracing of India’s economic development models. The answer should chronologically outline the key features, successes, and failures of the Nehruvian model, the subsequent shifts towards liberalization, and the milestones achieved during each phase. Structure the answer by dividing it into distinct periods, highlighting the policy changes and their impact. Focus on the underlying philosophies driving each model and the socio-economic context. Include specific policies, five-year plans, and key events.

Model Answer

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Introduction

India’s economic journey since independence has been marked by a series of paradigm shifts, reflecting evolving ideologies and responses to internal and external challenges. Initially, a socialist-inspired Nehruvian model prioritized state-led industrialization and a mixed economy. This was followed by incremental reforms in the 1980s and a dramatic liberalization in 1991, triggered by a severe balance of payments crisis. Understanding these milestones is crucial for comprehending the current economic landscape and formulating effective policies for sustained growth and inclusive development. This answer will trace the evolution from the Nehruvian model to the liberalization model, highlighting the key turning points and their consequences.

The Nehruvian Model (1947-1960s)

The Nehruvian model, dominant in the initial decades after independence, was heavily influenced by socialist ideals and the experience of planned economies in the Soviet Union. Key features included:

  • State-led Industrialization: Emphasis on the public sector, particularly in core industries like steel, iron, and heavy machinery. The Industrial Policy Resolution of 1956 laid the foundation for this approach.
  • Five-Year Plans: Adoption of a planned economy framework, with the First Five-Year Plan (1951-56) focusing on irrigation and power projects.
  • Import Substitution Industrialization (ISI): Protecting domestic industries through high tariffs and quotas to reduce reliance on imports.
  • Land Reforms: Attempts to redistribute land ownership to address agrarian inequalities, though implementation was uneven.

Successes: Establishment of a strong industrial base, development of scientific and technological institutions (like the IITs), and improvements in literacy and healthcare.

Failures: Slow economic growth (the ‘Hindu rate of growth’ of around 3.5% per annum), bureaucratic inefficiencies, lack of competition, and limited foreign investment.

The Period of Incremental Reforms (1970s-1980s)

The 1970s witnessed a growing realization of the limitations of the Nehruvian model. While a complete overhaul wasn’t undertaken, incremental reforms were introduced:

  • Nationalization of Banks (1969 & 1980): Aimed at directing credit towards priority sectors like agriculture and small-scale industries.
  • De-licensing: Gradual removal of licensing requirements for certain industries to encourage private sector participation.
  • Foreign Exchange Regulation Act (FERA) (1973): Initially intended to regulate foreign exchange, it became restrictive and discouraged foreign investment.
  • Emphasis on Poverty Alleviation: Programs like the Integrated Rural Development Programme (IRDP) were launched to address rural poverty.

Successes: Increased agricultural production (Green Revolution), expansion of the public sector, and some improvements in social indicators.

Failures: Continued slow growth, rising fiscal deficits, and increasing external debt. The FERA proved counterproductive in attracting foreign capital.

The Liberalization Model (1991-Present)

The severe balance of payments crisis in 1991 forced India to undertake comprehensive economic reforms, marking a decisive shift towards liberalization. Key milestones include:

  • Dismantling of the License Raj: Abolition of most industrial licensing requirements, significantly reducing bureaucratic hurdles.
  • Privatization: Disinvestment in public sector undertakings (PSUs) to improve efficiency and generate revenue.
  • Opening up to Foreign Investment: Relaxing restrictions on foreign direct investment (FDI) and portfolio investment.
  • Trade Liberalization: Reduction of tariffs and removal of quantitative restrictions on imports.
  • Exchange Rate Reforms: Adoption of a market-determined exchange rate system.
  • Fiscal Consolidation: Measures to reduce fiscal deficits and control inflation.

Successes: Accelerated economic growth (averaging around 7-8% in the 2000s), increased foreign investment, expansion of the private sector, and improved consumer choice.

Challenges: Rising income inequality, regional disparities, environmental degradation, and the need for further reforms in areas like land acquisition and labor laws.

A Comparative Overview

Feature Nehruvian Model Incremental Reforms Liberalization Model
Role of State Dominant Significant Reduced, Regulatory
Private Sector Limited Gradually Expanded Promoted
Foreign Investment Restricted Cautious Encouraged
Trade Policy Import Substitution Mixed Trade Liberalization
Growth Rate 3.5% (Hindu Rate of Growth) Around 4-5% 7-8% (post-2000s)

Conclusion

The journey from the Nehruvian model to liberalization represents a significant transformation in India’s economic philosophy and policy framework. While the Nehruvian model laid the foundation for industrial development, its limitations necessitated a shift towards a more market-oriented approach. The liberalization reforms unleashed India’s economic potential, leading to sustained growth and global integration. However, addressing the challenges of inequality, sustainability, and inclusive growth remains crucial for ensuring that the benefits of economic development are shared by all sections of society. Future reforms must focus on strengthening institutions, improving governance, and fostering innovation to propel India towards a more prosperous and equitable future.

Answer Length

This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.

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Additional Resources

Key Definitions

Import Substitution Industrialization (ISI)
A trade strategy employed by developing countries to encourage domestic production by imposing tariffs and quotas on imported goods, aiming to reduce reliance on foreign suppliers.
Fiscal Deficit
The difference between the government's total revenue and its total expenditure. A high fiscal deficit can lead to inflation and increased debt.

Key Statistics

India's GDP growth rate increased from an average of 3.5% during the Nehruvian era to over 8% in the 2000s following liberalization.

Source: World Bank Data (as of knowledge cutoff - 2023)

FDI inflows into India increased from $0.2 billion in 1991 to over $80 billion in 2022-23 following liberalization.

Source: Department for Promotion of Industry and Internal Trade (DPIIT), Government of India (as of knowledge cutoff - 2023)

Examples

The Maruti Udyog Limited

Initially established as a joint venture with Suzuki in 1981, Maruti Udyog Limited exemplifies the shift towards greater private sector participation and foreign collaboration during the incremental reforms period. It later became a symbol of the success of liberalization after privatization.

Frequently Asked Questions

▶Was the Nehruvian model entirely unsuccessful?

No, the Nehruvian model was not entirely unsuccessful. It laid the foundation for a diversified industrial base, established key scientific and technological institutions, and promoted social development. However, its limitations in terms of growth, efficiency, and innovation became apparent over time.

Topics Covered

EconomyHistoryPublic AdministrationEconomic PlanningEconomic ReformsGlobalization
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