Model Answer
0 min readIntroduction
Real per capita income is a crucial indicator of a nation’s economic well-being, reflecting the average income earned by each individual after adjusting for inflation. In the Indian context, tracing its growth in the pre-liberalisation period (before 1991) is complex due to limited data availability and the interplay of a rapidly growing population and a relatively slow-growing national income. This period witnessed a shift from a largely agrarian economy to a mixed economy with a significant role for the public sector, guided by five-year plans aimed at achieving self-reliance and social justice. Understanding this trajectory is vital for comprehending India’s subsequent economic reforms.
Pre-Independence Period (Before 1947)
Data for this period is scarce and largely based on estimates. Per capita income was extremely low, estimated at around ₹700 per annum in 1946 (at 1946 prices). The economy was primarily agrarian, characterized by low productivity, frequent famines (Bengal famine of 1943), and limited industrial development. British economic policies, focused on de-industrialization and resource extraction, hindered economic growth. Population growth, though lower than later periods, outpaced the growth in national income, resulting in stagnant or declining per capita income.
Post-Independence – Initial Phase (1947-1950)
The immediate post-independence period was marked by partition-related disruptions and the integration of princely states. Initial efforts focused on establishing basic infrastructure and addressing food shortages. The First Five-Year Plan (1951-56) prioritized irrigation and power projects. While national income began to grow, population growth remained a significant challenge, limiting the increase in per capita income.
The Planning Era (1951-1980)
This period saw a strong emphasis on planned economic development, with the public sector playing a dominant role. Key features included:
- Second Five-Year Plan (1956-61): Focused on industrialization, particularly heavy industries, based on the Mahalanobis model. Initial success, but led to imbalances.
- Third Five-Year Plan (1961-66): Aimed at achieving self-sufficiency in food grains. Disrupted by the Indo-Pak war of 1965 and droughts.
- Plan Holiday (1966-69): Due to political instability and economic challenges. Annual plans were adopted.
- Fourth Five-Year Plan (1969-74): Focused on ‘Garibi Hatao’ (poverty eradication) and industrial growth. Nationalization of banks occurred during this period.
- Fifth Five-Year Plan (1974-79): Emphasis on self-reliance, poverty reduction, and industrial development.
Despite these plans, the growth rate of per capita income remained modest, averaging around 1.3% per annum during 1950-80. Population growth consistently outstripped income growth, leading to a slow improvement in living standards. The ‘Hindu rate of growth’ – a term coined by economist Raj Krishna – characterized this period, signifying a low annual growth rate of around 3.5% for the economy as a whole.
The 1980s – A Period of Acceleration
The 1980s witnessed a slight acceleration in economic growth, with per capita income growth averaging around 2.2% per annum. This was driven by factors such as increased investment, improved agricultural production, and a relaxation of some economic controls. However, this growth was also accompanied by rising fiscal deficits and balance of payments problems. The Sixth Five-Year Plan (1980-85) and Seventh Five-Year Plan (1985-90) focused on modernization and technological advancements. Despite improvements, the economy remained vulnerable to external shocks and internal imbalances.
| Period | Average Annual Growth of National Income (%) | Average Annual Population Growth (%) | Average Annual Growth of Real Per Capita Income (%) |
|---|---|---|---|
| 1950-1960 | 3.7 | 2.1 | 1.6 |
| 1960-1970 | 3.1 | 2.5 | 0.6 |
| 1970-1980 | 3.5 | 2.4 | 1.1 |
| 1980-1990 | 5.6 | 2.2 | 3.4 |
Conclusion
The growth of real per capita income in India during the pre-liberalisation period was characterized by slow and uneven progress. While national income did increase over time, it was consistently overshadowed by rapid population growth, resulting in modest improvements in living standards. The emphasis on planned development and the public sector, while aiming for social justice and self-reliance, often led to inefficiencies and constraints on economic dynamism. The 1980s showed some acceleration, but underlying vulnerabilities remained, paving the way for the economic reforms of 1991.
Answer Length
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