Model Answer
0 min readIntroduction
India’s economic history is often characterized by a shift from a predominantly agrarian economy to a more diversified one. Prior to the 1980s, India followed a largely inward-looking, socialist-inspired economic model characterized by extensive state control, import substitution, and a relatively slow growth rate – often termed the ‘Hindu rate of growth’. The 1980s witnessed a period of incremental reforms and a noticeable, though debated, change in economic performance. This answer will analyze whether the changes observed in GDP growth and sectoral composition during the 1980s constituted a ‘major break’ from the preceding decades, examining the evidence for and against this assertion.
Pre-1980s Economic Scenario
Before the 1980s, India’s economic growth averaged around 3.5% per annum, a rate often referred to as the ‘Hindu rate of growth’ (coined by economist Raj Krishna). This slow growth was attributed to several factors, including:
- Extensive State Control: A large public sector dominated key industries, stifling private initiative.
- Import Substitution Industrialization (ISI): High tariffs and quotas protected domestic industries but led to inefficiency and a lack of competitiveness.
- Land Reforms: Incomplete and often ineffective land reforms hindered agricultural productivity.
- License Raj: A complex system of licenses and permits required for starting and expanding businesses created bureaucratic hurdles.
Sectorally, agriculture dominated the economy, contributing around 50-60% to GDP. The industrial sector remained relatively small, around 20-25%, and the services sector was even smaller, contributing less than 15% to GDP.
The 1980s: Changes in GDP Growth
The 1980s saw a modest acceleration in GDP growth, averaging around 5.6% per annum. This was a significant increase compared to the previous three decades. Several factors contributed to this:
- Incremental Reforms: The Indira Gandhi and Rajiv Gandhi governments initiated some limited economic reforms, including deregulation of certain industries, promotion of exports, and relaxation of some licensing requirements.
- Increased Public Investment: Increased public investment in infrastructure, particularly in irrigation and power, boosted agricultural and industrial production.
- Remittances: Increased remittances from Indians working abroad contributed to domestic demand.
- Green Revolution’s Continued Impact: The benefits of the Green Revolution continued to be realized, boosting agricultural output.
However, it’s crucial to note that this growth was not sustained and was accompanied by rising fiscal deficits and a balance of payments crisis towards the end of the decade (1991).
Changes in Sectoral Composition
The 1980s also witnessed a subtle shift in the sectoral composition of the Indian economy:
- Agriculture: Agriculture’s contribution to GDP declined slightly, from around 60% in the early 1980s to around 55% by the end of the decade.
- Industry: The industrial sector experienced a modest increase in its share of GDP, rising from around 20% to around 25%.
- Services: The services sector saw the most significant relative increase, growing from less than 15% to around 20% of GDP. This growth was driven by sectors like finance, transportation, and communication.
The table below summarizes the sectoral contribution to GDP:
| Sector | 1980-81 | 1989-90 |
|---|---|---|
| Agriculture | 59.6% | 55.4% |
| Industry | 21.3% | 24.6% |
| Services | 19.1% | 20.0% |
Was it a ‘Major Break’?
While the 1980s saw improvements in GDP growth and a shift in sectoral composition, whether this constituted a ‘major break’ is debatable. Arguments against it being a major break include:
- Incremental Reforms: The reforms undertaken were limited in scope and did not fundamentally alter the structure of the Indian economy.
- Unsustainable Growth: The growth experienced was not sustainable, as evidenced by the balance of payments crisis in 1991.
- Continued State Control: The state continued to play a dominant role in the economy, and the private sector remained heavily regulated.
However, arguments supporting the idea of a ‘major break’ include:
- Shift in Policy Thinking: The 1980s witnessed a gradual shift in policy thinking towards greater liberalization and market orientation.
- Emergence of the Services Sector: The growth of the services sector laid the foundation for its dominance in the post-1991 era.
- Increased Industrial Production: The modest increase in industrial production signaled a potential for future growth.
Ultimately, the 1980s can be seen as a transitional period, laying the groundwork for the more significant economic reforms of 1991. It was a period of acceleration, but not a fundamental rupture with the past.
Conclusion
In conclusion, while the 1980s did witness a noticeable increase in GDP growth and a subtle shift in sectoral composition, it’s difficult to characterize this as a ‘major break’ in India’s economic trajectory. The reforms were incremental, the growth unsustainable, and the fundamental structure of the economy remained largely unchanged. However, the decade did represent a crucial turning point, signaling a shift in policy thinking and laying the foundation for the more comprehensive reforms that followed in 1991, ultimately paving the way for India’s economic liberalization and faster growth.
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.